McDonald’s Sells 80% Interest to China to Avoid Trump’s, Chinese PunishmentPosted: January 18, 2017
According to Reuters’ report McDonald’s has sold most of its business in China to CITIC, Carlyle for $2.1 billion” on January 9, it did so in order to expand instead of leaves China. By the sale, it draws in Chinese giant CITIC to set up 1,500 more restaurants in China in five years in addition to its existing 2,400 in China.
The new restaurants will create lots of jobs in China. Will that upset US new president Donald Trump? Perhaps! Better shifting the blame on CITIC a Chinese firm that now holds majority interest of McDonald’s in China.
Moreover, even if Trump will not punish McDonald, McDonald still may be in serious trouble as a trade war is looming between the US and China. Making things difficult for US business interests in China is China’s powerful weapon of retaliation at US attacks such as tariff increase and restriction of Chinese investment in the US.
The sale has turned McDonald’s’ interest in China into a Chinese one to ensure it will not be in any trouble in the trade war.
McDonald’s does have vision.
Reuters says in its another report titled “U.S. companies have new business risk – being labeled ‘anti-American’ by Trump” on January 10, “Some U.S. companies are reviewing potential mergers while others are rethinking job cuts or looking at their manufacturing operations in China for fear of being cast as “anti-American” by President-elect Donald Trump, according to Wall Street bankers, company executives and crisis management consultants.”
McDonald’s has set a wise example for the US companies that have interests in China to avoid trouble.
Comments by Chan Kai Yee on Reuters’ report, full text of which is reblogged below:
McDonald’s sells most of China, HK business to CITIC, Carlyle for $2.1 billion
By Elzio Barreto | HONG KONG Mon Jan 9, 2017 | 11:44am EST
McDonald’s Corp (MCD.N) has agreed to sell the bulk of its China and Hong Kong business to state-backed conglomerate CITIC Ltd (0267.HK) and Carlyle Group LP (CG.O) for up to $2.1 billion, seeking to expand rapidly without using much of its own capital.
The 20-year deal caps months of negotiations between the fast-food chain, private equity firms including Carlyle and TPG Capital Management LP [TPG.UL] as well as several Chinese suitors.
The U.S. fast food chain said local partners will help speed up growth in the world’s No. 2 economy through new restaurant openings, particularly in smaller cities that are expected to benefit from increased urbanization and income growth.
“McDonald’s globally overall is struggling and didn’t have the money or intellectual resources to focus on China,” said Shaun Rein, managing director at China Market Research Group.
The company has more than 2,400 restaurants in mainland China and roughly 240 in Hong Kong. The new partnership plans to add 1,500 in the two areas over the next five years.
Under the deal, Hong Kong-listed CITIC Ltd will own about 32 percent of the business, with CITIC Capital, an affiliate company that manages private equity funds and other alternative assets, holding another 20 percent.
Carlyle will control 28 percent of the business, while McDonald’s will retain a 20 percent stake, the companies said in a statement. The deal will be settled in cash and in shares in the new company that will act as the master franchisee for the 20-year period.
McDonald’s originally wanted to raise up to $3 billion from the sale of the business, but later decided to keep a minority stake to benefit from exposure to future growth in China, a person with direct knowledge of the plans previously told Reuters.
The partnership will also aim to boost sales at existing restaurants, with menu innovation a key focus. Fast-food firms including McDonald’s and Yum Brands Inc (YUM.N) are recovering from a series of food-supply scandals in China that have undermined their performance.
“I’m not sure how much more you can do with McDonald’s in China. They’re a well-run company, so I’m not sure that CITIC and Carlyle are able to add that much more aside from capital,” Rein said.
McDonald’s said in March it was reorganizing operations in the region, looking for strategic partners in China, Hong Kong and South Korea. The company later decided to keep its South Korea business.
Other companies that had bid for the China and Hong Kong assets included TPG, which teamed up with mini-market operator Wumart Stores Inc, and real estate firm Sanpower Group Co Ltd [SPGCL.UL], which owns British department store House of Fraser Ltd [HFPLC.UL], sources have said.
JPMorgan Securities is advising the buyer group, while CITIC Ltd also said it hired CITIC CLSA Capital Markets as its financial adviser and CITIC Securities as financial adviser in China. McDonald’s hired Morgan Stanley (MS.N) to run the sale.
(Reporting by Elzio Barreto; Additional reporting by Jessica Yu and Donny Kwok in Hong Kong and Rushil Dutta in Bengaluru; Editing by Edwina Gibbs)