McDonald's sells HK and China operations for $16bn in franchise deal

McDonald's today announced that it will add more than 1,500 restaurants in China and Hong Kong over the next five years, following a US$2.08 billion (about HK$16.14 billion) deal with CITIC Limited, CITIC Capital Holdings and The Carlyle Group.

According to Phyllis Cheung, McDonald's chief executive officer in China, the deal will give CITIC and CITIC Capital, the Beijing-based conglomerate, a controlling stake of 52% in the new entity, while US buyout firm Carlyle and McDonald's will have interests of 28% and 20%, respectively. CITIC, CITIC Capital and Carlyle will run McDonald's China operations for the next 20 years.

Following the new deal, McDonald's will re-franchise all its more than 2,600 stores in mainland China and Hong Kong to improve sales performances, a major step towards cutting costs globally. It will leverage CITIC Capital's strategic tie with SF Express and Tencent Group Holdings to facilitate delivery, enhanced restaurant convenience, retail digital leadership and menu innovation, Cheng told China Daily.

The new partnership will also look into new restaurant openings, particularly in tier three and four cities.

"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," said McDonald's CEO Steve Easterbrook in a statement.

Early in September 2016, there were rumours that Carlyle and TPG Capital had teamed up with CITIC Group and Beijing Capital Agribusiness Group seperately to bid for McDonald’s outlets in Hong Kong and China. Beijing Capital Agribusiness is McDonald’s current China partner.

The buyout will be settled with cash and new shares in the company issued to McDonald's, and is expected to be finalised in mid-2017.