With a contract to increase its ownership to slightly under 50% of its China business, McDonald's announced that it is confident in the future potential of the burger giant in the second-biggest economy in the world.
The action stands in stark contrast to the current trend of global firms pulling back their investments within China or perhaps pulling out of the market entirely as a result of economic and geopolitical issues.
McDonald's has increased its share to 48% in the burger chain through the acquisition of investment company Carlyle's 28% interest in the company's China operations, which also involves its locations in Hong Kong and Macau. 52% of the company is owned by a consortium headed by the state-backed conglomerate CITIC.
McDonald's chief executive officer, Chris Kempczinski, stated in a statement on Monday that, in light of the fantastic chance to seize more demand and profit from the long-term potential of the fastest-growing market, they believe there has never been a better moment to streamline their structure.
Although the deal's financial details were kept a secret, two individuals with information about the negotiations estimated the China unit's worth at about $6 billion.
That is significantly more than McDonald's was paid to sell 80% of the company to CITIC, its investment arm CITIC Capital, which is currently known as Trustar Capital, and Carlyle for as much as $2.1 billion in 2017. The American company's goal at the time was to grow quickly while not using much of its capital.
That is, however, less than the valuation of as much as 10 billion dollars that Trustar and Carlyle had previously been seeking in an attempt to create a "continuation fund," according to several sources.
A continuation fund is a sort of investment vehicle developed by private equity firms that makes it easier for them to sell down their holdings in current investments.
China now ranks second in the world for McDonald's sales, with 5,500 locations having doubled since 2017. The company wants to establish over 10,000 locations across China by 2028.
According to the company's statement, it has also seen growth in revenue of over 30% since September 2019.
The sources stated that in recent weeks, McDonald's made a surprise proposal for Carlyle's share of the China operations, and the deal was completed swiftly.
Unlike McDonald's, American meat and packaged food manufacturer Tyson Foods intends to sell its poultry operation in China, according to sources.
The British consumer products company Reckitt Benckiser sold investment company Primavera Capital its baby formula and kid nutrition business in China in 2021 for a value of 2.2 billion dollars.