A leaked video of Gree Electric Appliances’ shareholder meeting in late October sent shockwaves through the Internet. Dong Mingzhu, chairman and president of the Zhuhai, Guangdong-based company, launched a tirade towards shareholders at the meeting for lack of support on her latest acquisition program.
“Gree has treated you fairly…18 billion [yuan] dividends over two years – take a look and see what other company can give you that much,” Dong exclaims in the video. “Sell the stocks all you want if you don’t trust Gree, but if you do, trust firmly.”
The shareholders’ doubt is not ungrounded, though. The acquisition program, including a $1.9 billion full takeover of Zhuhai’s electric car maker Yinlong New Energy and construction of related facilities, calls for the issuance of nearly a quarter of Gree’s current total shares in private placement, causing significant dilution for the remaining shareholders.
Just two weeks before the meeting Dong resigned as chairman of wholly state-owned Gree Group, the largest shareholder of the Shenzhen-listed arm with an 18% stake, after four years at the position. Veteran executive of local SOEs Zhou Lewei was appointed as replacement.
No specific reason has been announced, and the state might have been unhappy about Dong’s bold expansion into new businesses such as smartphone, although another explanation is a preliminary regulation renewed in August that will likely ban ownership of state-controlled firms by government-appointed SOE heads. If the placement plan goes through, Dong would up her stake by 0.7% to 1.4%.
In the end the fiery meeting vetoed a number of key terms in the program, leading to its official termination in mid November. Dong needs to find another way to increase her ownership, and she may have to get in line. Over the following ten days Gree’s stock rose by 27%, putting its market value at $25 billion before trading was suspended by the company request.
Amid this turmoil, Gree announced a few days before the trading suspension it will give an across-the-board $145 raise in monthly salary to the appliance arm’s 70,000 employees, adding more than $120 million to the company’s annual cost. But the boosted morale didn’t last long.
This Thursday Gree disclosed that Shenzhen’s Foresea Life Insurance, an arm of tycoon Yao Zhenhua’s Baoneng Group that has become property developer Vanke’s largest shareholder through stock raids, quadrupled its stake to 4% during the price hike. (Gree’s executives have also made several purchases.) Trading has since resumed.
The failed acquisition shows that shareholders outside the Group also have a say in decision making, according to local analysts, and Gree’s undervalued stocks and ample cash – $14 billion as of the third quarter this year – makes it a coveted target for institutional investors. Dong has turned Gree from a sleepy domestic brand into a world leading appliance maker, but will it escape the preying and where is it headed next in becoming a versatile manufacturer? The market is waiting to find out what else is up Dong’s sleeves.
