Home / Business / In-depth Tools: Save | Print | E-mail | Most Read | Comment
The 'seven deadly sins' of Huang Guangyu
Adjust font size:

Gome's speedy merger with Yongle

This August, the Central Commission for Discipline Inspection of the CPC launched a stormy investigation into high-level corruption in the foreign investment administration. Several Ministry of Commerce (MOFCOM) officials were forced to step down and Huang Guangyu's name came up during the investigation. People close to the investigation said that some officials confessed to accepting bribes from Huang before Gome's listing in Hong Kong and its merger with Yongle.

Yongle was in huge trouble in the summer of 2006. In 2005, Yongle received a conditional investment of US$50 million from Morgan Stanley. According to their agreement, Yongle would give 4.1 percent of its equity to Morgan Stanley if its net profit failed to break 600 million yuan in 2006. Since Yongle didn't reach the target, its Chairman Chen Xiao was on the verge of losing control of the company.

At this very moment, Gome stepped in and announced its plan to acquire Yongle. On June 18, 2006, Gome proposed the merger to Yongle and on June 26 – only 8 days later – the entire transaction was completed.

At a news conference held on July 26, 2006, Huang announced that Gome would acquire Yongle via a share swap plus a cash payment – Gome would swap one of its shares for each three of Yongle's shares and pay an additional HK$402 million of cash.

However, this merger, which appeared as Gome's timely rescue of Yongle, was in fact designed to serve Huang's own interests.

Back in 2006, Gome was facing a major cash flow crunch. At the time Huang and his brother's bank accounts had been frozen by the police because of the on-going investigation of their possible involvement in an illegal lending case. Huang used the merger to get at Yongle's capital and save Gome with it. In fact, according to people close to the matter, the HK$402 million Gome promised in the merger deal wasn't paid until a year later.

What is more, MOFCOM's approval of the merger was surprisingly fast. Registered on the British Virgin Islands, Gome is actually a foreign invested company. Therefore, it was very unusual for MOFCOM to have spent only eight days on the reviewing process. Two of the MOFCOM officials under investigation – Guo Jingyi, inspector of the Department of Treaty and Law, and Deng Zhan, former deputy director of the Department of Foreign Investment Administration – played a key role in the approval of the merger.

On Nov 28, Gome said that preliminary checks indicated no evidence of misappropriation of company assets, but it has set up a special committee to monitor and assess the company's financial condition and operations. Meanwhile, Gome has appointed its president Chen Xiao as the company's acting chairman.

     1   2   3    

Tools: Save | Print | E-mail | Most Read
Pet Name
China Archives
Related >>
- Brother of Gome founder under police investigation
- Gome appoints new acting chairman amid police probe
- Police confirms Gome chief under investigation
- Gome chief faces further bribe claims

Product Directory
China Search
Country Search
Hot Buys