Fashion
McDonald’s has downsized plans to sell parts of its Asia franchise after failing to find a suitable buyer in South Korea. The world’s largest fast-food retailer has a stringent list of terms for the deal, including keeping management and existing suppliers in place for a period of time in the hope of protecting the brand.
Potential buyers balked at those demands, and prompted the decision to cut the country out of the current deal, said two people close to the matter.
McDonald’s also plans to take a minority stake in the sale of the franchise in China and Hong Kong of up to 25 per cent, in an attempt to exercise greater control over the business that has in the past suffered from food safety scandals.
The changes to the deal, which is near closing, with China’s Citic Group Corp and US private equity house Carlyle as the buyers, would reduce the size of the transaction to between $1bn and $2bn from what was originally expected to be as much as $3bn.
The deal could close by the end of the month, said one of the people close to the deal.
The sale of the 20-year franchise of 2,400 stores in China and Hong Kong has forced McDonald’s to strike a balance between reducing its exposure to China while also protecting its brand in the region.
The deal attracted several Chinese bidders but people close to the process said the company turned many of them away because they were not deemed suitable to run the operation. The list of bidders included Sanpower Group, the owner of UK retailer House of Fraser, as well as Cinda Asset Management, a state-run bad-debt investor.
The terms of the deal were unappealing to some of the private equity funds that originally were interested because McDonald’s has insisted the franchise not be publicly listed. Some private equity investors hoping to squeeze value out of the franchise considered terms such as maintaining management and suppliers for two years oppressive.
US private equity house TPG, which partnered with Chinese retailer Wumart Stores, dropped out of the process at an early stage, followed later by Bain Capital and Shanghai-based partner GreenTree Hospitality.
Yum Brands, which is nearly double McDonald’s presence in China, struggled with similar problems earlier this year.
Yum Brands spun off its China business in a New York Stock Exchange listing in October with China-based private equity fund Primavera Capital and Ant Financial Services, an affiliate of Alibaba, taking a $460m stake in the operation.
One investor has raised concerns about McDonald’s Latin American partner’s performance and whether McDonald’s would face similar issues in Asia by stepping back from operations on the ground.
CtW Investment Group, which has a 0.2 per cent stake in McDonald’s and is affiliated to a federation of unions representing more than $250bn in assets, wrote to McDonald’s earlier this year citing worries over corporate governance at the fast-food chain’s master franchiser in Latin America, Arcos Dorados, which it says is hampering the chain’s performance in the market.
