CJ intends to buy McDonald’s Korean unit
Su Jin Jang, June 29, 2016, 9:49 a.m.
South Korean food and entertainment giant CJ Group said Wednesday it has submitted a letter of intent last week to buy McDonald’s Korean unit, without providing details. In a regulatory filing, the conglomerate said it has not decided yet on which affiliate would be dealing with the bid. But insiders say that the group’s food services unit CJ Foodville is likely to take the charge, as the group expects to secure a “stable source of income” for its affiliate if it buys the local unit of the U.S. fast food chain.
“Operating Korean food business overseas is hard work that requires massive investment in pioneering the markets. CJ Foodville has been suffering from substantial losses for years,” an official at the group told The Korea Herald.
“I believe that the group has joined the race to secure a stable source of income so that CJ Foodville could continue its overseas market entries with income generated from its Korean business.”
In recent years, CJ Foodville has been targeting overseas markets by having Bibigo, a bibimbap-themed Korean restaurant chain on the front. However, the CJ unit become a headache as it has gone into the red ink since 2011. The company had its capital impaired until it issued 50 billion won ($43 million) worth of convertible bonds late last year.
CJ Foodville operates brands including Bibigo, Tous Les Jour and Twosome Coffee. However all of its overseas offices have been running in deficit, further depleting financial resources at home.
CJ buying McDonald’s could be an opportunity to switch up the current situation. But CJ officials and industry sources remained skeptical, saying it would be difficult for the group to enter the next round of bidding, citing tricky conditions attached for taking McDonald’s Korea.
“Due to fastidious conditions, CJ Group appears to be not taking excessive risks to push for the bid,” wrote Kim Han-i, an analyst at Daishin Investment and Securities in his report.
In March, McDonald’s Corp. said it was looking for partners to take over restaurants operating across Asia, including in China, Hong Kong and South Korea.
According to reports quoting investment banking sources, the U.S. company plans to demand 3-5 percent of revenue as a royalty. McDonald’s directly manages about 400 stores in South Korea. Others say the U.S. company would prefer to sell both its operations in China and South Korea in one package.
The selling value of McDonald’s Korea will hover around 300 billion won to 500 billion won, sources expected. McDonald’s has hired Morgan Stanley to manage the sale.
Not only CJ, but also local company KG Group has reportedly joined the race, with local private equity firm MBK Partners monitoring the situation with an aim to acquire McDonald’s operations in Japan, according to Maeil Business Newspaper.
McDonald’s Korea declined to comment on conditions of the bid reportedly demanded by its head office in U.S.
“All I can say is that the company is looking for a partner now for McDonald‘s Korea to secure a new engine growth,” said Jin Woo-sik, a public relations representative of McDonald’s Korea.