Gome Says It’s Suing Ex-Chairman Chen for Breach of Agreement

Gome Electrical Appliances Holding Ltd., China’s second-largest electronics retailer, said it filed a lawsuit in Beijing against former chairman Chen Xiao for breaching an agreement to protect the company’s reputation.

Chen broke the agreement by giving “false and misleading company information to a finance newspaper reporter” that damaged Gome’s reputation and operations, the company said yesterday in an e-mailed statement. Chen said he wasn’t aware of a lawsuit filed against him and declined to comment further when reached by phone yesterday.

Chen had resigned in March after losing a boardroom battle with Gome’s billionaire founder Huang Guangyu, who fought from prison to reassert his influence over the company after being jailed on bribery and insider trading charges. Gome on May 11 fell the most in almost two months in Hong Kong trading after the 21st Century Business Herald carried remarks by Chen.

The retailer on May 11 said it didn’t agree with Chen’s comments as reported by the newspaper and that it would “take appropriate steps to protect the company’s interests.”

Gome gained 4.3 percent to HK$2.94 yesterday, before the statement was released. The stock has gained 5 percent this year, compared with a 5.1 percent drop for the benchmark Hang Seng Index.

The lawsuit is part of Gome’s efforts to address “any doubts on the company’s business,” said Xiaopo Wei, a Hong Kong-based consumer analyst at CLSA Asia-Pacific Markets who recommends buying the stock.

Gome in March reported a 39 percent increase in net income to 1.96 billion yuan ($303 million) for 2010, the fastest annual profit growth in four years.

Huang had fought for control over the company with shareholders including Bain Capital LLC, saying he disagreed with the slower rate of store openings under Chen, whom the private-equity fund had supported. Gome earlier in March said it aims to add outlets to raise its share of China’s home appliances market from about 10 percent.

The company is also expanding in the Internet-commerce market as it competes with larger rival Suning Appliance Co.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE