CITIC Capital plans to invest an additional $430 million in McDonald's China. It is important to note that this acquisition is actually an internal equity transfer within the CITIC group, with the total shareholding ratio remaining unchanged. It is reported that in 2017, CITIC Limited and CITIC Capital, as part of the CITIC consortium, acquired 52% of McDonald's China's equity, since then, the CITIC group has begun to lead McDonald's operations in Mainland China and Hong Kong, and now, McDonald's localization development in the Chinese market has achieved significant results.
CITIC Limited "clears" McDonald's China equity.
On the evening of October 21, CITIC Limited issued an announcement stating that it would sell 10% of McDonald's China's shares held by the company to CITIC Capital's CITIC Trust Capital, with a transaction amount of about $430 million, equivalent to about 3.06 billion yuan.
After the completion of this equity transfer, CITIC Limited will withdraw from McDonald's China, and the CITIC Capital consortium will remain the controlling shareholder of McDonald's China, with a shareholding ratio of 52%.
It is worth mentioning that this transaction is actually a "left hand to right hand" of the CITIC group.
Looking back, in 2017, CITIC Limited and CITIC Capital, both under the CITIC group, formed the "CITIC consortium" and teamed up with the U.S. Carlyle Investment Group to acquire McDonald's business in Mainland China, Hong Kong and other places with a total consideration of up to $2.08 billion, and obtained a 20-year franchise right. After the transaction, the CITIC consortium held 52% of McDonald's China's equity, and Carlyle and McDonald's held 28% and 20% of the equity, respectively. At the beginning of 2020, CITIC Capital acquired 22% of McDonald's China's equity from CITIC Limited at a price of 533 million yuan.
Since the CITIC consortium took control in 2017, McDonald's China has expanded rapidly, with the number of restaurants increasing from 2,500 in 2017 to 6,500 in September 2024.
"CITIC group" left hand to right hand
On October 21, CITIC Capital announced that its private equity investment business institution CITIC Trust Capital signed an agreement with CITIC Limited to acquire its shares in McDonald's China (including McDonald's Mainland China, Hong Kong and Macao business), and after the completion of the transaction, the CITIC Capital consortium (including CITIC Capital and its private equity investment business CITIC Trust Capital) will remain the controlling shareholder of McDonald's China.
Subsequently, CITIC Limited also issued an announcement on the Hong Kong Stock Exchange stating that the company agreed to sell its 19.23% equity in Fast Food Holdings Limited (hereinafter referred to as FFHL) held by Trustar Fast Food Holdings Limited under CITIC Trust Capital. After the sale is completed, CITIC Limited will no longer hold the equity of FFHL. At the same time, the buyer will assume an unpaid shareholder loan of about $74 million, and the total sale price is $430 million.It is reported that FFHL directly holds Grand Foods Holdings Limited, which holds 52% of the equity in McDonald's China and Hong Kong business companies. Based on this calculation, CITIC shares have transferred 10% of McDonald's China's equity this time.
In fact, CITIC Capital has been cooperating with McDonald's as early as eight years ago.
In January 2017, CITIC shares announced that CITIC shares, CITIC Capital, and Carlyle intended to acquire controlling interests in McDonald's China and Hong Kong business at a maximum price of $20.8 billion, and obtained a 20-year franchise right.
After the acquisition was completed, FFHL, established by CITIC shares and CITIC Capital with a capital contribution of 61.54% and 38.46% respectively, held 52% of McDonald's China's equity and became its controlling shareholder. Carlyle and McDonald's held 28% and 20% of the shares respectively.
In 2022, CITIC shares listed for sale 42.31% of FFHL's equity, which is 22% of McDonald's China's equity. This part of the equity was also taken over by CITIC Capital, with a total cost of $533 million.
In addition to this equity transfer, after two internal equity transfers within CITIC, CITIC shares have cleared all the shares of McDonald's China it holds, while CITIC Capital's shareholding ratio has increased from 42% to 52%.
Regarding this sale of equity, CITIC shares stated that the sale "provides a good investment return for the group", and the facts are indeed so.
CITIC shares' 2017 annual report shows that the transaction cost for CITIC shares to obtain 61.54% of FFHL's equity at that time was $309 million, and the total price of the two equity transfers was $963 million. After calculation, if this transfer is successful, CITIC shares will obtain about 210% of the investment return from this equity investment.
It is worth mentioning that in November last year, McDonald's Global announced the acquisition of Carlyle's 28% stake in McDonald's China. Although the two companies did not disclose the transaction value, foreign media cited sources as saying that the transaction cost is about $1.8 billion. McDonald's Global currently holds 48% of McDonald's China's equity.
CITIC's entry has helped McDonald's China localize.In 2017, the backdrop of CITIC taking over McDonald's business in China was that Yum China had recently been spun off from Yum! Brands and attracted Chinese capital (Primavera Capital and Ant Financial, a subsidiary of Alibaba) to invest, fully realizing localization in China.
