McDonald's said to sign agreement Monday on China franchise sale

[HONG KONG] McDonald's Corp plans to sign an agreement as soon as Monday to sell 80 per cent of its operations in China and Hong Kong to a consortium of Carlyle Group LP and Citic Group Corp, people with knowledge of the matter said.

The deal, which includes 20-year mass franchise rights, values the business at about US$2 billion including debt, according to the people. The US fast-food chain will retain a 20 per cent shareholding in the venture, the people said, asking not to be identified because the information is private. The sale could be announced this week, the people said.

Oak Brook, Illinois-based McDonald's is revamping its ownership structure in markets such as China, South Korea and Southeast Asia as the world's biggest restaurant chain attempts to streamline its sprawling global operations. Chief Executive Officer Steve Easterbrook is pursuing a turnaround plan to revive the company as it faces the fourth straight year of traffic declines in the US, its largest market.

Terms of the deal could still change, according to the people. A Shanghai-based spokeswoman for McDonald's didn't immediately answer a phone call and e-mail seeking comment, while representatives for Carlyle and Citic declined to comment.

The months-long auction process drew interest from international private equity funds and local companies. In October, people with knowledge of the matter said TPG Capital had exited the race, leaving its erstwhile partner, Chinese grocery operator Wumart Stores Inc, to compete against Carlyle and Citic. Bain Capital had also teamed up with Chinese hotelier GreenTree Hospitality for a bid, the people said at the time.

McDonald's said in March it's seeking strategic partners to help it add more than 1,500 restaurants in China, Hong Kong and Korea over the next five years. It has more than 2,800 restaurants in those locations, the majority of which are company-owned. Its long-term target is to have 95 per cent of its international outlets owned by franchisees.

US restaurant chains have seen their market lead in China challenged by a growing line-up of Asian competitors such as Ting Hsin International Group's Dicos eateries.

The seller of Big Macs is also playing catch-up to Yum China Holdings Inc, its main fast-food competitor in Asia's largest economy. The Chinese KFC-operator spun off from its US parent Yum! Brands Inc on Nov 1, and has a carte blanche opportunity to pursue growth and add 600 restaurants a year in the country, Chief Executive Officer Micky Pant has said.

BLOOMBERG