Economy First Look

McDonald's to sell controlling stake in China business

In a deal worth $2.08 billion, the fast-food giant McDonald's is selling a controlling stake in its China business to a group of investors led by a state-owned conglomerate.

A woman walks past a McDonald's outlet in Hong Kong in 2014.
Tyrone Siu/Reuters/File
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McDonald's will sell a controlling stake in its China business to investors from state-owned Chinese conglomerate Citic, the companies announced Monday. 

Citic Ltd. and its investment-management unit, Citic Capital, will acquire 52 percent of McDonald's Corp's mainland China and Hong Kong businesses in the deal worth $2.08 billion. Washington-based private equity firm The Carlyle Group and McDonald's will own 28 percent and 20 percent, respectively. The deal will give Citic and Carlyle franchise rights for 20 years. 

"China and Hong Kong represent an enormous growth opportunity for McDonald’s," said Steve Easterbrook, McDonald’s chief executive, in a news release. "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." 

The move comes as part of McDonald's recent global business overhaul to keep up with changing tastes in an effort to revive sales. Approximately two-thirds of the fast-food giant's 2,640 China outlets that are currently owned by McDonald's will be refranchised. According to Mr. Easterbrook's restructuring plan, launched in 2015, McDonald's wants franchisees to take over more outlets owned by the company to give local managers more decision-making power and flexibility to respond to customers. 

"At the end of the day they can make more money," Ben Cavender, a senior analyst at China Market Research, a consultancy based in Shanghai, told The New York Times prior to the announcement. "They can be more profitable if they are asset light and make money off franchise fees and leave the heavy lifting to somebody else."

In China, where McDonald's business is booming, the fast food company and its partners plan to add another 1,500 restaurants over the next five years. McDonald's is currently China's second-biggest fast-food company, following Yum Brands' KFC. 

"As disposable incomes rise, people will continue to spend more on leisure and on dining out, and there is particularly great growth potential in tier three and four cities," the McDonald's announcement said, in reference to lesser-known provincial cities with large populations. "As such, the market for Western Quick Service Restaurants is expected to continue to grow rapidly."

This report contains material from the Associated Press and Reuters.