Gome falls on ex-chairman's comment

Shanghai Daily, May 12, 2011

Gome Electrical Appliances Holding fell the most in three weeks in Hong Kong after a newspaper reported its former chairman as saying the firm's business model is defective and the stock has no prospects.

In response, the Chinese mainland's second largest electric appliance retailer said it would take "appropriate steps" to protect the company's interests after 21st Business Herald yesterday quoted former chairman Chen Xiao as saying Gome is overcharging home appliance suppliers for admission fees and that its pursuit for rapid expansion is "abnormal."

"The good days are almost ending for electrical appliance retailers under the current business model," Chen was quoted saying. "Because prices are high for both suppliers and consumers."

Chen said he was planning to sell his Gome shares because the stock has "no prospects" and many institutional investors have pulled out, according to the report.

Gome Electrical fell 3.2 percent to HK$2.72 (35 US cents), the biggest drop since March 17.

Zhang Dazhong, Gome's current chairman, said the company "does not agree with the views and opinions expressed in the article and would not tolerate Chen's behavior as expressed in the article," said a statement filed to the Hong Kong stock exchange.

Chen also published an announcement yesterday claiming the article was partial and was based on the reporter's "personal understanding" of a casual private conversation.

"The report did not represent my view," Chen said. "I feel deeply sorry for the ... disturbance the article created in the industry."

The reporter, Lang Lang, apologized on his microblog that the "private talks" should not have been published without consent.

"All the blame is on me," Lang said. "I violated the principle of trust."

The newspaper has since deleted the article from its website.

Chen quit as chairman in March amid a boardroom battle with Gome's jailed founder Huang Guangyu over control of the company.