McDonald’s announced that it has reached an agreement to increase its ownership of its business in China to just less than 50%, demonstrating its optimism in the burger chain’s future in the second-largest economy in the world.

The action stands in stark contrast to the current trend of global firms pulling back their investments in China or perhaps pulling out of the market entirely as a result of economic and geopolitical difficulties.

McDonald’s ownership will increase to 48% as a result of the agreement to purchase investment firm Carlyle’s 28% interest in the burger chain’s China operations, which also includes its locations in Hong Kong and Macau. With a 52% share, a consortium headed by the state-backed corporation CITIC holds the majority ownership.

“We believe there is no better time to simplify our structure, given the tremendous opportunity to capture increased demand and further benefit from our fastest growing market’s long-term potential,” McDonald’s CEO Chris Kempczinski said in a statement on Monday.

The deal values the China unit at about $6 billion, according to two people with knowledge of the transaction; however, the financial terms were not disclosed.

That is significantly more than McDonald’s was paid to sell 80% of the company to CITIC, Carlyle, and its investment arm CITIC Capital, which is now known as Trustar Capital, for as much as $2.1 billion in 2017. The American company’s goal at the time was to grow quickly while utilising little of its own funds.

However, as several sources have previously stated, it is less than the valuation of up to $10 billion that Carlyle and Trustar had previously been pursuing as part of efforts to form a so-called continuation fund.

The McDonald’s corporate emblem is shown on a sign outside a Bretigny-sur-Orge, close to Paris, restaurant.

The sources declined to be named and were not permitted to discuss the arrangement with the media. Regarding the valuation figure, McDonald’s declined to comment. Carlyle did not want to comment either.

China has increased the number of McDonald’s locations to 5,500 since 2017, making it the company’s second-largest market. By 2028, the company hopes to have more than 10,000 locations throughout China.

Since September 2019, the company’s sales have increased by over 30%, as stated in the announcement.

According to the sources, a speedy deal was reached after McDonald’s made an unsolicited offer for Carlyle’s share of the China operations in recent weeks.

“Having a stronger investment position should give them a better voice in making sure that the growth that they expect out of that marketplace occurs,” said Jim Sanderson, an analyst at Northcoast Research.

In August, Reuters revealed that Trustar Capital intended to establish a follow-on fund so that the Chinese private equity firm could sell a portion of its ownership in McDonald’s China.

Unlike McDonald’s, American meat and processed food manufacturer Tyson Foods intends to sell its poultry business in China, according to sources.

The Chinese infant formula and child nutrition businesses were sold by British consumer goods manufacturer Reckitt Benckiser to investment firm Primavera Capital in 2021 for an enterprise value of $2.2 billion.

(Adapted from RepublicWorld.com)