GOME founder fails to gain shareholders' support

Jailed billionaire Huang Guangyu, fighting for control of the electronics retailer he founded, failed to win investor support for his proposals to oust its chairman and install his sister and lawyer as directors.

While Huang, once China s richest man, is the largest investor in Gome Electrical Appliances Holdings Ltd., 52 percent of the votes at a special general meeting yesterday were in favor of keeping Chen Xiao as chairman. Still, Huang s proposal to cancel a mandate to sell new shares was approved.

Huang, who resigned from the board last year and is being sued by Gome in Hong Kong for breach of trust, sought to cancel the mandate to prevent the dilution of his stake in China s second-largest electronics retailer. He s serving a 14-year sentence after being convicted in a Beijing court in May of bribery, insider trading and illegally buying foreign currency.

There s still some uncertainty because Huang still has a lot of shares, so the management may still be undermined, Kenny Tang, executive director at Redford Asset Management Ltd. in Hong Kong, said in a phone interview late yesterday.

Gome fell 3.6 percent to HK$2.40 in Hong Kong trading yesterday extending its decline this year to 15 percent, compared with a 2.3 percent gain for the benchmark Hang Seng Index.

Huang, also known as Wong Kwong Yu, is the retailer s biggest shareholder with a 31.01 percent stake while his wife Lisa Du Juan holds 1.46 percent, according to data compiled by Bloomberg. Bain Capital LLC is the second-biggest shareholder with 9.98 percent, and Chen owns 1.25 percent, the data show.

Ninety-five percent of votes were in favor of keeping Bain representative Jonathan Zhu Jia as a non-executive director, Gome said in a statement. Bain said Sept. 16 that it would support Chen.

It s a clear vote in favor of minority shareholder rights and good governance, Tim Payne of Brunswick Group LLC, hired to handle public relations for Gome, said in a phone interview.

Huang s corporate lawyer Zou Xiaochun didn t reply to calls or mobile-phone text messages seeking comment. The billionaire had proposed appointing his sister Huang Yanhong as well as Zou as executive directors.

Nothing has changed about our concerns regarding the unrepresentative nature of the board and we reserve all our rights to take appropriate action to protect our interest, Huang s representatives said in an e-mailed statement.

Government Investigation

Huang was detained by Beijing police on Nov. 17, 2008, for suspected manipulation of the shares of Shenzhen-listed Beijing Centergate Technologies (Holding) Co., a property company he controls, and Sanlian Commercial Co., according to a Shenzhen stock exchange filing.

The government began investigating Huang in 2006 for back taxes, according to a court judgment verified by his appeal lawyer Lv Guoyu. The Ministry of Public Security s Economic Crimes Bureau also probed his companies for improperly obtained loans, back taxes and gambling, according to the judgment.

Huang was convicted at a Beijing court in May. He lost his appeal last month, the Shenzhen-based newspaper Securities Times reported.

He s lucky that he s able to fight for board control under stable conditions, said Li Delin, author of The Truth about Huang Guangyu, a book about Huang s case. Eighty percent of companies fall apart under these conditions.

Past convictions for Chinese tycoons, including Shanghai Land Holdings Ltd. Chairman Zhou Zhengyi in 2007 and flower baron Yang Bin of Euro-Asia Agricultural (Holdings) Co. in 2003, caused their companies to collapse.

Born to peasants in the southern Chinese province of Guangdong, Huang left school in 1985 at 16, bringing samples of radios, batteries and other small electrical goods to Beijing, collecting orders that he filled in Guangdong.

Two years later, he and older brother Huang Junqin bought a clothes shop in Beijing named Gome that Huang turned into China s largest electronics retailer until it was surpassed by Suning Appliance Co. in 2008.

Huang is a genius businessman, said stockholder Li Qiang, who holds 24,000 shares and voted in favor of the billionaire s proposals. We can t reject him because he is in jail. We can t forgive? A flawed hero is still a hero.

Chen, who joined the retailer s board after it bought his China Paradise Electronics Retail Ltd. in 2006, has said Huang left Gome almost on the verge of bankruptcy when he was detained.

Huang disagreed with Chen about slowing the rate of store openings and broke with him over negotiations for an investment by Bain, according to Zou. In mid-July, Huang asked Chen to resign. Chen refused and sued Huang on behalf of the company.

Huang had called for the special general meeting yesterday to vote on his five proposals, four of which were defeated.

The shareholders reelected Bain s two other representatives, Ian Andrew Reynolds and Wang Li Hong, as non-executive directors. Huang s proposal to oust Sun Yi Ding as an executive director was rejected.

Huang topped the Hurun Report s China Rich List in 2008 with an estimated net worth of $6.3 billion. Forbes last year ranked him 130 in its list of richest Chinese with a net worth of $725 million. The 32.47 percent he and his wife hold in Gome is worth HK$13 billion ($1.68 billion) at today s closing price.

We ve seen the likes of Enron and WorldCom where the management went to prison and the company went bankrupt, said Alexis Krajeski, associate director of governance and sustainable investment at F&C Asset Management Plc, which holds about 8.3 million Gome shares. To management s credit, they ve managed to keep this company afloat when it could ve all gone down the drain.