As of today, McDonald's is left with only 20% of its total stake in the Chinese business as it sells the majority stake to the state-backed Chinese company Citic Ltd for as much as $1.7 billion.
Despite being one of the first Western fast food chains to enter the country, McDonald's (NYSE: McDonald's [MCD]) decided to stop fully operating its 2,400 store in mainland China and over 200 in Hong Kong by handing over the control to the large Chinese conglomerate. As a result of the $2.08 billion deal, the state-owned investment group Citic and an American private equity firm Carlyle Group will get an 80% stake in McDonald's Chinese business, with Citic controlling 52% of the company and Carlyle taking 28%, reported BBC.
“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 the statement.
Despite being one of the most famous brands, McDonald's suffers from a heavy competition from local rivals as well as such international chains as KFC and Pizza Hut that are operated by Yum China Holdings Inc. The Wall Street Journal explains that the deal comes as part of McDonald's restructuring plan that involves franchising a big portion of its stores in China and other countries. By doing so, the company gets a chance to promote the brand and still collect a part of sales while dramatically reducing the operating costs such as spendings on workforce and real estate.
“It’s going to be a commercially successful outcome for us. We won’t be putting capital into the market, but we will be part of the decision-making process,” continued Easterbrook.
Next to that, McDonald's CEO told the Wall Street Journal in an interview that the company had plans to franchise as many as 95% of its stores in the Asian market. Bloomberg added that the reason behind franchising the majority of the stores in the selected markets is declining traffic in McDonald's domestic market, the U.S.
The Chinese conglomerate Citic acquired franchise rights for McDonald's China business for the next 20 years and it plans to open at least 1,500 new branded restaurants in the country. However, Citic has no prior experience in operating a fast food chain, especially of the size of McDonald's, since its portfolio includes several domestic banks, a large energy company as well as a metal manufacturer.
McDonald's stock price has not significantly changed since the announcement.