McDonald's Weighs Further Overhaul in Asia -- WSJ
January 13 2017 - 3:02AM
Dow Jones News
Fast-food chain aims to cut stake in Japan unit, echoing deals
in China, Hong Kong
By Kane Wu and Julie Jargon
McDonald's Corp. is inviting bids for a significant stake in its
Japan unit, according to people familiar with the situation, days
after it reached a deal to sell its China and Hong Kong
franchises.
The Oak Brook, Ill.-based fast-food giant owns through
subsidiaries just under 50% of the unit, which is listed on the
Tokyo Stock Exchange and has a market capitalization of around $3.5
billion. McDonald's is looking to sell up to 33% of the unit, with
bids due next week, the people said. A number of private-equity
firms are considering bids, they said. Morgan Stanley is running
the sale, one of the people said. The bank didn't reply to queries
on the deal.
A spokesman for McDonald's said the company is continuing to
explore a potential sale of a portion of its ownership in
McDonald's Japan but that no decisions have been made at this
time.
McDonald's move to trim its stake in its Japan unit follows an
announcement earlier in the week that it is selling an 80% stake in
its China operations, valued at an estimated $2 billion, as
fast-food operators throughout the world dump assets and focus on
managing their brands. The model lets companies collect a piece of
sales without the costs and headache of managing hundreds of
stores.
McDonald's first signaled plans to sell a stake in the Japan
business last year, with Chief Financial Officer Kevin Ozan saying
the company was looking for "a strategic investor who could help
advance Japan's turnaround efforts."
The search for bidders initially started a year ago, but stalled
after a few interested parties balked at the price McDonald's was
asking, according to two people familiar with the matter.
Shares of McDonald's Holdings Co. (Japan) Ltd. are up 19% since
a year ago.
McDonald's has long-term plans to franchise 95% of its stores
and is looking to do a similar sale in South Korea, its chief
executive Steve Easterbrook said in an earlier interview. Since the
beginning of 2015, McDonald's has sold nearly 1,000 of its
restaurants to franchisees, the company said in October. In
December, it sold its nearly 400 stores in Malaysia and Singapore
-- 80% of which were company-owned -- to a Saudi investment group.
McDonald's said it is on track to convert about 4,000 company-owned
restaurants to franchises by the end of 2018.
McDonald's business in Japan has struggled in recent years, in
part due to news of food-quality problems. A Chinese supplier was
accused of selling expired meat across Asia, prompting McDonald's
Japan to stop selling all chicken produced in China and switch to
Thai chicken. The Japan business posted a Yen21.84 billion ($189.1
million) loss in 2014, its first annual loss in 11 years and its
first operating loss since it became a publicly listed company in
2001. The business posted same-store sales declines for many
months.
In Japan, a human tooth was found inside a package of french
fries in 2015, and a child was injured by a piece of plastic inside
a sundae that was determined to be part of the machine used to make
the treat. The Japan unit in 2015 closed more than 130 stores and
again posted deep losses.
The company put in place a new loyalty program with coupons and
a mobile app to gather real-time customer feedback, cut executive
pay, sought early retirement from corporate employees and remodeled
restaurants. More recently, it announced a tie-up with hit
smartphone game "Pokémon Go" to make its restaurants in Japan
"PokéStops," where players can visit to collect items in the
game.
The business began to turn the corner in the fourth quarter of
2015, when the Japan unit posted its best quarterly sales results
in nearly four years, with a same-store sales increase of 1.6%. In
the fourth quarter of 2016, same-store sales in Japan rose 17%. The
Japan business has forecast a full-year profit for 2016.
McDonald's is expected to rake in about 6% of sales from the
China deal during the 20-year agreement period with the purchasers,
a group that includes Citic Ltd., its investment-management arm
Citic Capital Holdings and U.S. private-equity firm Carlyle Group
LP, people familiar with the situation said earlier. The Citic
companies would own a combined 52% stake, while Carlyle would own
28%.
Wayne Ma and Atsuko Fukase contributed to this article.
Write to Kane Wu at Kane.Wu@wsj.com and Julie Jargon at
julie.jargon@wsj.com
(END) Dow Jones Newswires
January 13, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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