Despite corporate scandals, dubious dealings, plunging sales and millions reportedly embezzled, a number of investors lined up to take control of crisis-ridden Kelon, the renowned maker of refrigerators and air-conditioners.

A dozen leading electrical appliance firms from home and abroad including Hisense, Midea and Electrolux have been queuing up to take over Kelon. Hisense finally won out.

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

More importantly, Kelon fell into dire straits not because of its product line or marketing skills but because of its controversial chairman, Gu Chujun, who was detained in early August on suspicion of economic scandals. Five of its senior executives are also being held.

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 began to embezzle Kelon's 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.

Greencool, Kelon's largest shareholder, has a 26.43 percent stake in Kelon, with 262 million shares.

Kelon's A shares traded on Friday at 2.78 yuan (34 US cents). This means Greencool has 728 million yuan (US$98.8 million) worth of Kelon shares, lower than Hisense's acquisition price.

A top manager at Hisense says there are various reasons for 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.

After its acquisition of Beijing Xuehua Refrigerator and Nanjing Bole Refrigerator in the past two years, it owns two refrigerator production lines.

Its total production capacity is far from enough, especially in south China.

"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," said Zhu Shuqin, director of Hisense brand marketing department.

(China Daily September 12, 2005)