McDonald’s Sells Majority of Hong Kong and China Business

McDonald’s Corp agreed on Monday to sell the bulk of its Hong Kong and China business to CITIC Ltd, a conglomerate that is state supported and Carlyle Group LP for $2.1 billion, as it seeks to expand quickly without using that much of its capital.

The deal for 20 years caps a negotiation of months between private equity companies such as Carlyle and TPG Capital Management, McDonald’s and a number of other suitors in China.

The fast food giant based in the U.S. said its local partners would help increase the speed of its growth in the No. 2 economy in the world through new openings of restaurants, particularly in cities that are small that should benefit from more urbanization and growth in income.

Overall, McDonald’s globally is struggling and did not have either the money nor the intellectual resources needed to focus on China, says a director of a research consultancy in Hong Kong.

McDonald’s has over 2,400 restaurants on China’s mainland and about 240 located in just Hong Kong. This new partnership will add 1,500 new restaurants in two regions over the upcoming five years.

Under this deal, CITIC Ltd, which is listed in Hong Kong, will have ownership of 32% of the company, with CITIC Capital, which is an affiliate that manages equity funds holding 20%.

Carlyle controls 28% and McDonalds 20%, said the companies in their joint statement.

This deal is to be settled with cash and shares in the new business that will be the master franchise for the period of 20 years.

Originally, McDonald’s had wanted $3 billion from its sale of its business, but decided later to maintain this minority share of 20% to benefit from future growth.

This partnership aims to increase sales at McDonald’s existing restaurants, with innovation to the menu being a key focus. Companies in the fast food industry including McDonald’s and competitor YUM Brands are going through a recovery from a number of scandals related to food supply in China that undermined performance.

McDonald’s stated back in March of 2016 that it was going through a reorganization of its operations across the region, by searching in China, South Korea and Hong Kong for strategic partners.

Later during the year, the company made the decision to keep its business in South Korea.

Other companies, which bid for the Hong Kong and China assets were TPG and Sanpower Group, which is the owner of House of Fraser a British department store.