McDonald’s sells Its China Business For $2.1 Billion

8 years ago - Published in Finance, Fundamental Analysis

Fast food chain McDonald’s is selling a majority stake in its China business, valuing the enterprise at up to $2.1 billion.

Chinese state-backed conglomerate Citic Ltd., Citic Capital Holdings and U.S. private-equity firm Carlyle Group LP will acquire an 80 percent holding in a deal valuing the business at as much as $2.08 billion, according to a statement Monday. Citic will own 52% of McDonald’s China operations, while Carlyle will own 28%.

The new partnership plans to add more than 1,500 locations in China over the next five years. McDonald’s currently has 2,400 locations in China and 240 locations in Hong Kong. Franchising allows it to take a slice of sales while cutting operating costs.

“China and Hong Kong represent an enormous growth opportunity for McDonald’s,” CEO Steve Easterbrook said in a statement. “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.”

In March last year, the firm said it was seeking partners to help it add more than 1,500 restaurants in China, Hong Kong and Korea over the next five years.

Yet McDonald’s is far behind Yum’s KFC in China, and hopes that this deal will spur development and growth there.

China is a vital global market, with the world’s largest population and a booming economy thanks to its growing middle class. The working population there is larger than that of the U.S. and Europe combined, though spending by the middle class there remains a small fraction of the size. McDonald’s is banking on that improving as disposable incomes rise.

Zhang Yichen, chairman and chief executive of CITIC Capital, will serve as chairman of the new venture. "McDonald's has strong growth potential in the Chinese market,” he said.

Morgan Stanley was sole adviser to McDonald’s, according to people familiar with the matter, while JPMorgan Chase & Co. advised the buyer consortium on the purchase.