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Lightning strikes thrice

NVC Lighting founder ousted for a third time in amazing corporate row

Wu Changjiang w

Never let me go: NVC’s founder Wu Changjiang

When Steve Jobs was kicked out of Apple in September 1985 – and in the process ousted as chairman of the board – the stock price went up 7%. If that weren’t maddening enough, the board also sued him for “breaches of fiduciary obligations”, with the tech tycoon complaining to journalists that the suit amounted to Apple calling him “a thief”.

Within six months a furious Jobs had dumped all but one of the 6.5 million shares he owned in Apple, relinquishing the 11% of the company he co-founded. But as one board member later told Jobs’ biographer Walter Isaacson “The best thing ever to happen to Steve is when we fired him.”

Sure enough Jobs made his comeback in 1997 and reinvented Apple, making it the world’s most innovative and valuable company. (But though vindicated, he never quite shook his distaste for corporate boards; when he regained power he totally reconstituted the Apple board and took great delight that his friend and new director Larry Ellison only showed up to about a third of meetings. Indeed Jobs would jokily put a life size cardboard cutout of the Oracle boss at the boardroom table instead, indicating exactly the sort of board member he preferred.)

Jobs’ second coming is, of course, well known. But over in China a company founder has added a new twist to the comeback game: he’s been kicked off the company’s board twice, and has just managed to get fired as CEO for the third time. (And unlike Job’s return, this one has proven a lot more controversial.)

The individual in question is Wu Changjiang and the company is NVC Lighting, a Hong Kong-listed firm that controls a dominant Chinese lighting manufacturer. On August 8 the board of NVC issued an announcement that Wu had been dismissed alongside three vice-presidents (one of whom was Wu’s younger brother). The board accused Wu of misconduct (more of which later) and said it had set up an emergency management committee headed by chairman Wang Donglei.

In the turmoil that has followed NVC’s stock has been suspended from trading.

Of course, longtime readers of WiC may recall Wu’s last departure from the firm that he founded in 1998. Back in 2012 we reported on his fleeing China for Hong Kong, with NVC’s board then saying he was being investigated by the government (see WiC157). At that time Wu told CBN that he was considering a new life in Canada with his family and had stepped down because the strain of growing the business by 30% a year had led to dangerously high blood pressure. He admitted to the government investigation, but claimed to be innocent, telling CBN: “I can always go back.”

The Economic Observer reckoned, however, that the 47 year-old had upset other major shareholders and board members by conducting related party deals with his family members – allowing them to profit at the expense of the listed company. Tellingly enough, Wu was replaced as chairman by Andrew Yan, a representative of SAIF, a private equity fund that had bought a stake in NVC in 2006, and by 2012 owned around 18.33% of the company versus Wu’s stake of 19.19%.

But perhaps we need to backtrack a little further. Caijing magazine has written an extensive article on the ongoing debacle, and notes that Wu’s first ‘forced’ exit from the firm was in 2005. Back then he controlled 45% of the firm, but two university classmates jointly held 55%. He fell out with them and they made him leave. However, just one week later, most of NVC’s dealers visited the company and demanded Wu’s return. This left the ousters in a tricky position, because without distribution they had no cashflow. They were forced to quit, but told Wu they would do so on condition they part with their controlling stake for Rmb160 million ($26 million).

Wu is on record as admitting to having nightmares at that time, knowing he had working capital of just a few hundred thousand yuan. That’s when he brought in SAIF. He also raised more capital with a $176 million Hong Kong IPO in 2010.

In 2011 the French multinational Schneider was also brought in as a shareholder, purchasing a 9.2% stake in the hope of profiting from an urbanisation boom likely to drive up China’s demand for NVC’s lighting products. Notably, after Wu’s 2012 departure, a Schneider executive was even appointed NVC’s chief executive, leading to speculation that the French firm might buy the company outright. (It may have seemed an attractive target: to his credit Wu had built China’s number one lighting manufacturer and pushed aggressively into LED lighting. NVC was worth as much as $1.8 billion in 2010. Its market value has shrunk to $700 million currently.)

But no such acquisition happened – because Wu made yet another comeback. In a sense, history repeated itself. SAIF’s Yan, just months after being appointed as NVC chairman, again faced a revolt from NVC’s dealers, who demanded Wu’s return (and also called for Schneider’s exit).

Yan initially resisted these calls, but eventually agreed that Wu could return if he met three conditions. First, explain to the board whether he was being investigated and for what; second, handle properly all related party transactions; and third, agree to strictly abide by all the resolutions of the board. A defiant Wu posted on weibo that he would not accept such conditions.

Yan told Caijing his reason for the conditions: “We were worried he would come back and just hollow out the company.” He added that the fear was based on intelligence the board had that Wu had accumulated big personal debts. Wu denied the accusations in the high-profile public spats that ensued.

Wu meanwhile had a plan B. He triggered a new round of stockholder infighting in December 2012 when he sold most of his shares to Elech-tech, which emerged as the new controlling shareholder with a 27% holding (Wu’s own stake was reduced to about 2.5%). As part of the deal Wu was reappointed as NVC’s CEO last January.

Elech-tech bought into NVC on the basis of synergies it saw, given its own experience making LED chips. Its boss Wang Donglei became NVC’s new chairman.

However, once again – and much like with Wu’s former partner SAIF – there was a falling out. Wang alleges Wu signed a 20 year deal to licence the firm’s trademark to three companies that are controlled by Wu’s family members. This was done without the board’s knowledge or approval. This related party transaction, says Wang, “challenged the fundamentals of the listed company and will destroy NVC” by channeling sales into these Wu-controlled vehicles. This led to Wu’s latest removal earlier this month.

Wu, on the other hand, told Tencent Finance that Wang was trying to transfer NVC’s core products to Elech-tech. Wang denies this, stating it’s not even a logical argument.

Meanwhile Caijing says one thing that both Wu’s opponents, Yan and Wang, agree on is that Wu likes to gamble. They believe he has run up big losses in Macau. Both told the magazine that they think this explains Wu’s conected transactions. His goal was to get money out of the listed entity. Again, Wu denied the claims publicly, saying that he hasn’t been to Macau for the past two years.

Wang’s mid-August coup has all the drama of a Warring States period battle. His staff already had control of NVC’s southern production base in Guangdong, but in order to ‘capture’ the Chongqing factory from Wu he sent 100 of his people up there, an incident that Caijing says led to clashes and some being hospitalised.

Southern Metropolis Daily says that after the raid, the factory’s 2,000 staff went on mass “leave”, ostensibly for “safety reasons”. The result: a big decline in NVC’s output. Inevitably once the firm’s Chongqing-based LED stocks run down, this walkout will start to hurt NVC’s sales and hence Wang.

Wu continues defiant, telling the Chongqing staff via weibo: “Brothers and sisters, I’m right behind you. I’m still the boss.” Caijing even wonders whether the dealers will (yet again) force Wu’s return. In the mad, mad world of NVC, who could deny the possibility that the thrice fired CEO could make yet another dramatic comeback?


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