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McDonald's unloads its business in China

A McDonald’s in Yichang, China. McDonald’s operates and franchises more than 2,400 restaurants in mainland China and more than 240 in Hong Kong. Photo:  Associated Press

McDonald's Corp. has agreed to sell the bulk of its China and Hong Kong business to the state-backed conglomerate Citic Ltd and Carlyle Group LP for up to $2.1 billion, seeking to expand rapidly without using much of its own capital.

CITIC, Carlyle and McDonald’s will form a new company that will act as a master franchisee of the chain’s 1,750 restaurants in the mainland and Hong Kong for 20 years, the companies said in a joint statement.

The deal will be settled in cash and in shares in the new company, and is subject to regulatory approvals and set to close in mid-2017.

The US fast-food chain said local partners would help speed up growth in the world's No. 2 economy through new restaurant openings, particularly in smaller cities that are expected to benefit from increased urbanization and income growth.

"McDonald's globally overall is struggling and didn't have the money or intellectual resources to focus on China," said Shaun Rein, a managing director at China Market Research Group.

The company has more than 2,400 restaurants in mainland China and roughly 240 in Hong Kong. The new partnership plans to add 1,500 in the two areas over the next five years.

Under the deal, Hong Kong-listed Citic Ltd will own about 32% of the business, with Citic Capital, an affiliate company that manages private-equity funds and other alternative assets, holding another 20%.

Carlyle will control 28% of the business, while McDonald's will retain a 20% stake, the companies said in a statement.

The partnership will also aim to boost sales at existing restaurants, with menu innovation a key focus.

McDonald’s CEO Steve Easterbrook said in the statement that the fast food chain aims to be the “leading quick service restaurant across the Chinese mainland and Hong Kong” because by working together “we will unlock even faster growth and be closer to the customers and communities we serve.”

“McDonald’s could better revive its performance in China by introducing local partners, and fast food in China is generally positive,” said food service analyst Summer Chen at market research firm Mintel.

Zhang Yichen, chairman and CEO of CITIC Capital, will serve as chairman of the board of the new company.

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