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Huang bid for control of GOME voted down
By Pan Xiaoyi |
September 29, 2010, Wednesday
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Print Edition
Print Edition
HUANG Guangyu, the jailed founder of GOME Electrical Appliances Holdings, failed to regain control of the company, as shareholders voted to keep Chen Xiao as chairman at a special shareholder meeting in Hong Kong yesterday.
The result came as a surprise after online polls showed most people thought Huang, who is serving a 14-year prison sentence for bribery and insider trading, would oust Chen and take control.
Industry analysts and watchers said further struggles are expected because the ambitious Huang will not easily give up. They fear the conflict will give rival Suning more room to consolidate its position as the country's largest electrical appliances retailer.
Huang did get some good news when a general mandate for the board to issue up to 20 percent more shares failed, ensuring that Huang's shares will not be further diluted.
Huang remains the retailer's largest shareholder with 30.6 percent of the shares.
More than 70 percent of shareholders participated in the voting and Huang lost the attempt to unseat Chen by about 3 percentage points.
Shareholders also rejected his proposals to appoint his sister Huang Yanhong and his corporate lawyer Zou Xiaochun as executive directors.
Huang issued a statement last night.
"We are pleased that the general mandate has been revoked, as we believe that it could and would have been used improperly by the company to dilute the investment of the founding shareholders and all other existing shareholders," said the statement in the name of "The Founding Shareholders of GOME."
"While we are disappointed in the vote on our other proposals, the vote was close and we believe strongly in the long-term potential of GOME, and intend to remain active and involved shareholders," it added.
In an online poll by Sina.com, China's largest online portal, 59 percent of 1.8 million participants across the nation had thought Huang would win the internal battle.
The result "is out of expectation," said Tang Jiarui, an analyst at Everbright Securities Co.
"I think Chen was backed by institutional investors because Chen brings higher profitability - what these investors wanted." Institutional investors hold 40 percent of GOME's shares.
Under Chen's leadership, GOME has closed more than 150 stores in the name of profitability. By the end of June, GOME had 740 stores nationwide while Suning had 1,075, surpassing GOME to become the largest retailer of electrical appliances.
GOME's management team, led by Chen, issued a statement last Monday describing the special shareholder meeting as a choice between a modern enterprise centering on shareholder value and a company at risk from its founder, who puts personal interest above anything else.
However, industry watchers said there is still room to expand in China's electrical appliances market.
To expand presence and achieve economy of scale remains the top priority in the short term for Chinese retailers, they said.
"The pursuit of profitability at the cost of store numbers will harm GOME's strengths in the long run," said Yolen Song, an independent analyst who follows the home appliances market.
Industry insiders said many employees are contacting Suning to join the company because conditions within GOME are unstable.
Huang was arrested by Beijing police in late 2008 in suspect of illegal business dealings, insider trading and corporate bribery. In May this year, he was sentenced to 14 years in prison.
Huang had built GOME into China's biggest appliance retailer and was listed as the mainland's richest man in 2004, 2005 and 2008.
Huang and Chen-led board have been openly at odds with each other since May.
Last month, the Chen-led GOME board filed a writ of summons against Huang at Hong Kong's High Court for Huang's alleged breach of fiduciary duties in early 2008.
The result came as a surprise after online polls showed most people thought Huang, who is serving a 14-year prison sentence for bribery and insider trading, would oust Chen and take control.
Industry analysts and watchers said further struggles are expected because the ambitious Huang will not easily give up. They fear the conflict will give rival Suning more room to consolidate its position as the country's largest electrical appliances retailer.
Huang did get some good news when a general mandate for the board to issue up to 20 percent more shares failed, ensuring that Huang's shares will not be further diluted.
Huang remains the retailer's largest shareholder with 30.6 percent of the shares.
More than 70 percent of shareholders participated in the voting and Huang lost the attempt to unseat Chen by about 3 percentage points.
Shareholders also rejected his proposals to appoint his sister Huang Yanhong and his corporate lawyer Zou Xiaochun as executive directors.
Huang issued a statement last night.
"We are pleased that the general mandate has been revoked, as we believe that it could and would have been used improperly by the company to dilute the investment of the founding shareholders and all other existing shareholders," said the statement in the name of "The Founding Shareholders of GOME."
"While we are disappointed in the vote on our other proposals, the vote was close and we believe strongly in the long-term potential of GOME, and intend to remain active and involved shareholders," it added.
In an online poll by Sina.com, China's largest online portal, 59 percent of 1.8 million participants across the nation had thought Huang would win the internal battle.
The result "is out of expectation," said Tang Jiarui, an analyst at Everbright Securities Co.
"I think Chen was backed by institutional investors because Chen brings higher profitability - what these investors wanted." Institutional investors hold 40 percent of GOME's shares.
Under Chen's leadership, GOME has closed more than 150 stores in the name of profitability. By the end of June, GOME had 740 stores nationwide while Suning had 1,075, surpassing GOME to become the largest retailer of electrical appliances.
GOME's management team, led by Chen, issued a statement last Monday describing the special shareholder meeting as a choice between a modern enterprise centering on shareholder value and a company at risk from its founder, who puts personal interest above anything else.
However, industry watchers said there is still room to expand in China's electrical appliances market.
To expand presence and achieve economy of scale remains the top priority in the short term for Chinese retailers, they said.
"The pursuit of profitability at the cost of store numbers will harm GOME's strengths in the long run," said Yolen Song, an independent analyst who follows the home appliances market.
Industry insiders said many employees are contacting Suning to join the company because conditions within GOME are unstable.
Huang was arrested by Beijing police in late 2008 in suspect of illegal business dealings, insider trading and corporate bribery. In May this year, he was sentenced to 14 years in prison.
Huang had built GOME into China's biggest appliance retailer and was listed as the mainland's richest man in 2004, 2005 and 2008.
Huang and Chen-led board have been openly at odds with each other since May.
Last month, the Chen-led GOME board filed a writ of summons against Huang at Hong Kong's High Court for Huang's alleged breach of fiduciary duties in early 2008.
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