McDonald’s will divest its business in China and Hong Kong to a new company – a joint venture between itself, Chinese conglomerate Citic, Citic Capital Holdings, and asset management group Carlyle.
The new company will be the master franchisee of McDonald’s businesses in both mainland China and Hong Kong for the next 20 years, making it the largest McDonald’s franchisee outside the US.
Following completion, Citic and Citic Capital will have a controlling stake of 52%, while Carlyle and McDonald’s will have interests of 28% and 20% respectively. The total consideration being paid as part of the divestment is worth $2.08 billion.
The partnership will ‘accelerate growth in McDonald’s business’ through new restaurant openings in medium-to-small-sized cities in China. It will also seek to improve its current sales performance in existing McDonald’s restaurants by focusing on menu innovation, enhanced restaurant convenience, retail digital leadership and delivery.
In total, the joint venture intends to add over 1,500 restaurants in China and Hong Kong over the next five years.
The divestment will offer a response to the news that Yum! Brands is spinning off its business in China – including Taco Bell, Pizza Hut and China’s largest quick-service restaurant chain, KFC – to form a new business.
McDonald’s CEO Steve Easterbrook said: “China and Hong Kong represent an enormous growth opportunity for McDonald’s. This new partnership will combine one of the world’s most powerful brands and our unparalleled quality standards with partners who have an unmatched understanding of the local markets and bring enhanced capabilities and new partnerships, all with a proven record of success. By working together, we will unlock even faster growth and be closer to the customers and communities we serve as McDonald’s works to be the leading Quick Service Restaurant across the Chinese mainland and Hong Kong.”
For Citic, this investment offers a chance to deepen its exposure to the consumer sector, which is poised to be the main driver of China’s economy for several decades to come. Extensive urbanisation, an expanding middle class and increases to disposable household incomes have contributed to the continued and rapid growth of the country’s consumer goods sector.
Citic chairman Chang Zhenmina said: “We believe Citic’s unique platform and its extensive resources will enable us to help realise McDonald’s full potential in China. Together with our partners, we will devote ourselves to continue upholding McDonald’s extremely high standards of food quality and service. Importantly, this is also a strategic opportunity for Citic to invest in the expanding Chinese consumer sector. McDonald’s extensive network and consumer base will provide us with invaluable insights, which we will leverage to the benefit of our existing businesses.”
Carlyle Group’s managing director and co-head of the Asia buyout team, X D Yang, added: “Carlyle and Citic have a strong history of partnering together. Today, we are pleased to cooperate with CITIC again, alongside McDonald’s, on one of our largest deals in China. This substantial investment demonstrates our confidence in the strength of the Chinese consumer.”
The Carlyle Group has invested more than $7 billion of equity in over 90 transactions in China.
As part of its turnaround plan announced in May of 2015, McDonald’s committed to refranchising 4,000 restaurants by the end of 2018, with the long-term goal of becoming 95% franchised. As a result of this transaction, McDonald’s is refranchising more than 1,750 company-owned stores in China and Hong Kong.
As of 31 December 2016, McDonald’s operates and franchises over 2,400 restaurants in mainland China and more than 240 restaurants in Hong Kong.
The divestment of its Chinese and Hong Kong operations is expected to close in the middle of the year.
© FoodBev Media Ltd 2017