As long as Miss Dong is here, Gree will never be short of topics. Recently, the Gree Rose air conditioner designed by Dong Mingzhu personally caused controversy among netizens and was criticized as "ridiculously ugly and outrageously expensive". The price reached an astonishing 30,000 yuan. In response, Gree responded that Gree air conditioners are not only works of art given by Gree to all users, but also demonstrate Gree’s beautiful vision of “making the world fall in love with Made in China”.
Author｜Sun Yuebing
Edit |Hu Zhanjia
But asking consumers to spend 30,000 yuan to buy a Gree Rose air conditioner is nothing compared to asking investors to support Ms. Dong in spending 1 billion yuan to acquire shares of a loss-making company.
On the evening of December 19, 2023, Gree Electric issued an announcement that it planned to acquire 24.54% of Gree Titanium's shares at a transaction price of 1.015 billion yuan. On the surface, Gree Electric's annual net profit is close to 30 billion yuan, and 1 billion yuan is more than enough. However, when the market opened the next day, Gree Electric's stock price plummeted, and its market value evaporated by more than 10 billion yuan. Investors expressed their "protest."
It turns out that Gree Titanium, the target of Gree Electric's transaction, is "Yinlong New Energy" in which Dong Mingzhu personally invested more than 2 billion yuan. However, nearly seven years later, Gree Titanium has become a loss-making enterprise with a total debt of nearly 25 billion yuan. Dong Mingzhu still asked Gree Electric to spend 1 billion yuan to acquire less than 25% of the company's shares at a premium.
Gree Electric also stated in the announcement that it plans to fully acquire Gree Titanium within the next twelve months. Dong Mingzhu made a huge bet with Gree Electric and the investors behind it. If it succeeds, Dong Mingzhu will gain both fame and fortune. If it fails, Gree Electric will "pay" for it.
Gree titanium
Loss-making business or ecological fulcrum?
According to the announcement issued by Gree Electric Appliances, the company has signed relevant agreements with 12 transaction partners on December 19, 2023, and plans to transfer its total 271 million Gree Titanium shares held by them at a transaction consideration of 1.015 billion yuan, accounting for 24.54% of the total share capital. Among them, Gree Titanium shares held by Dong Mingzhu, chairman of Gree Electric Appliances, will not participate in this transaction. After the transaction is completed, Gree Electric Appliances and Dong Mingzhu will hold a total of 72.47% of Gree Titanium shares.
As of the end of 2022, Gree Titanium's total assets are approximately 25.024 billion yuan, total liabilities are approximately 24.786 billion yuan, and net assets are 238 million yuan. The company has accumulated losses of nearly 3 billion yuan in the past three years, and its asset-liability ratio is as high as 99%. From a valuation of 13 billion yuan in 2016 to a valuation of 4 billion yuan today, Gree Titanium's valuation has dropped by 70%.
What is worth paying attention to is who are the 12 old shareholders who benefited from this acquisition with a premium rate of 16 times?
12 trading partners, picture source Gree announcement
LingTai LT (ID: LingTai_LT) noticed that the transferors involved JD.com, Wanda Group, CIMC Group, etc. Specifically, among the 12 transaction targets, the actual controller of Qiguangxing Company is JD.com Hong Kong International Co., Ltd. Beijing Honghang is a wholly-owned subsidiary of Dalian Wanda Group Co., Ltd., and its actual controller is Wang Jianlin. One of the partners of Chuangzhi Liancheng is Shenzhen CIMC Investment Co., Ltd., and CIMC Investment is a wholly-owned subsidiary of CIMC Group.
The story goes back to 2016, when Dong Mingzhu led the acquisition of 100% equity of Yinlong New Energy at a price of 13 billion yuan. At that time, the acquisition aroused strong opposition from investors and was eventually rejected at the shareholders' meeting. However, Dong Mingzhu did not give up. In December of that year, in her own name, she enlisted Wanda, JD.com, CIMC and other companies to jointly increase investment by 3 billion yuan in Yinlong New Energy.
Therefore, the "allies" who followed Dong Mingzhu in investing back then can now escape smoothly. However, in the eyes of the outside world, Dong Mingzhu seems to be leading Gree "to the dark side."
Dong Mingzhu, from Gree official website
In August 2021, Gree Electric bypassed small and medium-sized shareholders, directly passed the board of directors' decision, and used a judicial auction and public bidding to spend 1.828 billion yuan to acquire 30.47% of the equity of Yinlong New Energy, making Yinlong New Energy a holding subsidiary, and renamed it "Gree Titanium".
While recently announcing that it will continue to invest in the acquisition of 24.54% of Gree Titanium's shares, Gree Electric also announced that the company's board of directors will authorize the management to select an opportunity to transfer a total of no more than 304 million shares of Gree Titanium in the next 12 months at a price not exceeding the valuation of this transaction. In other words, Gree Electric plans to eat up all Gree Titanium.
