Hisense, one of China's leading white goods manufacturers, has signed an agreement with
Gu Chujun, the chairman of Beijing-based Greencool and Guangdong Kelon Electrical Holdings Co, agreed to transfer Greencool's stake in Kelon to Hisense on Friday, the manager disclosed. Greencool, Kelon's largest shareholder, holds 262 million shares.

Despite recent corporate scandals, alleged dubious dealings, plunging sales and embezzlement allegations, potential investors lined up to take control of crisis-ridden Kelon, one of China's more established makers of refrigerators and air-conditioners.

A dozen leading domestic and foreign electrical appliance firms including Hisense, Midea and Electrolux have been queuing up to take over Kelon after the company's six senior executives were detained by authorities during a probe into the company's finances by the China Securities Regulatory Commission in early August.

Hisense eventually won the bid.

"It is really a good buy," said Dong Chen, an analyst with China Securities. "Kelon's brand name and marketing channels are particularly attractive to potential buyers, especially in the electrical appliance industry, where competition is red-hot."

More important, Kelon fell into dire straits not because of its product line or marketing skills but because of its controversial chairman, Gu, and the financial scandal.

Dong says: "Kelon is a good company, but it chose a bad investor."

After Gu acquired 26.43 percent of Kelon to become its controlling shareholder in 2001, he allegedly started siphoning capital to fuel his merger-and-acquisition spree, resulting in a cash drain and production setbacks.

According to Dong, 900 million yuan (US$111 million) is a good price.

Kelon's A-shares (state-owned shares) traded on Friday at 2.78 yuan (34 US cents). This means Greencool now has 728 million yuan (US$98.8 million) worth of Kelon shares.

A top manager at Hisense says there are various reasons why they agreed to the comparatively high price.

"Hisense wants to make a breakthrough in refrigerator and air-conditioner manufacturing both of which are Kelon's strong points," he told China Daily. "Besides, Kelon is a household name and has quality assets."

Moreover, for Hisense, as a Shandong-based company, taking over Kelon could strengthen its presence in South China.

Hisense, which started out as a maker of "black" goods such as TV sets, has recently turned its attention to the white-goods business. However, it has only two air-conditioner production lines in Qingdao, east China's Shandong Province, and Huzhou, east China's Zheijiang Province.

It acquired two refrigerator production lines in the last two years; Beijing Xuehua Refrigerator and Nanjing Bole Refrigerator.

"After Hisense takes over Kelon's large-scale production line in Guangdong and capitalizes on its purchase, distribution and export strengths, Hisense's white goods will become China's market leaders very quickly indeed," Zhu Shuqin, director of Hisense's brand marketing department, said.

(China Daily September 12, 2005)