Sunday, U.S.based private-equity firm Bain Capital LLC has reportedly agreed to acquire a nearly 16% stake in Chinese electronics retail giant Gome Electrical Appliances Holding Ltd. (GMELF.PK) for about US$400 million. Terms of the deal, including financial details, were not revealed, as they are still being finalized. The deal, which would help Gome repay debt, is expected to be announced early next week, or even as early as Tuesday, reports say.
Private equity buyout firms Kohlberg Kravis Roberts & Co. and Warburg Pincus were also reportedly in the fray to by the stake in Beijing-based Gome, but they later dropped out, leaving Bain the only suitor. The investment interest in Chinese firms by U.S.-based buyout firms is a sign that it is believed that consumer spending in China will continue to grow, compared to the recessionary conditions in the U.S., Europe and Japan. As part of the deal, Bain would acquire the stake via an open tender, and would also subscribe to seven-year convertible bonds that can be converted into new shares. Pursuant to the deal, Bain Capital would become Gome's second-largest shareholder. The private equity firm would also have the right to appoint three directors to Gome's 11-person board.
The deal is the largest of the three investments made by Bain in China's consumer industry since 2006. Earlier, Bain acquired stakes in shopping mall chain Jinsheng International Home Furnishings, and packaging firm Shandong Tralin Packing.
Gome has more than 800 stores in over 160 cities across China, trades in Hong Kong and had a market cap of nearly US$2 billion the last time shares were traded back in November. Shares have since been halted pending an investigation into the former Chairman's business dealings.
Late last November, Gome Electrical's Chairman, Executive Director and Controlling Shareholder Wong Kwong Yu was removed from his positions following an investigation in connection with certain suspected economic crime. Kwong Yu and his wife Du Juan together continue to hold the largest and about 35% of Gome's shares.
However, the company revealed that to the best of it knowledge, the investigations are not related to the group and it has not received any legal documents from any regulatory, governmental or judicial authority in the People's Republic of China.
GMELF.PK last traded on October 10 on the NYSE at $0.175.
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