Going, Going, Gome!
February 3rd, 2006Warburg Pincus has agreed to a strategic investment in Hong Kong-listed PRC electronics retailer Gome (国美 Guo Mei, which is a much better-sounding name in Chinese, implying “beautiful country,” whereas the English name evokes “gnome” or “gone”) .
The Economist recently published a profile of Gome’s founder Wong Kwong-yu, one of China’s richest individuals according to Forbes.
There are a number of PRC big-box electronics stores. China Paradise (永乐, Yongle), like Gome, is also listed in Hong Kong (it’s 2004 IPO prospectus is here). Another substantial player is Suning (苏宁), listed on the Shenzhen exchange.
However, as the Economist notes, retail electronics sales are “highly fragmented” in the PRC. This exemplifies the remarkably resilient Chinese pattern of “petty capitalism” (to use Hill Gates’ term). In both Hong Kong and the PRC mainland many people buy electronics through tiny stalls in computer markets like Buy Now (百脑汇 Bai Nao Hui).
According to FinanceAsia Warburg’s stake in Gome will cost $128 million for a bit under 10% of the company. It is structured through the issuance of convertible bonds and warrants and involves assorted promises from Wong about potential conflicts of interests between the listed arm of Gome and some of his other personal holdings.
Warburg owns Neiman Marcus. I wonder if that helped persuade Wong they’d be a good partner.