It should be pointed out that Dong Mingzhu currently holds 17.46% of Gree Titanium’s shares, making him the second largest shareholder of Gree Titanium. In the future, as the actual controller of Gree Electric, will Dong Mingzhu adopt a premium acquisition method to let Gree Electric acquire its own shares in Gree Titanium?
The answer to the mystery remains to be solved. Regardless of whether Dong Mingzhu can quit Gree Titanium, the compensation he received from Gree Electric Appliances itself is already generous enough. Dong Mingzhu has been re-elected as chairman for more than 10 years. Looking at the past three years alone, Dong Mingzhu's total salary in the past three years has reached 31.55 million yuan. In terms of dividend income, from 2019 to 2022, Dong Mingzhu received a total of more than 400 million yuan in dividends in the past three years.
However, in the eyes of investors, Gree Electric's move is putting "junk assets" into listed companies, rather than stripping loss-making assets out of listed companies. At the opening of trading on December 20, 2023, Gree Electric Co., Ltd. suffered a sharp sell-off from the main force and closed down 7.09%. The company's total market value evaporated by more than 13.2 billion yuan in one day.
In order to appease investors' sentiment, Gree Electric issued two more announcements in the early morning of December 21, 2023, and the company's stock price stopped falling and rebounded by 2.24%. One is the "2023 Annual Performance Forecast", which predicts that the company's total operating income in 2023 will be 205 billion yuan to 210 billion yuan, a year-on-year increase of 7.8% to 10.4%; the net profit attributable to shareholders of the parent company is expected to be 27 billion yuan to 29.3 billion yuan, a year-on-year increase of 10.2% to 19.6%.
The other is the "Supplementary Announcement on Foreign Investment and Related Transactions", which mainly explains again that Gree Electric Appliances' increase in Gree Titanium's shares will help give full play to the synergy between the two parties and respond more actively and proactively to the rapid development and changes in the new energy industry.
Dong Mingzhu once expressed that he hopes everyone will give Gree Titanium some time. "Gree Titanium is a big hole. It needs permission to fill it, and it will be filled as soon as possible." However, Dong Mingzhu may not be able to answer how long Gree Electric will fill the pit for Dong Mingzhu.
Why are you so obsessed with Gree Titanium?
The persistent acquisition of Gree Titanium is mainly for Gree Electric's new energy vehicle business, and this is only one aspect of Gree's diversification. Dong Mingzhu has served as the chairman of Gree Electric Appliances since 2012. Since then, Gree Electric Appliances has been on the road to diversification for 11 years.
Gree Electric Appliances has gone from a single air-conditioning industry to entering mobile phones, small household appliances, new energy, medical health and even prepared dishes. It can be seen that Gree Electric has transformed into many industries, but unfortunately, most of them have not achieved scale.
In the mobile phone sector, in early January 2015, Dong Mingzhu declared that "Gree will destroy Xiaomi in minutes if it makes mobile phones." Eight years have passed, and Gree has launched a total of 6 mobile phones, starting from the original Gree mobile phone 1st generation, Gree mobile phone 2nd generation, Gree Color World mobile phone, and Gree mobile phone 3rd generation. In 2020, the brand name was changed to Dasong, and two 5G mobile phones, G5 and G7, were launched successively.
Currently, there are only two models still sold on Gree Mall: G5 and G7. According to Jiemian reports, Gree Electric has disbanded its mobile phone core team, the official Gree Mobile website cannot be opened, and its official public account "Gree Mobile" has stopped updating after April 16, 2020.
Gree mobile phone, Tuyuan e-commerce platform product details page
Let’s look at the field of small household appliances. In 2013, Gree Electric established a subsidiary, Zhuhai Dasong Life Electric Co., Ltd., and its small household appliances were grouped under the “Dasong” brand. Take the air fryer, an Internet celebrity product among small household appliances, as an example. The Tmall platform shows that the sales volume of Dasong’s air fryer is only a few hundred pieces, while the sales volume of the Midea brand’s air fryer has reached 100,000 pieces.
Judging from the financial report for the first half of this year, Midea Group’s consumer appliance revenue was 68.136 billion yuan, accounting for 34.59% of the revenue. Haier Smart Home's China smart home business appliance classification information shows that air conditioner revenue is 23.147 billion yuan, refrigerator/freezer revenue is 22.245 billion yuan, washing machine revenue is 15.345 billion yuan, water appliances are 7.478 billion yuan, and kitchen appliances are 2.137 billion yuan.
Compared with Gree Electric, its revenue from household appliances in the first half of this year was 2.177 billion yuan, accounting for only 2.19% of its revenue. In other words, Gree Electric Appliances still focuses on air conditioners, with other home appliance categories accounting for a smaller share, while the other two competitors have achieved greater breakthroughs in areas such as refrigerators and washers and kitchen and bathroom appliances.
