Gome Electrical's Chairman Chen Quits After Boardroom Battle With Founder
Gome Electrical Appliances Holding Ltd. Chairman Chen Xiao quit, succumbing to a seven-month campaign by billionaire founder Huang Guangyu to reassert control over China’s second-largest electronics retailer from a prison cell.
Chen stepped down “to spend more time with his family” and will be replaced by Zhang Dazhong, 62, founder of a rival that Gome acquired more than three years ago, Gome said yesterday in a statement to the Hong Kong stock exchange.
Gome shares rose as much as 6.5 percent today, with Chen’s departure a victory for Huang, who is serving 14 years in prison for bribery and insider trading. Huang, Gome’s biggest shareholder, has disputed board decisions, threatened to split the company and opposed an investment by Bain Capital LLC.
“Everything is under control now,” said CCB International Securities Ltd.’s Forrest Chan, the top-ranked Gome analyst in the past year, according to data compiled by Bloomberg. “The board of Gome used to be divided amid the dispute between Huang and the management. Now their interests are aligned. Things are getting better.”
Chan has an “outperform” recommendation on Gome stock and said the company likely will open more stores to protect its position in the market.
Gome shares rose 3.3 percent to HK$2.86 at the noon break in Hong Kong trading. After almost tripling in 2009, shares lost 0.7 percent last year.
Huang, once China’s richest man, owns about 31 percent of Gome’s Hong Kong shares, according to data compiled by Bloomberg. He first proposed removing Chen in August because he disagreed with Chen over decisions to slow store openings and to allow an investment by Bain Capital, according to Zou Xiaochun, Huang’s corporate lawyer.
Bain owns 9.9 percent, making it the second-largest shareholder, according to data compiled by Bloomberg. A Bain affiliate bought $233 million worth of Gome convertible bonds in June 2009.
“We welcome Mr. Zhang and Mr. Lee to the Gome board,” said Bain Capital Managing Director Jonathan Zhu, referring to Lee Kong Wai’s appointment as an independent, non-executive director.
We “look forward to working with them to grow Gome and create value for shareholders,” Zhu said in a statement.
While Huang’s recommendation to remove Chen was rejected at a shareholders’ meeting in September, Huang’s proposal to cancel a mandate to issue new shares that may dilute his stake was approved. Less than two months later, Gome agreed to appoint Zou as an executive director and Huang’s sister, Huang Yanhong, a non-executive director.
Huang Guangyu, who privately owns the Gome brand and about 400 stores, had threatened to sever ties, creating a competitor to Gome’s 700-plus outlets in China. The board appointments of his lawyer and sister were followed by a statement saying there was no longer an intention to terminate the relationship.
Sun Yi Ding also resigned as an executive director yet will stay on as a vice president, according to the statement. Huang also proposed removing Sun last year.
Sun also resigned to spend time with his family, Gome said. Chen and Sun had no disagreement with the board, and there are no “matters that need to be brought to the attention of the shareholders,” Gome said.
Zhang, 62, is No. 290 on the Forbes list of the richest people in China, with an estimated wealth of $555 million. He founded Beijing Dazhong Electronics Ltd., which a Gome partner bought for 3.6 billion yuan. Gome financed the deal and operates Dazhong.
Zhang also will be a non-executive director, Gome said.
Huang, also known as Wong Kwong Yu, is serving the prison term after being convicted in a Beijing court in May of bribery, insider trading and illegally buying foreign currency. He was ranked China’s richest man by Forbes magazine in 2006 with an estimated wealth of $2.3 billion.
Huang’s wife, Du Juan, has a 1.4 percent stake in Gome while Chen has 1.2 percent, according to data compiled by Bloomberg.
Hong Kong’s High Court lifted a freeze on Du’s assets after two companies owned by Huang deposited with the court Gome share certificates worth HK$1.66 billion ($213 million), the city’s securities regulator said March 3. The freeze on Huang’s assets remains, the Securities and Futures Commission said.
The freeze on Du’s assets was granted in August 2009 after the SFC began investigating whether Huang and Du manipulated the market by organizing a company share repurchase, according to an SFC statement at the time.
Du was granted a suspension of her 3 1/2-year prison sentence by a Beijing court last year after being convicted of insider trading.
- Michael Wei. With assistance from John Duce and Frank Longid in Hong Kong. Editors: Michael Tighe, Lena Lee
To contact the Bloomberg Staff on this story: Michael Wei in Beijing at firstname.lastname@example.org.
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