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McDonald's is selling its Russian business to a current Siberian licensee

McDonald's is selling its Russian business to a current Siberian licensee
In December 2014, a McDonald's restaurant is seen in the center of Dmitrov, a Russian town 75 kilometers (47 miles) north of Moscow. Image: Ap

McDonald's announced Thursday that it has reached an agreement to sell its Russian business to Alexander Govor, its current licensee in the market.

Govor will purchase all McDonald's locations in Russia and operate them under a new brand. He also agreed to keep employees for at least two years on comparable terms, fund the salaries of corporate employees working in 45 different regions of the country until the deal closes, and pay off existing liabilities to suppliers, landlords, and utilities.

The financial terms of the transaction were not disclosed. McDonald's announced on Monday that it expects to incur a non-cash charge of $1.2 billion to $1.4 billion as a result of its net investment in Russia and foreign currency losses.

If regulatory approval is obtained, the transaction is expected to close in the coming weeks. It marks the end of an era for the fast-food corporation, which entered the country just months before the Soviet Union disintegrated.

"McDonald's in Russia integrated the very notion of glasnost and took on outsized significance," CEO Chris Kempczinski wrote in a letter to the McDonald's system on Monday, following the announcement of the company's intention to sell.

McDonald's had grown its Russian business to approximately 850 locations in the three decades since opening its first location in Moscow. The company owned approximately 84 percent of the restaurants, with the remainder operated by franchisees. Owning more restaurants generates more revenue for the company, but exposes it to more risk during times of turmoil or economic downturn.

After the Kremlin invaded Ukraine in early March, McDonald's announced that it would temporarily close its Russian locations. In late April, the company announced that the suspension of its operations in Ukraine and Russia due to the war cost it $127 million in the first quarter. And on Monday, it announced plans to sell the company.

"Some might argue that providing food access and continuing to employ tens of thousands of ordinary citizens is unquestionably the right thing to do. "However, it is impossible to ignore the humanitarian crisis caused by Ukraine's war," Kempczinski wrote in his letter.

Other Western companies, such as automaker Renault and oil giant Exxon Mobil, are selling their Russian operations.

Govor has 25 McDonald's locations in Siberia and has been a McDonald's licensee since 2015.

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