Costs in JVs, M&A, Partnerships

Costs in JVs, M&A, Partnerships

McDonald’s vs. Connaught Plaza Restaurants Limited

Charges:

The fight between McDonald’s and Bakshi began in 2013 after fast food giant removed Bakshi as the Managing Director of Connaught Plaza Restaurants Limited (CPRL). The National Company Law Tribunal later reinstated him and also refrained McDonald’s from interfering in the functioning of CPRL besides appointing an administrator to oversee the smooth functioning of CPRL. The battle gained momentum after Bakhshi’s ouster and turned ugly as McDonald’s India terminated the franchise agreement of 169 outlets in August 2017. Both the parties are now fighting out their case in various legal forums including NCLT, NCLAT and Delhi High Court.

McDonald’s India’s legal battle with its domestic partner CPRL has cost it dear with the US multinational’s Indian subsidiary posting highest ever loss of Rs 305 crore in the financial year that ended in March. The company has made a provision of Rs 198.2 crore in its financial statements to cut back losses accumulated due to CPRL.

The legal battle between McDonald’s and its India partner Vikram Bakshi, also managing director of CPRL, has been going on for five years. Its northern and eastern business is still operated by Bakshi’s company despite the company terminating the franchise agreement of 169 outlets last year. Hardcastle Restaurants Private Limited, led by Smita Jatia, handles its south and west India business through its wholly owned subsidiary Westlife Development Limited.

What went wrong here and how ALP's Prophylactic and practices could have prevented this?

Alliances and JV’s are often a time for celebration with most contracts addressing all potential upsides and limiting the downsides. This contract failed to address some basic issues that could arise in case of non-alignment or change in goals and priorities of either parties and failed to protect McDonald’s control over its investments when dispute arose.

A conglomerate that invested significantly in developing the market has been saddled with loses, eroding market share and complete loss of control on its branded outlets.