The souring of a good relationship
Chen Xiao and Wong Kwong-yu were not always enemies. Wong invited Chen to act as chief executive after the home appliance chain founded by Chen, China Paradise, merged with Gome in 2006.
The relationship soured shortly after Wong's detention in 2008. To deal with a debt crisis, Chen introduced Bain Capital as an investor and the foreign fund agreed to invest up to HK$3.236 billion via convertible bonds and new shares. However, Wong considered the Bain investment a threat to his control of the company; thus was born the enmity between the two men.
The conflict went public in May when Wong used his right of veto over the re-election of three Bain directors to the Gome board. Despite the veto they were reappointed hours later in a board meeting engineered by Chen.
Less than a week later, Wong was jailed for 14 years for corporate bribery, insider trading and corrupt dealings in Beijing. Wong has continued to fight for control of the company behind bars.
In August, Shinning Crown Holding, wholly controlled by Wong, urged the Gome board to hold a shareholders' meeting to remove Chen and revoke a mandate to issue new shares. Gome management fought back the following day by filing a lawsuit in the Hong Kong High Court against Wong for breach of fiduciary duties. A very public war of words has ensued ever since.
Wong has criticised management's performance and warned shareholders their stake will be diluted if the board carries out a new share-issuing mandate. He has also offered to inject 376 unlisted Gome shops into the listed company if they vote to get rid of Chen.
However, Chen and the board have secured support from Bain, which has become the second-largest shareholder in Gome through a bond conversion.
ISS Proxy Advisory Services and Glass Lewis & Co, two advisers to institutional investors, recommended to shareholders that they reject Wong's bid to oust Chen.
