McDonald’s is selling Russian-based business

McDonald’s Corp (NYSE: MCD) announced that it is selling its Russian-based business to Alexander Govor, the corporation’s current licensee in the region. Alexander will now control all of the McDonald’s premises in the country and will have them run under a new brand. 

Govor also agreed to keep the current workers for at least 24 months, on equivalent terms and conditions, and fund the corporate employee salaries for people who work in the country’s 45 regions until completion of the deal. 

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Details of the agreement

McDonald’s said it expects to get a $1,2 billion to $1.4 billion non-cash charge related to its total net investments in the soviet nation and foreign currency losses. The completion of the deal is expected to happen in the coming month after regulatory approval is secured. 

This is the end of an illustrious era. This first-food giant first entered Russia just a couple of months before the dissolution of the Soviet Union and has done quite exceptionally since then. 

Management thoughts

McDonald’s Chief Executive Officer, Chris Kempczinski, said in a letter to the company’s system:

McDonald’s in Russia embodied the very notion of glasnost and took on outsized significance.

He claimed in the letter that:

Some might argue that providing access to food and continuing to employ tens of thousands of ordinary citizens, is surely the right thing to do. But it is impossible to ignore the humanitarian crisis caused by the war in Ukraine.

In the 30 years since McDonald’s opened its first location in the country, it grew its Russian-based business to approximately 850 locations. The corporation wholly-owned around 80% of those restaurants. The rest were run by franchisees. 

The company gets more revenue the more the restaurants it owns. However, it will also open itself up to more risk when the economy is struggling or in times of turmoil. 

Early this year, Russia invaded neighboring Ukraine. The company then decided to temporarily suspend operations, which then later said resulted in a $127 million loss. This helped nudge the decision to sell.