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Gome founder sweetens offer to oust chairman

Celine Sun

Ratcheting up the pressure in the battle for Gome Electrical Appliances Holding, jailed billionaire and founder Wong Kwong-yu openly blamed current management for diluting shareholders' interests and losing the electrical appliance retailer's leading position in the market.

In an open letter issued yesterday, Wong called for all Gome shareholders to support his proposals to replace current chairman Chen Xiao and executive Sun Yiding with Wong's sister, Huang Yanhong, and corporate lawyer, Zou Xiaochun.

Wong, known as Huang Guangyu on the mainland, also proposed to cancel a mandate to sell new shares at the special general meeting on September 28. 'The mandate will be used to improperly dilute our shareholding and that of other shareholders, which would result in a legal challenge and threaten the stability of the company,' the letter said.

He also charged that the nation's second-largest appliance retailer had shown no improvement in its performance during the past two years.

Wong pledged to improve Gome's market share and profitability with a restructured board. He also vowed to inject all the 376 Gome shops he privately owns into the listed company if his proposals are passed.

Despite his sweetened offer, the battle is becoming tougher for Wong, who is serving a 14-year jail term on the mainland for bribery, insider trading and illegal business dealings. Bain Capital, one of the investors supporting the current management led by Chen, converted the bonds it holds into shares yesterday.

The conversion of bonds totalling HK$1.8 billion makes Bain the second-biggest shareholder of Gome with a 9.98 per cent stake. As a result, Wong's stake has been diluted to 32.47 per cent from 35.98 per cent.

Zou, who is in Hong Kong to meet investors, told local media yesterday that his group was now seeking various means to communicate with institutional and individual investors. He refused to disclose investors' attitudes at the moment. 'The founding shareholders are very determined to protect their own interests,' Zou said.

He said the procurement and management agreements between Wong's privately owned stores and the listed company would be ended should shareholders vote against the proposals. Last year, the unlisted Gome stores paid 233 million yuan (HK$268 million) in management fees to the listed company.

Meanwhile, Zou promised Wong would not seek a general mandate to sell more shares if the board was restructured. 'We would ask for shareholders' opinions on the need for raising fund,' he said.

Earlier this week, ISS Proxy Advisory Services and Glass Lewis & Co, two advisers to institutional investors, suggested shareholders reject Wong's move to oust Chen. ISS recommended that the general mandate to issue shares be limited to 10 per cent of the existing share capital, while Glass Lewis suggested in a report to vote against the cancellation of the mandate.

Wong set up the Gome empire in 1987 and once was the richest man in China.

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