On Monday, McDonald’s Corporation has agreed to sell majority of its businesses in Hong Kong and China to local conglomerates Citic Ltd. and Carlyle Group LP for $2.1 billion, with a goal to locally expand McDonald’s business in the region without the need to spend so much of its own capital.
Included on the deal, 32% of the business will be controlled by Hong Kong-listed CITIC Ltd, while CITIC Capital, another affiliate company that manages financial private equity funds and assets, will own 20%. 28% of the McDonald’s business will be held by Carlyle totaling to an 80% stake sale, and the remaining 20% stake will stay within the control of 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 enhances capabilities and new partnerships, all with a proven record of success,” stated McDonald’s CEO Steve Easterbrook.
According to reports, the agreement among the companies will be settled both in cash and shares from the new company that will serve as the new master franchisee for the planned 20-year period.
McDonalds’s sold majority of its business in these said regions in the hopes to strengthen and speed up the growth coming from local partners.
“McDonald’s globally overall is struggling and didn’t have the money or intellectual resources to focus on China,” said Shaun Rein, a managing director at a Chinese research group.
Initially, McDonald’s wanted the deal to reach $3 billion for sale of its stakes in China and Hong Kong, but was altered to a minority stake sale in order to benefit from the exposure of any future growth in China.
The partnership is aimed to boost sales growth for the company, as well as to generate as much profit for the 20-year franchise rights for the well-known brand.
It was mentioned that the new joint company is planning to focus on food and menu innovation as well as an improved restaurant convenience, while the existing management team from McDonald’s will continue to lead the business in the Asian regions.
Presently, McDonald’s has more than 2,400 restaurants in the mainland China and an additional 240 more in Hong Kong. With the completion of the deal, an additional 1,500 more restaurants are expected to be built in the two areas over the next five years, in addition to that, McDonald’s plans for a global reconstruction that is aimed at opening 4,000 additional restaurants by the end of 2018.
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