Bain Enters Exclusive Talks To Buy 20% of China’s GOME

HONG KONG (Reuters) – U.S. private equity giant Bain Capital entered into exclusive talks this week to buy a major stake in China’s top home appliance retailer GOME (0493.HK), after months of competition with other potential investors, including KKR and Warburg Pincus, sources told Reuters on Wednesday.

Two sources with direct knowledge of the matter said the Bain negotiation team, led by Hong Kong-based managing director Jonathan Zhu, began exclusive talks with GOME’s management team led by chairman Chen Xiao on Monday.

Bain aimed to buy a 20 percent stake in GOME worth about HK$3 billion ($387 million) based on GOME’s last closing price of HK$1.12 per share, said the sources.

No legally binding agreement had so far been signed and the talks could collapse if the two parties were unable to agree on some specific terms, which could see GOME turn to other bidders for investment, said the sources.

In April, Reuters reported that Kohlberg Kravis Roberts & Co [KKR.UL], Warburg Pincus [WP.UL] and Bain were emerging as contenders for a large stake in GOME through a private placement of shares. [ID:nHKG129130]

“Only Bain is in talks with GOME this week, while KKR and Warburg Pincus are in stand-by mode,” said one of the sources.

“Deal or no deal? I think you will get the answer in one or two weeks,” he added.

The sources declined to be identified because of the sensitive nature of the negotitations. Both Bain and GOME declined to comment.

BOARD SEATS

Last week, GOME said in a stock filing that it was in negotiations with potential investors, but that no agreement had been reached. GOME did not name any of the parties in its statement.

GOME founder and ex-chairman Huang Guangyu is being investigated by Chinese police for alleged financial misconduct, as GOME seeks new investors to improve its capital base.

GOME’s shares have been suspended since Nov. 24, 2008, following news of the investigation.

Huang, once China’s richest person, and his wife Du Juan, together still hold about 35 percent of GOME’s shares.

“Bain is very interested in how many GOME board seats it can secure, as it is necessary for Bain to have a degree of influence on GOME’s management,” said the source.

They added that Bain was likely to win two board seats and was also expected to bring in external industry experts to help GOME expand its business.

Private equity investment has a brief history in China and the government is concerned about deals involving a major or influential domestic companies. Buyout deals are rare, although foreign investors often seek non-financial solutions to ensure they have a level of influence in the boardroom.

Warburg Pincus already holds a minority stake in Gome as well as some convertible bonds, and the private equity firm may want to sell off these holdings if Bain secures a 20 percent stake in the Chinese retailer, said a source.
($1=7.751 Hong Kong Dollar)

By George Chen
(Additional reporting by Michael Flaherty; Editing by Chris Lewis)