McDonald’s Dumps 80% of China Operations

By Douglas A. McIntyre Updated Jan 12, 4:03PM EST · Published Jan 9, 6:35AM EST

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McDonald’s Dumps 80% of China Operations — © Thinkstock

[cnxvideo id=”508885″ placement=”ros”]McDonald’s Corp. (NYSE: MCD) must be very unhappy with its China business. It has sold 80% of its operations there to two financial firms. The reasons for the decision were not very well articulated.

According to the fast-food company:

CITIC Capital Holdings, Carlyle Group, and today announced a strategic partnership And set up a new company, the company will become McDonald’s in the next two decades in mainland China and Hong Kong’s main franchisee.

The new company will be up to 2.08 billion US dollars (about 16.14 billion Hong Kong dollars) of the total consideration of the McDonald’s in the Chinese mainland and Hong Kong business. The consideration for the Acquisition will be settled in cash and in part by the issue of new shares to McDonald’s. After completion of the transaction, CITIC shares and CITIC Capital in the new company will hold a total of 52% of the controlling interest, Carlyle and McDonald’s were held 28% and 20% of the shares.

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McDonald’s said the deal would help it enhance its growth in China. However, with its balance sheet and global brand strength, McDonald’s ought to be able to accomplish that on its own. The America-based public corporation said the deal would help it expand into “third and fourth tier cities.” This is part of a strategic program for McDonald’s to add 1,500 locations in China and Hong Kong over the next five years. The company says most of its locations eventually will be franchises, a strategy McDonald’s uses elsewhere.

Among McDonald’s challenges is that it has saturated the U.S. market and struggles to improve same-store sales, which were only 1.3% higher in the third quarter.

It remains to be seen if this kind of regional joint venture will do McDonald’s any good. It does need to jump-start its overseas business, as competition in its home market makes growth less likely.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.