Consultancy files complaints over McDonald’s China sale

Source:Reuters Published: 2017/2/16 22:18:40

Sale of mainland units ‘may hurt workers, consumers’

A pedestrian walks past a McDonald's restaurant in Shanghai on January 13. Photo: CFP

A pedestrian walks past a McDonald's restaurant in Shanghai on January 13. Photo: CFP

A Chinese consultancy that has previously helped win antitrust battles against Coca-Cola and Apple has taken aim at McDonald's Corp, arguing in a complaint to regulators that the US-based fast-food giant's China sale may hurt workers and consumers.

McDonald's said last month that it had agreed to sell the bulk of its Chinese mainland and Hong Kong business to State-backed conglomerate CITIC and US private equity firm Carlyle Group LP for up to $2.1 billion, in a deal that will see the consortium act as the master franchisee for a 20-year period.

The complaint, which follows allegations from a US labor union that the transaction will likely lead to poorer pay and conditions for McDonald's 120,000 workers in China, could delay regulatory approval for the deal.

Beijing-based Hejun Vanguard Group, a management consultancy that has a track record of representing domestic companies against foreign firms, filed two separate complaints against McDonald's with the Ministry of Commerce's (MOFCOM's) antimonopoly bureau and its franchise office, Hejun Vanguard told Reuters.

While Hejun has stopped short of asking the MOFCOM to block the deal, it has called on the regulator to closely scrutinize the transaction and take measures to prevent McDonald's from "abusing" what it claims is the company's dominant position in the fast-food burger market in China.

It has also called for the MOFCOM to investigate alleged violations of China's franchise law by McDonald's, which it claims has failed to properly register all of its outlets in the mainland.

The MOFCOM did not immediately respond to a request for comment. CITIC, CITIC Capital and Carlyle declined to comment.

McDonald's said it had filed reports on its franchise business with the MOFCOM in accordance with franchise regulations, and it disputed Hejun's analysis of its market share in China. It added that its franchise model globally is based on mutually beneficial partnerships.

Hejun said it was not acting for any specific companies in the case and generally seeks to protect domestic brands from overly aggressive foreign companies.

The Service Employees International Union, a US labor organization, last year warned potential buyers of roughly 3,000 McDonald's restaurants in Asia that such deals could saddle them with operational risks, including significant costs and liabilities.

In January, it raised concerns over McDonald's China deal, saying that previous similar transactions in other markets - including Brazil and Puerto Rico - had put enormous pressure on franchisees, making it harder for them to provide adequate pay and conditions for their workers.

"The deal will put enormous downward pressure on McDonald's master franchisees, existing franchisees that operate individual stores, and the workers and customers of those stores," said Li Su, CEO of Hejun Vanguard Group, in a statement.

"Regulators should investigate the transaction and impose restrictions to prevent McDonald's from abusing its dominant market position."

CITIC and CITIC Capital, an affiliate company that manages private equity funds, will hold 52 percent following the deal. Carlyle will control 28 percent of the business, while McDonald's will retain 20 percent.

McDonald's owns and operates most of its outlets on the Chinese mainland.


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