The Dong diatribe

Disappointed with investors...

When Gree Electric’s Dong Mingzhu slammed her shareholders for being too concerned with short term returns, they stayed silent, TMT Post reported last month.

Gree Electric’s president was berating her investors after they rejected part of a proposal to take control of Zhuhai Yinlong, which manufactures batteries and electric vehicles. The diatribe dates back to the bid for Yinlong earlier this year (see WiC338), when Gree made a Rmb13 billion ($1.9 billion) offer, paid for with its own shares. Gree then announced that it would issue another Rmb9.7 billion in equity as supporting finance for the acquisition, with Dong buying nearly a tenth of the new issuance herself.

Investors have been concerned that Gree is paying too much for Yinlong and they have criticised the company for timing the bid when its shares were trading at a lower price. At current market value the takeover is costing Rmb21.5 billion, or more than 30 times Yinlong’s profit forecast for the year.

They were even unhappier about the additional financing for the deal and smaller shareholders, who hold a combined 27% of the company’s stock, helped to vote down the proposal to raise the Rmb9.7 billion to cover the expenses of integrating Yinlong into Gree.

TMT Post says that many small and minority shareholders were already furious at dilution per share of about a fifth, especially as Gree seems capable of paying for more of the deal with its cash reserves. Additionally, the placement of Rmb9.7 billion was only made available to eight existing investors, including Gree’s management and Zhuhai Gree Group, the parent company. “Even Hong Kong scam stocks give all investors the rights to buy additional placements in the same proportion,” one investor complained to China Entrepreneur.

Dong was in no mood to explain the transaction further during the general meeting at which shareholders rejected parts of her plan. Instead she made short shrift of the complaints, telling recalcitrant investors that they were ungrateful. “Gree has not ill-treated you! I cannot say this enough. Which listed company has given you so many dividends?” she rebuked. “The more dividends I give you, the more gleeful you are, but the more talkative you become.”

Dong said she felt responsibility for longer-term investors, but not for the “speculators” in Gree’s shareholding base, chastising them for short-term thinking.

“I know you come to this meeting with different goals,” she fumed. “Please don’t talk about the stock price with me when you invest in Gree. We should talk about whether this company can develop for 100 years.”

The Chinese-language edition of Harvard Business Review wasn’t surprised by Dong’s sharp tongue, describing her style as an “improvised drama of persuasion”. Certainly, she has a flair for grabbing attention, including a wager with Xiaomi’s Lei Jun that her sales would be greater than his own (WiC266), plus a prediction that her new smartphone business would soon be challenging Apple’s (WiC318).

Dong’s pitch is that she has to reduce Gree’s reliance on the air-conditioning market, where sales have been stagnating. More investment is being channelled into smartphones, robotics and new energy vehicles as Gree tries to move into next-generation manufacturing. In the case of Yinlong, she wants its technical expertise in sectors where there is already overlap with Gree, such as energy storage. She is also trying to row with the policy tide by choosing green cars, which is a priority sector for the government. “The decision was made with the Premier’s work report target to have blue skies, green pastures and clear water,” she has insisted, acknowledging Li Keqiang’s key policy priorities.

Yet the launch of Gree’s new smartphone has been substantially delayed and some shareholders have concerns that Dong’s ambitions to transform Gree are too ambitious. At the meeting at the end of October, one investor asked her when the new Gree car would be available. ‘Next year’, she promised.

In the meantime, the company has said it will revise the fundraising plan and make a new pitch to investors within a month.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.