Carlyle seeks new strategic partner to bid for McDonald’s Korean unit

  • 2016-10-27

The Carlyle Group has been left as the sole bidder for the South Korean operations of McDonald’s, after a local dairy which had teamed up with the U.S. private equity firm for the estimated $530 million deal backed off, and now it is looking for a new strategic partner to make a suitable bidder.

A consortium of the Carlyle Group and Maeil Dairy Industry Co. Ltd. had been in exclusive talks with McDonald’s since last month. But Maeil, a South Korean milk product maker and restaurant operator, recently announced its withdrawal of the joint bid, investment banking sources said on Oct. 26.

The consortium was the only bidding group for the South Korean outlet of the fast food giant. South Korea’s retail conglomerate, the CJ Group and a consortium of NHN Entertainment Corp. and KG Group, a holding company of a domestic mobile transaction firm, had dropped out of the race, after completing due diligence on McDonald’s Korean stores.

“It seems that (Maeil) felt burdened by picky requirements from McDonald’s head office and financing needs,” a local investment banking source told the Korea Economic Daily. “It failed in narrowing differences with its advisor J.P. Morgan over the deal financing conditions, which is understood as another reason to pull out of the bidding.”

Carlyle also has been vying for the McDonald’s outlets in China and Hong Kong, competing with TPG Capital, according to Reuters’ report last month. Both private equity houses paired up with separate strategic bidders for the stores in China and Hong Kong. Earlier, South Korean sources had said that McDonald’s appeared to prefer to sell about 2,800 stores in China, Hong Kong and South Korea in a package deal.

McDonald’s wants to sell the South Korean unit for over 600 billion won ($526 million), and turn the directly-controlled stores in China, Hong Kong and South Korea into franchises to receive franchise payments and ongoing royalty fees.

“McDonald’s Korea is saddled with debts of about 600 billion won. Despite that, it has stood pat with too high asking price and royalty requirements,” said another IB source. “Under the terms and the conditions required, potential buyers have little option to exit from the investment.”

Late in September the CJ Group, a top food and beverage conglomerate in South Korea, had announced its withdrawal of a bid, without elaborating. Last week NHN Entertainment, a gaming and online payment services provider, said in a regulatory filing that it had finally walked away from a joint bid for McDonald’s Korean unit, after failing to narrow differences with McDonald’s.

By Soram Jung

ram@hankyung.com

<Edited by Yeonhee Kim>