In a significant move, McDonald's Corporation (NYSE: MCD) has agreed to a McDonald's Corporation Acquisition, taking over Carlyle's (NASDAQ: CG) minority ownership stake in the strategic partnership that operates and manages McDonald's business in mainland China, Hong Kong, and Macau. The McDonald's Corporation announced this on Monday, Nov. 20, 2023.
The CITIC Consortium will retain control of the company, primarily through its equity affiliate, CITIC Capital. Upon the transaction's conclusion, the CITIC Consortium will have its 52% ownership stake, while McDonald's will increase its minority partnership status from 20% to 48%.
Reuters reported in April that Carlyle was talking with financial advisors about different ways to handle its stake in McDonald's China. One option was to set up a "continuation fund" for the asset.
CEO Chris Kempczinski of McDonald's said there was "no better time to simplify our structure" because China's long-term promise was so good.
Almost six years ago, the burger company agreed to sell up to $2.1 billion worth of its China and Hong Kong businesses to CITIC Ltd, its investment arm CITIC Capital, and Carlyle.
The deal should go through in the first quarter of 2024, but it depends on getting the necessary governmental approvals.
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McDonald's Corporation Acquisition: Stronger Investment Position
"Since their strategic alliance with CITIC and Carlyle, McDonald's expansion in the region has been a tremendous success. "China has surpassed 5,500 restaurants, doubling our workforce since 2017; it is now our second largest market," Kempczinski said.
From September 2019 to now, the company has seen Systemwide sales grow by more than 30% in the market. The partners will continue to work together as the brand carries out its Accelerating the Arches growth strategy in the market. They will be working to keep their promise to open and create new restaurants and get to know customers better.
Meanwhile, Jim Sanderson, Northcoast Research Analyst, agreed that having a stronger investment position should give them (MCD) a stronger voice in ensuring that that market grows the way they want it to.
"We are grateful for our strong partnership with McDonald's Corporation and CITIC Capital." Together, we changed the business, speeding up its growth and making considerable changes to its digital marketing and operational skills," said X.D. Yang, Chairman of Carlyle Asia.
He added the company has always done a great job, and we wish them the best of luck as they grow even more.
Slowing Microeconomic Conditions
By 2028, the company wants to have 10,000 restaurants. It has been hard for McDonald's to make sales in China since the Covid pandemic started. Factset believes that the country brings in about 4% of the chain's total revenue, which is 3.8% less than the previous year.
On the company's most recent earnings call, Kempczinski said China is dealing with "slowing macroeconomic conditions and historically low consumer sentiment." However, the chain is getting people to come in by advertising its burgers.
With more than 40,000 sites in more than 100 countries, McDonald's (NYSE: MCD) is the biggest food service chain in the world. About 95% of McDonald's stores worldwide are privately owned by local business owners.
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