Companies

Power struggle weighs down Gome

By Bao Chang (China Daily)
Updated: 2010-08-13 09:28

Gome founder Huang Guangyu is pressing for the removal of current chairman Chen Xiao at a special general meeting. [Provided to China Daily]

Experts: Firm to remain eclipsed by Suning until dispute is resolved

BEIJING - Electrical appliance retail giant Gome will remain eclipsed by rival Suning until the ongoing power struggle between jailed former chairman Huang Guangyu and the company's current management is resolved, experts warned.

Huang, the company's founder who was jailed earlier this year for bribery and insider trading, has called for the removal of current chairman Chen Xiao at a special general meeting.

Huang remains Gome's biggest shareholder with a 34 percent stake in the company.

In response to Huang's claim, the Beijing-based company filed a writ of summons in a Hong Kong court against Huang to seek compensation for his alleged breach in connection with Huang's repurchase of the company's shares in early 2008.

Huang, who is currently serving a 14-year prison sentence, is pressing Gome's board of directors to make its final decision on the special general meeting as soon as possible.

Chinese media 21st Century Business Herald quoted Huang's spokesperson that the company's performance had deteriorated under the current chairman's leadership.

He Yangqing, a spokesperson for Gome, refused to comment on the ongoing legal spat.

Due to the influence of the corruption scandal, Gome's market performance has been surpassed by its competitor Suning Applicance Company Ltd, according to Tang Jiarui, an analyst at Everbright Securities.Gome's sales revenue in the first quarter of this year was 11.8 billion yuan ($1.74 billion), while Suning's was 16.7 billion yuan.

But Juile Ke, an analyst with Guotai Junan (HK), predicted that Huang's strategy may backfire.

Related readings:  Gome sues ex-chairman Huang Guangyu  Gome names Wang Junzhou as new president  China tycoon Huang appeals 14 year jail term  Huang Guangyu: From tycoon to prisoner

If a special general meeting was held, given the high profile of the event, Ke expected more small shareholders would turn up and back the current management "If the company wants to revive after its repeated setbacks in recent years, Huang's influence has to end," said Tang from Everbright Securities.

Gome and Suning currently operate 1,141 and 1,075 retail outlets respectively around the country, each controlling 8 percent of the market, according to Everbright Securities.

Apart from Huang's 34 percent stake, institutional investors hold 45 percent of Gome's shares and the remaining 21 percent are scattered among small investors.

Data from Thomson Reuters shows that Gome has 180 institutional shareholders, with JP Morgan Chase, Morgan Stanley and Fidelity Fund accounting for 21 percent of the company's shareholders.