McDonald's: Bids Flow In For Stores In China & Hong Kong

As per a recent Reuters report, McDonald’s Corp. (NYSE:MCD) has received over half a dozen bids for its planned sale of China and Hong Kong units. Notably, the auction could rake in nearly $3 billion for the company.

Reportedly, the China and Hong Kong businesses generate roughly $200 million in earnings before interest, depreciation and amortization (EBITDA).

Interestingly, the news of the bids flowing in follows the letter sent by The Service Employees International Union (SEIU) couple of days ago to potential McDonald’s buyers. In the letter, SEIU had warned investors of the financial risks associated with the company’s master licensee model, which is the core of the company’s growth strategy in Asia.

Details

Notably, McDonald's is offering a 20-year master franchise agreement to purchasers as part of the purchase contract.

The bids reportedly incorporate offers from Beijing Tourism Group, Sanpower Group and ChemChina.

Moreover, as per sources, few global buyout firms such as Bain Capital, TPG Capital and Carlyle Group (NASDAQ:CG) are participating in the auction with the aim of collaborating with some of the strategic bidders in China.

Refranchising Plans

In March, McDonald’s revealed its master licensee model, which is the core of the company’s growth strategy in Asia. The company has plans to refranchise roughly 2,800 restaurants in Asia and has thus been seeking master franchisees for key Asian markets like China, Hong Kong and South Korea. Also, last year, the company announced that it intends to sell its Taiwan operations and a significant part of its Japanese business.

Our Take

Through its refranchising efforts, management aims to reduce the company’s capital requirements and boost earnings per share growth and ROE expansion over the long term.

Meanwhile, reportedly, Sanpower Group has even confirmed that it has submitted a joint bid with Beijing Tourism Group for McDonald's Hong Kong and China stores.

Thus, it is to be seen whether McDonald’s efforts to refranchise its Asian operations reap the desired benefits.

Zacks Rank & Stocks to Consider

McDonald's currently has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include Papa John's International Inc. (NASDAQ:PZZA) , Darden Restaurants, Inc. (NYSE:DRI) and The Wendy's Company (NASDAQ:WEN) . All the three stocks carry a Zacks Rank #2 (Buy).

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