CITIC, Carlyle in US$2 billion deal to expand McDonald's in China, Hong Kong

CITIC Limited, CITIC Capital Holdings, The Carlyle Group, and McDonald’s Corporation, have announced the formation of a US$2 billion franchise, the biggest outside the US, to expand its business in mainland China and Hong Kong as well as stave off competition.

The new company will act as the master franchisee responsible for McDonald’s businesses in mainland China and Hong Kong, for a term of 20 years. 

The total amount payable by the new company to acquire McDonald’s China and Hong Kong business is up to US$2.08 billion (HK$16.14 billion). The amount 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%; Carlyle will have an interest of 28%; and McDonalds will have a 20% stake. The board of directors will have representatives from all four companies. McDonald’s existing management team will continue to lead the business.

The partnership aims to accelerate growth in McDonald’s business through new restaurant openings, particularly in tier 3 and 4 cities. It intends to add over 1,500 restaurants in China and Hong Kong over the next five years.

In recent years, the US-based hamburger chain has seen increasingly intense competition from other local and foreign brands who have been expanding rapidly in China and Hong Kong's lucrative fastfood market.

McDonald’s chief executive officer, Steve Easterbrook said, “China and Hong Kong represent an enormous growth opportunity for McDonald’s.” McDonald’s will work “to be the leading Quick Service Restaurant across the Chinese mainland and Hong Kong”. It is currently the second largest in China and the largest in Hong Kong.

As part of its turnaround plan announced in May of 2015, McDonald’s committed to refranchising 4,000 restaurants by the end of 2018, with the long-term goal of becoming 95% franchised. As a result of this transaction, McDonald’s is refranchising more than 1,750 company owned stores in China and Hong Kong.

The deal is still contingent upon regulatory approval and is expected to close mid-2017.