CJ Group Interested in Acquiring McDonald's Korea Operations

CJ Group has jumped into a bidding war to acquire McDonald's Korea. According to investment banking sources on June 28, CJ Group had submitted a letter of intent to a preliminary bidding held on the 20th organized by Morgan Stanley, McDonald's lead manager in the deal. Of late, the U.S. headquarters of McDonald's is trying to sell off directly run stores in Asia including China, Hong Kong, and Korea and turn them into franchisees as a way to earn a stable stream of income through royalties.

McDonald's has 400 directly run locations in Korea while running 2,400 such stores in China and Hong Kong. Investment bankers estimated the Korean operation of McDonald's would be valued at 300-500 billion won. CJ Group is keenly interested in acquiring the fast food chain as it owns a large number of foodservice operations including Tous Les Jours (bakery), VIPS (western food buffet), and Season's Table (Korean food buffet).

As there is a large difference between the asking and offer price as well as in the way the deal would be structured, however, it remains to be seen whether CJ's interest would survive until the main bidding. The seller is looking for ways to turn the deal into a master franchise after selling the 100-percent stake in McDonald's Korea, with hard-to-fulfill conditions like charging 3-5-percent royalties a year while limiting the franchise right within 20 years. An investment banker said, "If the seller insists on terms like franchise switching and royalties, it is likely for CJ to walk away from the deal."

Meanwhile, McDonald's America intends to sell the assets in China and Korea in a package. An industry official said, "If a buyer wanting to take over all store properties in China and Korea appears, CJ will likely be pushed out of the priority list. According to Bloomberg and other foreign media reports, Sanbao Group and Beijing Shoulu Group have entered a bidding war to take over Chinese McDonald's stores.

by Soram Jung

ram@hankyung.com