The Battle for Control of GOME

BEIJINGThe founder of giant Chinese retailer GOME Electrical Appliances Holdings Ltd
Huang Guangyu is waging a boardroom battle, while in detention after a bribery conviction--to
unseat an old friend Chen Xiao who is now chairman.

The giant Chinese retailer said shareholders will vote on a resolution by founder Huang Guangyu,
who is waging a campaign to unseat the company's chairman, Chen Xiao, who steered the
company through a crisis after Mr. Huang was arrested by police early last year. Furthermore,
Huang Guangyu who is China's richest people wants to install one of his sisters as chairman. The
outcome of the Sept. 28 shareholder vote not only could determine the future of one of China's
largest retail chains, but also could help define a new corporate culture in the country's
freewheeling private sector (LAURIE, 2010).

GOME also said that Boston-based private-equity firm Bain Capital LLC would double its
investment in the company to 20% by exercising its right to convert bonds into stock. That would
dilute Huang Guangyu's current 34% stake. For months, the public struggle for control of the
company, which is listed in Hong Kong, has been playing out as a contrast in personalities and
business styles.

Huang Guangyu, 41 years old, combined a tough business mind with a gambler's bravado and a
knack for cultivating officials to engineer deals. He is being detained while he appeals a 14-year
prison sentence for insider trading and bribery.

Chen Xiao, a 52-year-old entrepreneur from Shanghai, is a methodical manager who has sought
counsel on business strategy from McKinsey & Co. and hired the international public-relations
firm Brunswick Group LLC to hone his messages to shareholders.

The company, which sells products ranging from refrigerators and washing machines to
cellphones and computers, closed more than 100 locations this year but should expand the number
of locations and increase profit at individual stores, Huang Guangyu said in an email response
Monday to questions. Huang Guangyu also had objected to the original investment by Bain, and
its potential to dilute Huang Guangyu's holding, saying that Chinese companies can run
themselves without the help of foreign partners.

Chen Xiao sought to convince shareholders that he is the right man to lead GOME, outlining a
strategy to open 2,000 stores over five years and boost annual sales to $26 billion. GOME
currently operates 1,121 stores. It reported $6.2 billion in revenue for last year.

Chen Xiao expressed surprise that the man plotting his removal is his former boss, a mentor and
someone he still considers a friend. In 2006, Mr. Chen agreed to a $675 million merger of his
electronics company, China Paradise, with GOME.

Chen Xiao said in an interview that he can't run this company in line with the way Huang thinks,
but Chen Xiao also said that Huang will always adhere to the thought that GOME belongs to him,

Chen Xiao prevented GOME from crumbling after Huang Guangyu's arrest in March last year.
When banks started to cut off the company's access to liquidity, he borrowed money against his
personal wealth. That allowed GOME to buy inventory to stock store shelves. This May, he
brought in Bain as an investor. GOME's revenue for the first half of this year jumped 21% from a
year earlier to $3.65 billion as the company's profit margin rose to 5.02% from 3.28%.

Moreover, the sister that Huang Guangyu wants to make chairman, Huang Yanhong, has never run
a company. She started as a GOME cashier in 1994 and climbed through the ranks to become a
district manager in 2008. Another sister, Huangxiuhong, serves as chairman of Pengrun
Investment, Huang Guangyu's personal investment arm. The Hong Kong Securities and Futures
Commission opened investigations two years ago into a GOME share-buyback plan involving Mr.
Huang and Huang Xiuhong, according to people familiar with the situation, but hasn't released
details. The Huangs haven't commented about the investigation.

The battle for shareholder votes is far from straightforward. LAURIE (2010) pointed out the to
some Chinese, Huang Guangyu is a hero; there's plenty of sympathy for his legal woes in a
country where entrepreneurs and officials often are locked together in corruption. When an
entrepreneur like Huang Guangyu falls, many people assume the businessperson is collateral
damage to a political dispute. Meanwhile, Chen Xiao's campaign symbolizes the emergence in
China of a new class of Chinese entrepreneurs trying to lead the country's founder-led businesses
into an era of professional management and responsibility (LAURIE, 2010).

Companies such as supermarket chain Wumart Stores Inc. and television-set manufacturer
Skyworth Digital Holdings Ltd. were once led by founders tainted by corruption scandals and also
are being overhauled by leaders interested in more stable operations.

The new wave of corporate chieftains are eager to shake off their companies' tarnished images and
mark themselves as modern industrialists who can navigate market-oriented landscapes,
competing with Western rivals at home and overseas (LAURIE, 2010).

The stakes surrounding the GOME shareholder vote are high. The company's main rival, Suning
Appliance Co., which is listed on the Shenzhen stock exchange, once trailed GOME but now
operates more than 960 outlets and its 2009 revenue jumped 18% from a year earlier to $8.5
billion, surpassing GOME's revenue by $2.3 billion..

GOME's shares plummeted 77% to 1.11 Hong Kong dollars (14 U.S. cents) in the 11 months
leading up to Mr. Huang's March 2009 arrest. GOME shares were suspended for trading Monday
at HK$2.36, so battle for Control of GOME caused GOME had catastrophe loss.

The Battle between with Huang Guangyu and Chen Xiao is also caused by Bain Capital. After this
case, GOMEs management experienced a great change. Except Chen Xiao, he who promoted
from executive director to part-time deputy president of the board is the final gainers in this case.
With this change, there is raised a power struggle in GOME. One side is the GOME last principal
shareholder, Huang Guangyu. The other side is GOME currently chairman of the board Cheng Xiao.

To this struggle, Cheng Xiao said: This is just Mr. Huangs desire for personal controling, he wants to
control the company, while these cannot be accepted by todays GOME.

But the other party, his spokesmen and lawyer, Zhou Xiao Chun, said that Chen Xiaos speech cannot
represent our interest anymore, and he cannot protect our interest. Obviously, he wants to squeezed the
principal shareholder away, and its what we cannot endured.

Although Mr. Huang is arrested, he holds more than 30%shares. While Cheng Xiao just have 3%shares.
But he has strong background, Bain Capital. Bain Capital invested 30million when GOME in trouble.
Cheng Xiao and two other executive director is the condition of the investment.

Cheng Xiao wants to reduce Huangs shares by the new investment. While Huang Guang Yu also
financing in the prison by his reputation and his ability.

While, whatever who will win the struggle, Cheng or Huang will never be the winner .Bain Capital will
get the most interest. If Huang control GOME again, he must consider the decrease of reputation by the
case. And Cheng Xiao also should think about his reputation when his control GOME, because his
immoral behavior, driving away his big shareholder.