McDonald's Sells Majority Stake In China Business To Citic, Carlyle

(RTTNews) - Fast-food giant McDonald's Corp. (MCD) has agreed to sell a controlling stake in its mainland China and Hong Kong operations to a group of investors in a deal that would value the business at up to $2.08 billion.

Chinese state-owned conglomerate Citic Ltd, its investment-management arm Citic Capital Holdings and U.S. private equity giant Carlyle Group L.P. (CG) will buy up to an 80 percent stake in the business. McDonald's will retain the remaining 20 percent stake in its China business.

The acquisition consideration will be settled by cash and by new shares in the company issued to McDonald's. After completion of the transaction, Citic and Citic Capital will have a controlling stake of 52 percent in the business, while Carlyle and McDonald's will have interests of 28 percent and 20 percent, respectively.

The deal is expected to close in mid-2017. The new partnership will act as the master franchisee responsible for McDonald's businesses in mainland China and Hong Kong for a period of 20 years.

McDonald's has earlier said it plans to franchise most of its restaurants worldwide amid stiff competition from cheaper, local rivals. The move that will enable the fast-food giant to collect a portion of sales while reducing operating costs.

Upon completion of the transaction, the new company will have a board of directors with representatives from Citic, Citic Capital, Carlyle and McDonald's. The existing management team of McDonald's will continue to lead the business.

The partnership will use its combined expertise and resources to accelerate growth in McDonald's business through new restaurant openings, particularly in tier 3 and 4 cities, and to improve sales performance in existing restaurants.

It intends to add over 1,500 restaurants in China and Hong Kong over the next five years.

As part of its turnaround plan announced in May 2015, McDonald's is committed to refranchising 4,000 restaurants by the end of 2018 and has set a long-term goal of becoming 95 percent franchised.

As a result of Monday's transaction, McDonald's is refranchising more than 1,750 company-owned stores in China and Hong Kong. The company currently operates and franchises over 2,400 restaurants in mainland China and more than 240 restaurants in Hong Kong.

McDonald's is the second largest quick-service restaurant chain in China behind Yum! Brands Inc. (YUM) and the largest in Hong Kong.

In November 2016, Yum Brands said it has completed the separation of the Yum China Business into two independent, focused growth companies.

With the separation of the China business being completed, Yum China Holdings, Inc. will be a licensee of Yum! Brands in mainland China, with exclusive rights to KFC, Pizza Hut, and Taco Bell.

MCD closed Friday's trading at $120.76. In Monday's pre-market activity, the shares are adding $0.44 or 0.36 percent to $121.20.