Chen Xiao, chairman of Gome Electrical Appliances Holding Ltd, at the company's interim results announcement in Hong Kong on Monday. Jerome Favre / Bloomberg
Company chairman calls for special meeting of shareholders on Sept 28
BEIJING - Electronics retailer Gome Electrical Appliances Holdings Ltd on Monday said first-half profit rose by 66 percent to 962.3 million yuan ($141.5 million) on strong consumer demand, enabling it to post its best performance since 2008.
At the same time, the company's battle with its founder and former chairman Huang Guangyu looked set to intensify further with the current management team headed by Chairman Chen Xiao calling for a special meeting of shareholders on Sept 28.
Gome attributed the better performance to its strategy of closing unprofitable stores and revamping existing outlets. It also gained from government incentives for rural residents to buy appliances.
Gome said revenue for the six months ending June 30 this year rose by 22 percent to 24.9 billion yuan.
The company's rival Suning, another major electrical appliance player in China, reported a 53.3 percent year-on-year rise in net profit to 2.6 billion yuan and revenue of 36.1 billion yuan in the same period.
Chen said the special meeting of shareholders will decide on the resolution filed by Huang seeking his and Vice-President Sun Yiding's ouster from the board.
Huang, the company's founder, who has been jailed for financial irregularities, had earlier this month sought Chen's removal on grounds that Gome's performance had deteriorated under Chen's leadership.
Refuting Huang's claims, Gome filed a lawsuit against Huang in the Hong Kong High Court for breach of fiduciary duties in early 2008 as a former board director.
"If I fail to get support from the majority of shareholders, I will resign," Chen said on Monday.
US private equity firm Bain Capital LLC, which holds HK$1.8 billion ($230 million) in seven-year convertible bonds in Gome, on Monday said it was converting the bonds into an equity stake. That will dilute Huang's shareholding to about 31 percent from 34 percent and give Bain a 9.8 percent stake in Gome ahead of the shareholder meeting. Bain has decided to support the existing management in the upcoming voting at the special shareholders' meeting, said Zhu Jia, head of Bain's China branch.
Huang remains the largest shareholder in the company. Institutional investors together hold around 45 percent, while the remaining 21 percent is held by 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 institutional shareholders.
Chen also rebutted Huang's claims that he was turning Gome into a foreign company. He said in a previous letter that foreign capital had come into the company much earlier during Huang's term as chairman.
Huang had also sought cancelation of a mandate empowering the board of directors to issue additional shares representing up to 20 percent of Gome's share capital.
Gome still needs around 4 billion yuan every year for business expansion. The new share issues will help us bridge the gap, said Chen.
"We cannot support Huang's proposal at the cost of violating the rights of other shareholders," Chen said.
During the first half of 2010, Gome closed 25 unprofitable stores and opened 39 new outlets. The company plans to increase the number of outlets to 1,400 and add another 700 more by 2014.
Suning earlier said it intends to increase the number of its chain stores to 3,500 and its supporting logistics bases to more than 120 over the next five years.
Gome and Suning currently hold identical market shares of 8 percent, according to Everbright Securities.
