McDonald's Corp. may cede control of South African operations

McDonald's Corp. is considering ceding control of its South African business by granting a license to a local partner to own and operate its outlets in Africa's largest economy, the company's regional manager said.

The Oak Brook-based company plans to appoint a "developmental licensee," to run its South African restaurants, McDonald's South Africa Managing Director Greg Solomon said by phone from Johannesburg today. McDonald's began operating in South Africa in 1995 and currently has 123 outlets in the country, according to its Web site.

While Solomon declined to go into detail about what the "development licensee" model entails, a May 2008 statement by McDonald's to the U.S. Securities and Exchange Commission says it means a "local licensee owns the business, including the real estate, and uses his or her capital and local knowledge to build the McDonald's Brand and optimize sales and profitability over the long term."

The arrangement also entitles McDonald's to collect royalties without being required to invest any capital, the statement said.

The model is one of three that McDonald's employs to operate its 33,000 restaurants around the world and is used in "more than 30 countries," Solomon said.

McDonald's Corp. "has limited capital," and what it has is being focused on growing "critical large markets," the company's South African arm said in a statement on June 9.

"One of the big issues that we will look at when granting the license is whether the individual or entity has enough capital to grow the South African business," said Solomon. "We haven't grown as aggressively as we would've liked over the last fourteen years."

Solomon declined to say who McDonald's is considering but said it is "absolutely and categorically" not in negotiations with Famous Brands Ltd., South Africa's largest fast-food franchise owner.

Famous Brands released a statement on June 9, saying it was in talks that may affect its share price, leading to speculation it may acquire the South African operations of McDonald's, Fin24 reported on the same day.

Famous Brands Chief Operating Officer Kevin Hedderwick declined to comment when contacted by Bloomberg News on his mobile phone.