According to media reports, McDonald's Corp. MCD intends to sell some of its stake in its Japanese subsidiary – McDonald’s Holding Co. (Japan) – for about $820 million. The buyer would become the largest shareholder in the subsidiary.
McDonald’s Japan was set up in 1971 as a joint venture between McDonald’s and Fujita & Co., each owning a 50% share. However, in 2005, Fujita sold most of its stake.
McDonald’s’ reported intention to sell around 15–33% of its stake comes as the subsidiary has been hit by a slew of food safety issues in the recent times, which significantly hurt traffic at the restaurants. In April, the company announced that it would close 131 underperforming stores in the country and cut 100 jobs to save about 12 billion yen in costs by reducing materials, distribution and overhead expenses.
In the last decade, McDonald’s Japan benefitted from strong growth but sales began to decline as consumers became dissatisfied with its service and offerings. The situation worsened in July last year, when the local media reportedly found out that workers at Shanghai Husi Food Co. — unit of U.S.-based OSI Group LLC — were allegedly reusing meat that had fallen on the factory floor as well as mixing fresh and expired meat. Shanghai Husi supplied meat to McDonald’s Japan.
Things went from bad to worse for McDonald's when objects — including a human tooth and pieces of vinyl — were reportedly found inside its products.
In April, this year, McDonald's Japan guided for operating loss of 25 billion yen ($210 million) for 2015, more than thrice the loss it incurred last year — the first time in 11 years that McDonald’s Japanese affiliate reported a loss. Revenues are likely to drop 10% to 200 billion yen this year — the seventh consecutive year of decline. McDonald’s Japan also predicts 14.4% decrease in system-wide sales.
McDonald’s currently carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the same sector are Dave & Buster's Entertainment, Inc. PLAY, Jack in the Box Inc. JACK and BJ's Restaurants, Inc. BJRI. All these stocks sport a Zacks Rank #1 (Strong Buy).
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