Monday, November 25

McDonald’s Going To Auction China, HK stores, Could Fetch Up to $3 Billion Deal

McDonald’s has received more than half a dozen bids for its China and Hong Kong stores, including offers from Beijing Tourism Group, Sanpower and ChemChina, in an auction that could fetch up to $3 billion, people familiar with the matter said.

Buyout firms including Bain Capital, TPG Capital and Carlyle Group are also participating in the auction with a view to teaming up with Chinese strategic bidders, the people said.

“Given the difficulties Western chains have had recently with public perception, local players have become a serious competitive threat,” said Elizabeth Friend, consumer foodservice analyst at Euromonitor International.

Oak Brook, Illinois-based McDonald’s has hired Morgan Stanley to run the sale of about 2,800 restaurants in China, Hong Kong and South Korea, Reuters previously reported. The sale in South Korea is being run separately and it was not known if the same parties have expressed interest in that sale, the people added.

The U.S. fast food company announced in March it was reorganizing its Asian operations by bringing in partners who would own the restaurants within a franchise business. Competitor Yum Brands (YUM.N) is also restructuring its China business by spinning it off ahead of a likely IPO next year.

The planned sale of China units by McDonald’s and Yum indicates they are seeking local partners who could help ward off growing competition from domestic rivals and also better manage public perception in the wake of food-safety scares that hit the two fast-food giants in the last few years.

As part of the deal, McDonald’s is offering a 20-year master franchise agreement to buyers, with an option to extend it by another 10 years.

It has stipulated that private equity firms remain a minority partner in any bidding consortium, restrictions that discouraged some buyout funds from participating in the auction, the people added.

Among those who were preparing to place first-round bids ahead of the June 20 deadline were Beijing Capital Agribusiness Group, which is McDonald’s current China partner, and GreenTree Hospitality, the people added. It was not immediately clear if they made the bids.

McDonald’s will now draw up a shortlist of bidders for the next round in the coming weeks.