GOME Electrical Appliances Holdings Ltd. agreed to
pay HK$7 billion (US$900 million) to its billionaire Chairman Huang Guangyu to
take full ownership of China's biggest home-appliance retail chain.
The Hong Kong-listed company will buy the 35 percent of GOME Appliance Group
that it doesn't already own, GOME Electrical said in a statement today. GOME
Appliance operated 263 stores in 69 mainland cities at the end of 2005. Huang
controls both companies.
The acquisition may help GOME as it
seeks to expand and fend off competition from Wal-Mart Stores Inc. and Best Buy
Co. The company plans to open as many as 150 outlets in China this year, betting
rising incomes will spur demand for televisions, cameras and audio equipment in
the world's fastest-growing major economy.
Huang Guangyu, GOME
GOME Electrical "will benefit from the acquisition both financially and
operationally," the statement said. There has been "market expectation for the
group to simplify its corporate structure" since Huang announced plans to sell
his remaining interest in January 2005, the company said.
Shares of GOME were suspended today pending the announcement, and will resume
trading tomorrow. The shares last traded at HK$8.05 and have surged 53 percent
this year, compared with a 5.8 percent increase in the city's benchmark Hang
GOME Electrical aims to increase its market share to as much as 15 percent by
2008 from 6 percent last year, Curt Lam, head of corporate finance and
development, said on a media conference call today. The company is looking in
China for retailers with a network that can help boost its market position, and
is also open to alliances and joint ventures, he said.
China's economy grew 9.9 percent in 2005, powered by record exports and
investment in manufacturing. The government wants consumer spending to drive
growth this year. Per capita disposable income of urban residents is expected to
rise by 6 percent this year, Ma Kai, chairman of the National Development and
Reform Commission, said on March 5.
GOME Electrical will pay HK$5.2 billion in stock, HK$990 million in cash and
assume HK$761 million of debt. The additional shares will raise Huang's stake in
Gome Electrical to 75.7 percent from 66 percent, according to the announcement.
The new shares will be issued at HK$8.05 each, representing a premium of 7.5
percent to the average closing price in the last 10 trading days, according to
the announcement. The acquisition is subject to approval by independent
The company will buy Grand Hope Investment Ltd., a British Virgin
Islands-incorporated company that holds Huang's 35 percent interest in GOME
Appliance Group. The acquisition price represents 25 times Grand Hope's 2005
profit, the statement said.
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