At that time, Yum China had 8,200 restaurants, while McDonald's had only 2,400 stores in mainland China, less than one-third of Yum China's number. At the same time, Yum China's revenue and profits had long accounted for half of Yum Group's business, with an even higher proportion at the peak in 2012, while McDonald's China's revenue in the global business only accounted for 5%, and the profit was almost negligible.
After CITIC took over McDonald's China, McDonald's also immediately began a vigorous development of localization in China. It is worth mentioning that in October 2017, McDonald's China also changed its name to "Golden Arches", and this down-to-earth company name also set off a public opinion explosion.
In the "Golden Arches" era, McDonald's China announced its five-year development plan, stating that by 2022, it would open 2,000 new stores in mainland China, breaking through the 4,500 store mark. Among them, 45% of the restaurants will be located in third and fourth-tier cities. In the 2023 financial report conference call, McDonald's President and CEO Chris Kempczinski reiterated that he expects the number of stores in the Chinese market to reach 10,000 by the end of 2028.
According to disclosed data, the number of McDonald's China restaurants increased from 2,500 in 2017 to 6,500 in September 2024. Total revenue and profits have also achieved significant growth.
In terms of the number of restaurants, McDonald's China has become the second-largest market for McDonald's globally and is the fastest-growing market. McDonald's China expects to open more than 1,000 new restaurants in 2024, accounting for more than half of McDonald's global store opening plan in 2024. In terms of sales, in 2023, McDonald's global same-store sales increased by 9.0%, among which the international franchise market where China is located grew the fastest, at 9.4%.
In addition to the continuous increase in stores, McDonald's digital transformation has also accelerated comprehensively. According to media reports, CITIC Capital invited Tencent to help McDonald's China develop online mini-programs and create a membership system. Today, McDonald's has created an omni-channel app, mini-program, with membership exceeding 300 million people, serving more than 1 billion people per year, with more than 90% of orders coming from digital platforms.
At the same time, the localization level of McDonald's supply chain is also continuously improving. In July 2024, the McDonald's China supply chain (Hubei) Smart Industrial Park officially started production, with McDonald's China and four major suppliers (Bimbo, Shunxin Hui, Tyson, and Zidan) jointly investing 1.5 billion yuan.
However, this year, the "cost-effectiveness trend" has swept the consumer industry. After 9.9 yuan for coffee, 9.9 yuan for hamburgers has also become popular. Under the low-price strategy, McDonald's performance has also been affected.
McDonald's recently released the second quarter of 2024 financial report shows that its revenue reached nearly 6.5 billion US dollars, but slightly lower than the expected 6.61 billion US dollars. In terms of same-store sales, McDonald's decreased by 1%, far lower than the market's expected growth rate of 0.4%, and encountered the first decline since the fourth quarter of 2020.From a market segmentation perspective, McDonald's global same-store sales have experienced a comprehensive decline. Among them, same-store sales in the US market fell by 0.7%, the international operating market segment dropped by 1.1%, and the same-store sales in the international franchise market (including China and Japan) declined even more by 1.3%.
CITIC Capital's Investment Portfolio
As a member of the CITIC group, CITIC Capital was established in 2002 and is an investment management and advisory company focusing on alternative investments. The company's core businesses include private equity, real estate investment, structured finance, asset management, and special opportunities investment, managing over $15 billion in funds.
Controlled mergers and acquisitions have always been a core strategy for CITIC Capital. It is reported that between 2011 and 2012, coinciding with the wave of privatization of Chinese concept stocks, CITIC Capital successively orchestrated the privatization of标志性 cases such as Focus Media, AsiaInfo Technologies, and OmniVision Technologies.
In addition to McDonald's China, CITIC Capital has also successfully acquired several large group companies, especially the business segments of multinational group divisions. For example, in 2014, CITIC Capital spent $265.6 million to acquire 57.14% of the shares of the mattress brand King Koil; in 2017, CITIC Capital, together with Renfu Medicine, spent $600 million to acquire the global sexual health business of Ansell, including Jissbon, among others.
This year, CITIC Capital has continued to contribute a number of investment cases. In March of this year, Dalian Wanda Commercial Management signed an investment agreement with CITIC Capital, CDH Investments, Abu Dhabi Investment Authority, Mubadala Investment Company, and ARES. The five institutions jointly invested about 60 billion yuan in Dalian Xinda Meng Business Management Co., Ltd., holding a total of 60% of the shares, with Dalian Wanda Commercial Management holding 40%.
In September of this year, Dalian Xinda Meng Business Management has undergone a series of industrial and commercial changes. Among the company's 11 board members, two are dispatched by CITIC Capital.
In April of this year, CITIC Capital, one of the main players in the acquisition of McDonald's China, completed the acquisition of Guilong Pharmaceutical. The equity transferor was the British daily necessities giant Reckitt Benckiser, also the parent company of Durex. However, CITIC Capital did not disclose the specific transaction amount.
The official website shows that since its establishment, CITIC Capital has completed more than 100 investments in China, Japan, the United States, and other places through the funds it manages. To date, the total amount of funds managed by the funds under its management has reached $8.7 billion.