After a contentious summer standoff, Chinese retail giant Gome Electrical Appliances appears to be trying to make peace with founder, the currently incarcerated Wong Kwong Yu.
Today the Gome board signed a Memorandum of Understanding (MoU) with Shinning Crown Holdings, the Wong business that actually owns the Gome shares. Gome agreed to seek shareholders' approval for enlarging the board, from 11 to 13 directors, and appoint two directors nominated by Wong. In return, Wong agreed to not pull his 370 personally owned retail stores out of the Gome network, which he had earlier threatened to do if the Sept. 28 shareholder vote went against him.
Gome did not say if it would continue to pursue its legal action against Wong; it was the filing of this legal action that appears to have sparked the standoff.
WHAT HAPPENED AT GOME
As reported in ApplianceMagazine.com news in August and September, hostilities erupted when the Gome board filed legal action against founder Wong Kwong Yu for breach of fiduciary duties as a director and breach of trust. Wong, a high-profile figure who was once considered China's richest man, had stepped down from the leadership at Gome in 2008 after his arrest in China. He was accused of using Gome assets as personal assets, was convicted on several counts including bribery and insider trading, and in May 2010 began serving a 14-year jail sentence.
But Wong still holds a 34% stake in the company and proposed Gome cancel a recent mandate that would have diluted Wong's stake and also proposing the removal of the Gome chairman and another board member. Wong nominated his sister to be chairman. The proposal forced Gome to schedule a vote for September. Prior to the vote, Wong wrote to the board and said that, if the vote results were not what he wanted, he would pull his 370 retail stores out of the Gome network. The Gome board said that, if the threat were carried out, it would not significantly hurt Gome.
In mid-September, several news reports claimed Wong was offering financial incentives to board members who delivered votes in his favor. On September 22, Gome filed a letter of complaint with the Hong Kong Securities and Futures Commission.
At the vote on Sept 28, 2010, Wong failed to wrest control of the company away from the current board. One of the Wong's proposals did pass: a general mandate that would have issued new shares and diluted Wong's stake in the company, was blocked.
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