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McDonald's China Restaurant Sale Process: Have Investors Sold The Rumor?

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McDonald's China Restaurant Sale Process: Have Investors Sold The Rumor?

McDonald's Corporation (NYSE: MCD) has been looking to sell part or all of its operations in Asia to a strategic buyer who can bring local expertise and knowledge of the unique markets.

McDonald's entered into discussions with private equity firms to buy 2,800 of its restaurants in North Asia on April 14, according to Reuters. This follows the company's own announcement on March 31 that it is seeking partners in Asia who can "add value and unlock growth potential in key markets."

Related Link: From McMuffins To Mobile: Tracking Olympic Sponsors With TD Ameritrade's JJ Kinahan

"Asia represents a significant area of opportunity for McDonald's to blend our global quality standards with local insights and expertise from partners who share our vision and values," Steve Easterbrook, McDonald's president and CEO, said in March.

Update: McDonald's In Talks With Carlyle Group

According to the New York Post, the private equity firm Carlyle Group is one of the final bidders in the auction process and could pay more than $2 billion for the company's restaurants in China.

By selling the stores to a private equity group, McDonald's will collect a percentage of revenue and better shield itself from operational risks.

A source close to the situation told the New York Post that the "opportunity for Carlyle would be to buy McDonald's in China on leverage, and then to quickly grow the business in the region increasing earnings."

Stock Performance

McDonald's stock was trading at $126.15 on the day the company announced its intentions to seek out a partner for its operations in China. After a full day of trading, the stock closed lower at $125.68.

When news reports surfaced that McDonald's began discussions with private equity firms, the stock was trading near the $127.00 level.

As of early Tuesday morning, McDonald's stock is trading at near the $115 level as investors have taken a bearish stance on the company, although not necessarily because of its Asia-related announcement. Based on the timeline of events, McDonald's investors have indeed sold the rumor of an upcoming sale of some of its Asian units.

On the other hand, the Dow component is higher by nearly 19 percent over the past year and has outperformed the Dow Jones Industrial average, which is higher by around 12.5 percent over the same time period; therefore, profit taking could also be attributed to the selloff since April.

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Posted-In: Carlyle GroupNews Emerging Markets Retail Sales Restaurants Global Markets General Best of Benzinga

 

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