If Gome Appliance former chairman Wong Kwong Yu doesn't get his way in the general special meeting on Sept. 28, 2010, he intends to terminate an agreement between Beijing Gome stores, which he owns, and Listed Group stores.
The war for control of the Chinese appliance retail chain can trace it roots back to the 2008 arrest of Gome's then-chairman, Wong Kwong Yu (Huang Guangyu). Wong was eventually convicted on several counts, including bribery and insider trading, and in May 2010 began serving a 14-year jail sentence.
On June 30, 2010, at a Gome Electrical Appliances Holdings Annual General Meeting, a general mandate was approved for the company to repurchase shares.
On August 5, 2010, Gome filed legal action against Mr. Wong after an internal investigation found Mr. Wong had allegedly committed breaches of his fiduciary duties as a director of the company (relating to the repurchases of the company’s own shares in January and February 2008) and for breach of trust.
By 7:30 of that same evening, as well as the following morning, Gome received letters from Shinning Crown Holdings Inc., which is wholly owned by Mr. Wong and is a substantial shareholder in Gome. The letter proposed that Gome:
• cancel the general mandate passed at the June Annual General Meeting
• remove Chen Xiao as executive director and chairman of the board
• remove Sun Yi Ding as executive director while maintaining his operational role as a company vide president
On August 23, 2010, Gome announced it will hold a general special meeting on Sept. 28, 2010, to vote on the proposals.
Mr. Wong has claimed that the leadership of the current chairman, Chen Xiao, is causing Gome to become less competitive. Mr. Wong reportedly nominated his sister to be chairman of the Gome board.
Judging by diverse published statements, Mr. Wong's unfavorable opinion of Chairman Chen Xiao is not widely shared by others inside or outside of Gome. Several shareholders and members of Gome management have credited Chen with strong leadership during a period of crisis following the arrest of Mr. Wong.
On August 27, 2010, came the latest development: Gome received a Termination Letter from Beijing Gome, a company owned and controlled by Mr. Wong. The letter stated that, if the Requisitioned Resolutions proposed by Shinning Crown (the removal of Chairman Chen and Sun Yi Ding and the cancellation of the general mandate) are voted against on Sept. 28, Beijing Gome intends to terminate the Intra-Group Agreements between the Listed Group and the Unlisted Group (stores privately owned by Mr. Wong) regarding procurement and management arrangements.
A statement from Gome Electrical Appliances Holdings said the company "regards this act as being clearly motivated by Mr. Wong’s desire to force Shareholders to support the Requisitioned Resolutions which Shinning Crown has put forward to be considered at the forthcoming Special General Meeting, and which are designed to further Mr. Wong’s own interests."
But the board also said that the termination of the Intra-Group Agreements will not adversely affect the Listed Group, "and indeed is expected to have a number of benefits to the Listed Group in the future."
“Mr. Wong delivered an ultimatum, but it is actually an empty one – a threat to cancel the management agreement has more pluses than minuses for Gome, as it would enable us redeploy resources into more profitable areas," said a Gome spokesperson. "It does show however that Mr. Wong’s interests clearly diverge from those of Gome and its other shareholders, and he is willing to damage them if he doesn’t get what he wants.”
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