McDonald’s Deal with China for Expansion of Franchise and Sales

With a vision of expanding its franchise to a greater extent as well as reducing the use of its own capital, McDonald’s has decided to sell the most of its business, i.e. 80%, in China and Hong Kong to CITIC and Carlyle. CITIC is a conglomerate investment group owned by China and Carlyle is a private US equity firm. After a long time-period of negotiations within the fast-food chains, equity firms like TPG Capital Management and Carlyle and various Chinese Suitors, a 20 year deal has been struck which would escalate the business to a whole new level. In China mainland, McDonald’s comprises of more than 2400 restaurants and about 240 restaurants in Hong Kong. After the deal, the newly formed alliance plans to install 1500 in Hong Kong and China in the next 5 years.

According to the deal, 32% of business will be owned by Hong Kong-listed CITIC Ltd. The new company will act as a master franchise for a period of 20 years, while the deal will be settled in shares and in cash. The business value, according to some private source not willing to be identified, reaches about US$2 billion including all debts as well.

The restaurant chains of US have seen themselves lead, even after being challenged by a series of growing competitors in Asia like Yum Brands Inc and Dicos eateries of Ting Hsin International Group. To benefit itself by the exposure of future growth in China, McDonald’s decided to retain a minority stake while in the beginning its idea was to raise up to US$3 billion from sale of business. Aim of the business is also to boost the sales at already existing restaurants by focusing on bringing an innovation in the menu. Trying to smoothen its global operations and by changing the ownership structure, McDonalds focusses on the franchising more. McDonald’s plays and efficient business strategy to expand its franchise as well blooming the sales wider, keeping the use of its capital to minimal.

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