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http://en.people.cn/n3/2017/0109/c90000-9164507.html
McDonald's sells China business to CITIC, Carlyle for $2bln
(China Daily) 13:54, January 09, 2017
One McDonald's store in China [File Photo: Baidu]
Another 1,500 McDonald's are set to open across the Chinese mainland and Hong Kong infive years under the largest franchise deal outside the US between the fast food giant and aconsortium led by CITIC and Carlyle Group.
McDonald's announced the Beijing-based conglomerate had won the franchise bid to run itsChina operations for the next 20 years on Monday.
The $2.08 billion deal will give CITIC and CITIC Capital a controlling stake of 52 percent inthe new entity, with US buyout firm Carlyle holding 28 percent and McDonald's 20 percentof shares, according to McDonald's chief executive officer in China, Phyllis Cheung.
With this transaction, McDonald is re-franchising all of its 2,600-plus stores in the Chinesemainland and Hong Kong, a major step towards turning around its fortunes in Asia andcutting costs globally.
The franchise model is an effective recipe that McDonald's believes can unlock growthpotential in China's 3rd and 4th tier cities through new restaurant openings, and improvingflagging performance in its existing stores.
"Financial strength is very important to accelerating openings in China. Besides, CITIC'sreal estate networks and strategic alliances with developers including Vanke and ChinaResources may potentially open up more opportunities," Cheung told China Daily inShanghai.
According to Cheng, the company will rely on the partners' "unmatched understanding ofthe local markets" to add another 1,500 stores across the region in five years. East andCentral China are less penetrated areas where Cheng sees more opportunities.
Menu innovation, restaurant convenience, retail digitalization and delivery services areamong the key areas of focus as the fast food chain tries hard to please China's growingmiddle class who are willing to pay a premium for high-quality food and service.
To this end, the company will leverage CITIC Capital's strategic tie with SF Express(Group) Co, the country's leading courier, and internet giant Tencent Group Holdings tofacilitate online-to-offline operations, Cheng said.
"McDonald's core business proposition and potential in China is clear," said Zhang Yichen,chairman and CEO of CITIC Capital, who will chair the new company.
"Expansion takes a lot of resources, including finding suitable locations, negotiating the rentand finding the right type of landlord. CITIC Bank's 1,400 branches across China would beable to better share resources and help the expansion," Zhang said.
In the current sale, McDonald's will maintain a foothold in the country through royaltypayments, fitting the corporation's asset-light strategy to slash operational costs andpreserve capital.
The buyout will be settled by cash and new shares in the company issued to McDonald's. Itis awaiting relevant regulatory approvals and is expected to be finalized in mid-2017.
As part of a turnaround plan announced in May 2015, McDonald's has a vision to re-franchise 4,000 restaurants by the end of 2018, with the long-term goal of 95 percentfranchised.
The move came two months after its archrival Yum Brands, the company behind KFC andPizza Hut, spun off its China business with an initial public offering to boost greater stabilityin earnings.
McDonald's sells China business to CITIC, Carlyle for $2bln
(China Daily) 13:54, January 09, 2017
One McDonald's store in China [File Photo: Baidu]
Another 1,500 McDonald's are set to open across the Chinese mainland and Hong Kong infive years under the largest franchise deal outside the US between the fast food giant and aconsortium led by CITIC and Carlyle Group.
McDonald's announced the Beijing-based conglomerate had won the franchise bid to run itsChina operations for the next 20 years on Monday.
The $2.08 billion deal will give CITIC and CITIC Capital a controlling stake of 52 percent inthe new entity, with US buyout firm Carlyle holding 28 percent and McDonald's 20 percentof shares, according to McDonald's chief executive officer in China, Phyllis Cheung.
With this transaction, McDonald is re-franchising all of its 2,600-plus stores in the Chinesemainland and Hong Kong, a major step towards turning around its fortunes in Asia andcutting costs globally.
The franchise model is an effective recipe that McDonald's believes can unlock growthpotential in China's 3rd and 4th tier cities through new restaurant openings, and improvingflagging performance in its existing stores.
"Financial strength is very important to accelerating openings in China. Besides, CITIC'sreal estate networks and strategic alliances with developers including Vanke and ChinaResources may potentially open up more opportunities," Cheung told China Daily inShanghai.
According to Cheng, the company will rely on the partners' "unmatched understanding ofthe local markets" to add another 1,500 stores across the region in five years. East andCentral China are less penetrated areas where Cheng sees more opportunities.
Menu innovation, restaurant convenience, retail digitalization and delivery services areamong the key areas of focus as the fast food chain tries hard to please China's growingmiddle class who are willing to pay a premium for high-quality food and service.
To this end, the company will leverage CITIC Capital's strategic tie with SF Express(Group) Co, the country's leading courier, and internet giant Tencent Group Holdings tofacilitate online-to-offline operations, Cheng said.
"McDonald's core business proposition and potential in China is clear," said Zhang Yichen,chairman and CEO of CITIC Capital, who will chair the new company.
"Expansion takes a lot of resources, including finding suitable locations, negotiating the rentand finding the right type of landlord. CITIC Bank's 1,400 branches across China would beable to better share resources and help the expansion," Zhang said.
In the current sale, McDonald's will maintain a foothold in the country through royaltypayments, fitting the corporation's asset-light strategy to slash operational costs andpreserve capital.
The buyout will be settled by cash and new shares in the company issued to McDonald's. Itis awaiting relevant regulatory approvals and is expected to be finalized in mid-2017.
As part of a turnaround plan announced in May 2015, McDonald's has a vision to re-franchise 4,000 restaurants by the end of 2018, with the long-term goal of 95 percentfranchised.
The move came two months after its archrival Yum Brands, the company behind KFC andPizza Hut, spun off its China business with an initial public offering to boost greater stabilityin earnings.
