China Consumer

Advantage Huang

Resignation of chairman latest twist in Gome saga

Advantage Huang

The battle for control at Gome seems to have come to a conclusion, at least for now. Chen Xiao, the erstwhile chairman of Gome Electrical Appliances, resigned last week, ending a long running dispute with the company’s founder Huang Guangyu, who has been trying to reassert control over China’s second-largest electronics retailer – somewhat unconventionally from a jail cell.

According to the company’s press release, Chen stepped down “to spend more time with his family” (good to see the old euphimism crosses cultural boundaries; perhaps Huang could try something similar in asking for early release himself?).

Chen will be replaced by Zhang Dazhong, 62, founder of Beijing Dazhong Electric Appliances, a rival firm that Huang acquired three years ago. Zhang is said to have received unanimous support from Gome’s 13-member board.

Chen’s departure is undoubtedly a victory for Huang, who is serving a 14-year prison sentence for bribery and corruption. But jail time hasn’t stopped him – also Gome’s biggest shareholder with 32% – from disputing board decisions and trying to oust Chen as chairman since last year. A shareholder resolution to remove Chen was narrowly defeated last September.

This time around, Chen is definitely going, after a struggle for control that has been widely reported in the local media. Huang has even earned approving comment for his tenacity. “I really admire that he managed to take control of the situation and ultimately win the battle despite being imprisoned. Gome’s success is no accident,” gushed Wang Zhen, in one weibo comment.

The recent truce might also (rather paradoxically) prove good news for Bain Capital, Gome’s second-largest shareholder. Even though the US private equity firm has been a long-time supporter of Chen, critics agree that the latest boardroom shuffle could end up being beneficial as Gome switches its focus to the competition – rather than directing its guns inwards.

Indeed, while Chen was distracted by the fight with Huang, rival electronics retailer Suning has been expanding aggressively. Not only did it add more new stores than Gome last year, it has also been investing heavily in information technology and logistics. It announced recently that it expects sales to rise at least 30% this year on last. Gome’s latest annual results are due out at the end of the month. Last year’s results reported revenues down 7%.

Is the new chairman the right man for the job? Zhang’s former firm Dazhong Electric Appliances was also a big player – but was more regionally focused in northern China and analysts say Zhang may have difficulties winning the trust of senior executives in the fractious firm, says 21CN Business Herald. He has also been absent from the industry for three years, during which time he has concentrated on real estate investment.

Of course, Zhang’s other key task is to work out how to establish a productive relationship with jailbird Huang. That shouldn’t be a problem, says Forrest Chan, analyst at CCB International in Hong Kong, who reckons that Zhang’s appointment has been “blessed by Huang”.

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