Mcdonald’s could fetch up to $3 billion for china and hong kong stores

McDonald’s Corp. has received over fifty percent a dozen bids because of its China and Hong Kong stores, including offers from Beijing Tourism Group, Sanpower and ChemChina, within an auction that could fetch up to $3 billion, people acquainted with the problem said.

Buyout firms including Bain Capital, TPG Capital and Carlyle Group too are taking part in the auction with a view to teaming up with Chinese strategic bidders, they said.

The U.S. junk food company had announced in March it had been reorganizing its Asian operations by attracting partners who own the restaurants within a franchise business. Competitor Yum Brands can be restructuring its China operations by spinning it off before a likely IPO next year.

The planned sale of China units by McDonald’s and Yum indicates they would like local partners who may help defend against growing competition from domestic rivals and in addition better manage public perception in the wake of food-safety scares that hit both fast-food giants within the last couple of years.

"Given the down sides Western chains experienced recently with public perception, local players have grown to be a significant competitive threat," said Elizabeth Friend, consumer foodservice analyst at Euromonitor International.

Oak Brook, Ill.-based McDonald’s has hired Morgan Stanley to perform the sale around 2,800 restaurants in China, Hong Kong and South Korea, Reuters previously reported. The sale in South Korea has been run separately and it had been as yet not known if the same parties have expressed interest for the reason that sale, the people added.

Within the deal, McDonald’s offers a 20-year master franchise agreement to buyers, with a choice to increase it by another a decade.

It has stipulated that private equity firms remain a minority partner in virtually any bidding consortium, restrictions that discouraged some buyout funds from taking part in the auction, the people added.

Among those that were getting ready to place first-round bids prior to the June 20 deadline were Beijing Capital Agribusiness Group, which is McDonald’s current China partner, and GreenTree Hospitality, the people added. It had been not immediately clear if indeed they made the bids.

McDonald’s will now draft a shortlist of bidders for another round in the coming weeks.

McDonald’s will not use country-by-country revenue details but industry data shows it really is China’s number-two junk food chain behind Yum, which operates the KFC and Pizza Hut chains.

McDonald’s China and Hong Kong business posted about $200 million in earnings before interest, tax, depreciation and amortisation for fiscal 2016, and may be sold for approximately 15 to16 times its core earnings, taking the offer value to about $3 billion, among the people said.

However the earnings have already been volatile, jumping from $65 million for 2015, which will probably weigh on how a number of the suitors could value the business enterprise, the people added. Some sources said the sale will probably fetch around $2 billion.

Officials at China National Chemical Corp. and technology and property firm Sanpower weren’t immediately open to comment, while Beijing Tourism said it didn’t know about the problem. The official at Beijing Capital Agribusiness said the business did not take part in the bidding. A spokeswoman for GreenTree said the business had not been bidding currently.

Bain, Carlyle and TPG declined to comment. The sources declined to be defined as the sale process is confidential.

A McDonald’s spokeswoman said the business was "making progress" in the sale process. "As no decisions have already been made, it will be premature to take a position further," she said within an email.

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