When minorities collide

12 May 2010 By John Foley Follow @johnsfoley

The imprisoned founder of Chinese retailer Gome voted to unseat directors representing rescue investor Bain Capital. But the company reinstated them. Other investors appear to be pinched between two sides seeking to influence Gome’s destiny with only a minority stake.

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The board of Gome Electrical Appliances reinstated three nonexecutive directors, after its imprisoned founder and some affiliates used his 34 percent stake to vote them out. The directors were nominees of Bain Capital, the U.S. private equity group that invested $233 million in the Chinese retailer in June 2009.

The board cited an investment agreement signed with Bain, in which the directors pledged to use its "best endeavours" to ensure Bain's nominated directors remained on the board. If the agreement were breached, Bain would be able to demand repayment for part of its investment, plus a penalty, totaling over $350 million.

Huang Guangyu, Gome's founder and formerly China's richest man, stood trial in April for bribery and insider trading. A verdict has not yet been delivered. The retailer said an internal review had found no suggestion of bribery or embezzlement directly linked to the company.

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