ChemChina, New Hope Said to Weigh McDonald's Franchise Bids

June 15, 2016 11:17 AM
McDonalds store

China National Chemical Corp. and New Hope Group Co. are among companies considering bids for McDonald’s Corp. operations in the world’s most populous nation, people with knowledge of the matter said.

Buyout firm KKR & Co. is considering teaming up with a Chinese firm to make a joint bid for the mainland China franchise rights, which could fetch about $2 billion, the people said, asking not to be identified because the information is private. Potential suitors were asked to submit first-round offers by next week, according to the people.

McDonald’s is revamping its ownership structure in Asia as it pursues an international turnaround plan put in place after Chief Executive Officer Steve Easterbrook took the reins last year. The Big Mac purveyor said in March it is seeking franchise partners in mainland China, Hong Kong and South Korea to invest fresh capital and localize decision making.

The U.S. fast-food company hired an adviser to help identify partners, it said in March. It also plans to add 1,500 outlets to the more than 2,800 it has in mainland China, Hong Kong and South Korea over the next five years.

McDonald’s shares fell 24 cents to $122.75 in New York trading at 1:41 p.m. The stock has gained 3.9 percent this year.

Local Ownership

Unlike in its other major markets -- including the U.S. -- most of its outlets in North Asia are company-owned. It aims to have 95 percent of its restaurants in the region under local ownership, it said.

Certain terms of the China investment, including 8 percent royalties and a three-year ban on senior management changes, have already deterred some potential buyers, according to two of the people, who have seen deal terms. In developed markets, fees are usually about 4 percent to 6 percent, they said.

“We are making progress as we look for long-term strategic partners with local relevance who have complementary skills and expertise coupled with a strong understanding of McDonald’s Brand,” Regina Hui, a Shanghai-based spokeswoman for McDonald’s, said in an e-mailed response to Bloomberg queries. “As no decisions have been made, it would be premature to speculate further.”

Malan Noodles

ChemChina, the state-owned chemicals powerhouse that agreed to buy Syngenta AG for about $43 billion in February, has experience in the restaurant industry through Beijing-based Malan Noodle Fast Food Chain Store Co. ChemChina Chairman Ren Jianxin founded Malan Noodle in 1995, according to the chemical company’s website.

New Hope Group, founded in 1982, is a Beijing-based conglomerate with businesses spanning from agriculture to dairy, food and real estate. Liu Yonghao, its billionaire chairman, said this year the company is interested in buying fish-farming assets in Southeast Asia as part of a 10 billion-yuan ($1.5 billion) push to expand overseas.

KKR last year bought an 18 percent stake in Fujian Sunner Development Co., a Shenzhen-listed chicken producer, for about $400 million. The company supplies meat to McDonald’s as well as KFC and Pizza Hut eateries in China, according to its website.

Representatives for ChemChina and KKR declined to comment. “Related departments in New Hope Group don’t know about this bid,” a spokeswoman for the company said in an e-mail.

About 82 percent of the more than 36,500 McDonald’s restaurants worldwide were franchised as of Dec. 31, according to the company’s 2015 annual report. The franchise rate was 46 percent in high-growth markets such as mainland China and South Korea, the report said.

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