20 January 2017

McDonald’s to sell businesses in Far East

McDonald’s is reaching out to potential suitors for the sale of its Jasdaq Securities Exchange-listed unit, a process that has been ongoing since 2015. The Oak Brook-based fast food chain intends to offload a 33.0 per cent interest in McDonald's Holdings Company Japan (McDonald’s Japan), for around JPY 100 billion (according to Nikkei Asian Review). Facilitated by Morgan Stanley, the deal has attracted a number of private equity buyers, the Wall Street Journal reported.

McDonald’s Japan’s business has suffered in recent years after being embroiled in a series of food safety scandals. In 2014, a customer made a complaint after discovering a human tooth in a pack of chips served in one of McDonald’s outlets in the country. Other customers also reportedly found objects like a piece of plastic, which injured a child’s mouth, and a piece of vinyl, in their food. Another incident in 2014 that caused public concern involved the sale of expired meat by McDonald’s Chinese supplier Shanghai Husi Food.

The bad press proved damaging as McDonald’s Japan’s revenue fell 14.8 per cent to JPY 189,473 million in 2015. It posted a net loss of JPY 34,704 million during the period, compared to a net loss of JPY 21,843 million in 2014.

McDonald’s has also struggled in Hong Kong and China as traffic to its restaurants has slowed. Last week, the US firm struck a USD 2,080 million deal to offload an 80.0 per cent stake in its operations in the region. As part of the agreement, Grand Foods, a holding company of CITIC Securities and Carlyle Group, will take over most of McDonald’s local business and lease its franchise rights for 20 years. In exchange, the buyer will pay cash and give the seller a 20.0 per cent interest in the amalgamated group.

McDonald’s has also sold assets elsewhere in Asia. Last year, it transferred franchise rights for its Singapore and Malaysia restaurants to Saudi Arabia-owned Lionhorn in a deal worth up to USD 400 million (according to Reuters).

According to Zephyr the M&A database published by Bureau van Dijk, there were 527 completed and announced deals last year targeting restaurant operators, with the largest being Adeptio AD’s KWD 1,117 million acquisition of a 66.8 per cent stake in Kuwait Food Company. Another notable transaction was hedge fund Third Point’s purchase of a 1.6 per cent interest (worth around USD 500 million) in Yum! Brands, which demerged its China unit on the New York Stock Exchange last November. 

© Zephyr