A consortium led by private-equity firm Carlyle Group LP is close to a deal valued as much as $2 billion to acquire McDonal's Corp.'s China franchise, giving the U.S. fast-food giant cash and local help in cracking the lucrative Chinese market.
McDonald's is selling an estimated 80-percent stake in its China franchise to the consortium, which also includes Chinese state-owned Citic Ltd., The Wall Street Journal reported on Tuesday citing people familiar with the situation.
The proposed deal, which still requires a final signoff from the McDonald's board, could hand the company an upfront payment of between $1.5 billion and $2 billion.
McDonald's China office declined to comment on the deal, although an announcement is expected to be made as early as next week, the report said.
The Illinois-based fast-food chain has about 2,200 outlets in China, of which one-third are already franchised. All of the company's remaining China stores would be franchised under the deal, with McDonald's maintaining a 20-percent stake in them.
The move is expected to help McDonald's reduce its overall operational costs and preserve capital, as well as gain an estimated 5 percent to 7 percent of the franchise sales for 2 decades, the report said.
The deal would also see Citic and Carlyle build 1,300 new stores in China and Hong Kong.
Sales from McDonald's stores in China dropped after problems with suppliers caused shortages of hamburgers and chicken at some restaurants in 2014, according to figures provided by the company.
Although sales in the country have begun to recover in 2015, they shrank again in the most recent quarter due to "protests surrounding recent events related to the South China Sea," McDonald's Chief Executive Steve Easterbrook said on a recent earnings call.
The fast-food brand still has room to grow in China, the only major market where there are more Kentucky Fried Chicken restaurants--5,000 and counting--than McDonald's stores.
In a similar move, fast-food rival Yum Brands Inc. announced earlier this year that it would split off its KFC and Pizza Hut operations in China and retain its foothold in the country through royalty payments.
The company also entered an agreement with Chinese private-equity fund Primavera Capital and Ant Financial Services Group, the financial arm of Chinese e-commerce giant Alibaba Group Holding Ltd.,to sell off a combined $460 million stake in its China operations.
The McDonald's deal would be a first by state-owned conglomerate Citic into the restaurant sector. The group operates a number of companies in the financial, real estate, national resources and energy industry. It also owns China's seventh-largest lender by assets, China Citic Bank, and the country's leading investment bank, Citic Securities.
Carlyle, based in Washington, has previously bought a majority stake in Shanghai-based Italian restaurant chain Babel Restaurant Management Co. in 2007 and sold it to a private capital fund in 2012.