With global private equity firms Carlyle Group and TPG Capital separately teaming up with Chinese partners for the business worth up to $3 billion, fast-food giant McDonald’s Corp has received final bids from at least three groups for its China and Hong Kong outlets, reported Reuters citing sources.
In their separate bids for the 20-year franchise, while TPG has teamed up with mini-market operator Wumart Stores, Carlyle has joined with Chinese state conglomerate CITIC Group, said the sources, who declined to be named.
One of the sources said that an offer for the assets was also made by real estate firm Sanpower Group, which owns British department store House of Fraser. It was teaming up with Beijing Tourism Group, the company has previously said.
McDonald’s may end up working with the unlikeliest of franchise partners, based on the final bids. There is little experience in the restaurant business for both real estate to technology group Sanpower and iron-ore to financial conglomerate CITIC.
Bringing in partners as it switches to a less capital-intensive franchise model, Illinois-based McDonald’s announced in March it was reorganizing its Asian operations.
There were reports published earlier that to run the sale of about 2,400 restaurants in China and Hong Kong, the company had hired Morgan Stanley.
One of the sources said that the front runner to win the auction was the CITIC-Carlyle team.
Whereas buyout firms typically cash out after a few years, since McDonald’s has said it prefers long-term partners, Carlyle and TPG have taken on only minority stakes in the bidding vehicles.
Even though it was not clear if they had made final offers by the close of bidding on Wednesday, China Cinda Asset Management Co Ltd and Bijing Capital Agribusiness Group, which is McDonald’s current China partner, were previously in the running.
McDonald’s and arch-rival Yum Brands are recovering from a series of food-supply scandals in China that have undermined their performance and the planned deal comes at such a time.
Foreign fast food operators would be able to navigate supply issues by teaming up with local partners, some analysts have said.
Alex Wong, a director at Ample Finance Group said that foreign firms can also have problems finding suitable real estate and in dealing with government.
“With the involvement of Chinese partners, it will make thing easier,” he said.
Earlier this month, investment firm Primavera Capital and an affiliate of Alibaba Group Holding Ltd. agreed to buy a $460 million stake in Yim’s China unit. Yum is best known for KFC, Pizza Hut and Taco Bell brands.
While CITIC, Wumart and Sanpower didn’t return requests for comment during a holiday in mainland China, TPG and Carlyle declined to comment on their final bids, while CITIC.
A previous comment that it is making progress in finding a long-term partner for the assets was reiterated by McDonald’s.
(Adapted from Reuters)