Despite the emphasis made by Chen Xiao, Chairman and President of Gome Electrical Appliances at the end of April when announcing the annual report that Gome had already passed its toughest times and would continue to have a healthy and stable foundation, in order to enhance its financial strength, the management of Gome has been trying to persuade the Huang Guangyu family to sell part of their equity and issue new shares. It is reported that many institutions are interested in Gome's assets, and a covert battle for the acquisition of Gome's equity has already begun. Due to its own industry position, Gome's equity is being pursued by numerous funds and conglomerates. The syndicate formed by KKR and Bain Capital with other funds, Fosun Group's Guo Guangchang, and Li Ka-shing's Fortress Electrical have all become strong participants in the bidding.
From the annual report, as of the end of 2008, Gome held cash and cash equivalents of 3 billion yuan, while in 2007 it was 6.2 billion yuan, which is 7 billion yuan less than its main competitor Suning. Meanwhile, Gome's 2008 financial report shows that the total of its payable bills, payable goods, convertible bonds, and bank loans adds up to 16.6 billion yuan. Among them, the 4.6 billion yuan huge bond issued by Gome Electrical Appliances in May 2007 will mature in 2010.
Currently, among the top six shareholders of Gome Electrical Appliances, Huang Guangyu holds 35.5%, JPMorgan Chase Group, Price Joint Company, and others hold 35.95%, Gome Electrical Appliances Chairman Chen Xiao holds 7.28%, and the rest of the shares are held by some small shareholders.
It is reported that after Gome's suspension, Chen Xiao and the management team have been seeking overseas investors, hoping to attract new investors through private placements to enhance their financial strength. Media reports claim that Gome previously introduced two versions of the equity sale plan: one involves issuing about 30% more equity; the other involves selling the current equity through existing shares, with this sales amount possibly around 20%, priced at about 3 billion yuan. Since the first plan achieves this by diluting the original old shareholders' equity, it faced opposition from some shareholders during discussions. The second plan involves collecting the original shareholders' willingness to conduct acquisitions, thus making the latter plan more feasible.
"If Huang Guangyu sells 20% of his equity to investors, the entire equity structure of Gome Electrical Appliances will undergo significant changes, and control may also change," said renowned home appliance expert Liu Budust. The acquirer only needs to acquire additional equity from foreign investors to control the entire Gome Electrical Appliances, and the presence of the Huang family may disappear from Gome.
Many institutions want to bid
Although Gome is currently facing a crisis, its influence as a national home appliance chain brand and its market share in the home appliance sector still ranks first, and its growth prospects are favored by the industry. Therefore, after Huang Guangyu's incident, there were many institutions eyeing Gome.
According to journalists' understanding, during the bidding process, multiple investment institutions participated, such as Lenovo's Hony Capital and CITIC Capital, the electrical chain giant Best Buy, and even Zhang Dazhong who previously acquired DaZhong Electrical Appliances. However, possibly due to concerns about the impact of the Huang Guangyu case, Hony Capital, CITIC Capital, and Best Buy successively withdrew from the bidding, and informed sources revealed that "Zhang Dazhong's willingness was rejected by Gome's senior management. Currently, Gome's equity sale strategy is not to sell equity to competitors in the same industry."
Now, the three most promising institutions for acquiring Gome's shares are: the international capital giant KKR and another giant Bain Capital forming a consortium, Fosun's Guo Guangchang, and Li Ka-shing. Among them, the consortium formed by KKR and Bain Capital has the greatest hope.
It is reported that the consortium formed by KKR and Bain Capital will collectively purchase about 20% of Gome's equity, with a total value of approximately HK$3 billion. To diversify risks, each party will invest HK$1 billion, and the remaining HK$1 billion will be provided by some other private equity firms following the trend. Gome's condition is that this "syndicate" can only occupy one seat on Gome's board. KKR is the world's largest private capital, managing assets worth $53.4 billion in 2007. In recent years, KKR has invested in several Chinese enterprises, including purchasing 43.2% of Tianrui Cement Company's shares for $115 million; and after the "melamine" crisis, investing $300 million in China's dairy industry. Bain Capital manages assets of about $25 billion and has raised over $1 billion to invest in China. Since this consortium entering Gome is a capital investment and will not participate in Gome's management operations, the market generally believes that this consortium has the greatest hope of acquiring Gome.
The market generally believes that Guo Guangchang (head of Fosun), who wants to grow in the retail sector, and Li Ka-shing's Fortress Electrical aim to participate in management, which is clearly not what Gome's management layer wants to see. However, regarding this acquisition storm, many parties remain silent. According to the aforementioned Hong Kong investment banker, Li Ka-shing is indeed involved but will be very cautious. "After all, Li Ka-shing must consider the potential policy risks of entering through Fortress Electrical. Besides, with Li Ka-shing's political wisdom, he may not necessarily get too deeply involved in this matter," analyzed an industry insider.