Editor’s Note: McDonald’s has sold the majority stake of its chains in Hong Kong and China to the Citic Capital and The Carlyle Group. While the fast food giant still holds a 20 percent stake in its Chinese operations, it will be interesting to see if any big changes will come with the change in ownership.
McDonald’s has sold most of its holdings in China and Hong Kong. Chinese firm Citic Capital and U.S. private equity firm The Carlyle Group have signed an agreement with the fast food giant in a deal worth $2.08 billion (16.141 billion Hong Kong dollars). Citic now holds the majority stake in McDonald’s China and Hong Kong businesses and The Carlyle Group holds 28 percent stake. The three companies signed the agreement on January 9.
A $2 Billion Deal
When the acquisition is complete, McDonald’s China will be held by Fast Food Holdings Ltd., which holds a 61.54 percent interest in Citic and a 38.46 percent interest in Citic Capital. The Carlyle Group holds a 52 percent equity interest in Fast Food Holdings Ltd.
McDonald’s China will become an indirect, non-wholly owned subsidiary of Citic. Citic will hold a 32 percent stake in the company in a deal worth $665.6 million (about 5.165 billion Hong Kong dollars). The contract between McDonald’s China, Citic and The Carlyle Group is valid for 20 years.
Representatives from Citic, Citic Capital, and The Carlyle Group will sit on the board of McDonald’s China. The existing management team from McDonald’s China will remain in their positions after the company was acquired.
J.P. Morgan Securities (Asia Pacific) acted as the financial advisor to Citic and The Carlyle Group during the acquisition.
Citic is one of the largest integrated firms in China, and is one of the main stocks on the Hang Seng Index. The company covers finance, resources and energy, manufacturing, engineering, real estate and other fields in China.
Room for Growth
As China continues to urbanize, the nation’s middle class has continued to expand rapidly. Disposable income has increased in Chinese households and domestic consumption has grown rapidly. China’s employed population is greater than that of the United States and Europe. However, there is still a large gap in middle class consumption between China and more developed countries.
As disposable income grows in China, Chinese residents will continue to spend more on dining out. There is a lot of potential for growth in third and fourth tier cities. The market for Western-style fast food is expected to continue to grow rapidly.
Citic stated that consumer demand will becoming a major driving force of China’s future economic growth. McDonald’s huge network will contribute to Citic’s future development and growth.
In September 2016, McDonald’s fast food rival Yum! Brands Group sold Yum! China to Primavera Capital and Ant Financial for $460 million. Primavera Capital invested $410 million into Yum! China and Ant Financial invested $50 million. Primavera Capital founder Fred Hu now serves as the non-executive chairman of Yum! China’s board of directors.
In November 2016, Yum! China was listed as an independent company from Yum! Brands (YUM). Yum! China was listed independently on the New York Stock Exchange as YUMC.
Are Fast Food Chains Leaving China?
The creation of Yum! China and McDonald’s China may have caused other foreign fast food companies to panic about their own China holdings. Burger King is currently looking for suitable Chinese investors to “expand [the company’s] investment in China.”
McDonald’s has stressed that the creation of McDonald’s China is not about the company leaving the Chinese market. McDonald’s still holds a 20 percent stake in the new joint venture. This is a clear indication that McDonald’s is optimistic about the chain’s room for growth and future in China.
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Keywords: Citic Capital China McDonald’s China
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