Needless to say in the field of new energy, the capital market has already voted with its feet, and Gree Electric's road to building new energy vehicles is full of obstacles. Judging from the financial report for the first half of 2023, Gree Electric's air-conditioning products accounted for 70.54% of the revenue, and industrial products, green energy, household appliances and smart equipment accounted for 5.53%, 2.94%, 2.19% and 0.25% of the revenue respectively, none of which has achieved success.
Gree’s revenue share chart from 2012 to 2022, source: Flush iFind
What’s even more serious is that Gree Electric’s air-conditioning dominance has been challenged.
Although Midea Group and Gree Electric Appliances both stated in their annual reports that air conditioners ranked first in domestic market share. However, purely from the perspective of revenue data, in 2023 H1 Midea's HVAC (mainly household air conditioners, central air conditioners, heating and ventilation systems, etc.) business revenue is 92 billion yuan, and Gree's air conditioning (home air conditioners, HVAC, etc.) business revenue is 70 billion yuan. Midea has 22 billion yuan more revenue than Gree.
What Gree Electric is facing is that there is not much room for imagination in the ceiling of the main air-conditioning business. Looking for the second growth curve has not found the "broad road" after 11 years of hard work.
Location of white goods giant
Can Gree keep it?
Behind the obstacles in diversified transformation, Gree's problems emerged little by little - channel changes, corporate governance, and lack of senior talents are all problems that Gree needs to solve one by one.
Since 1994, Gree has successively created a rebate model, promoted the share-trading reform, and established a uniquely competitive channel operation model. At that time, the air-conditioning market was expanding rapidly. Gree made full use of dealers' funds to stimulate dealers to make payments in the off-season and pick up goods in the peak season, helping it smooth seasonal fluctuations in demand and improve production efficiency.
Gree Electric Appliances also strengthens the company's control over channels by binding with dealers. Gree Electric has partnered with large dealers in various provinces in China to establish regional sales companies. Under this model, large dealers become shareholders of the regional sales company and participate in the dividends of the regional sales company.
However, in recent years, the proportion of online channels in the overall retail sales of home appliances market has gradually increased, and due to the influence of e-commerce promotions, the attributes of air conditioners in off-peak and peak seasons have continued to decrease. In addition, since 2020, under the influence of multiple adverse factors such as the COVID-19 epidemic and tightened real estate regulation, the development dividends of the air-conditioning industry have gradually receded.
In this context, the "Gree model" faces serious challenges.
To this end, Dong Mingzhu personally started the channel system he established step by step, leading Gree Electric to start the sales system reform in 2019. On the one hand, Gree Electric has shortened its sales levels, reduced channel markups, and transformed its profit distribution methods. On the other hand, Gree Electric has developed online channels and promoted the integrated development of online and offline.
In 2020, Dong Mingzhu started live broadcasting to bring goods. There were 13 live broadcasts throughout the year, with sales of 47.62 billion yuan, accounting for 27.93% of the year's revenue. According to Ovi data, Gree's online share will account for 28.9% of the company's total revenue in 2022, while Midea's online share has reached 48%.
At present, Gree's channel reform has entered the deep water zone and has touched the interests of large dealers. In 2022, Gree's Hebei general dealer announced that it will switch to Philips air conditioners as an example. How to sort out the intricate channel interests is a key factor in the success of Gree's new model reform.
Most of the problems in enterprises come from institutional problems.
After the Zhuhai Municipal State-owned Assets Supervision and Administration Commission gave up its controlling stake in Gree Electric at the end of 2019, Liu Biao, a researcher at the Capital Finance Institute of China University of Political Science and Law and a doctor of economic law, spoke at a meeting on major topics of the "14th Five-Year Plan" and said, "The withdrawal of state-owned assets from Gree is, on the one hand, because the management represented by Dong Mingzhu does not welcome state-owned assets, and on the other hand, in the macro-background of full competition in the market economy, the past systems and mechanisms of some state-owned enterprises have restricted the development of enterprises."
Although Gree Electric has completely entered the stage of market-oriented operation, Dong Mingzhu, as the actual controller, not only claimed in media programs that "I never make mistakes", but also insisted on acquiring Gree Titanium. Few people within the company can speak out and give advice.
Judging from Gree Electric's talent reserve, it seems that there is a suspicion that the successor is "out of stock".
Currently, Gree Electric’s senior management team mainly includes current directors Zhang Wei, Guo Shuzhan, and Zhang Jundu, secretary to the board of directors Deng Xiaobo, vice presidents Zhuang Pei, Tan Jianming, Shu Lizhi, Fang Xiangjian, and financial director Liao Jianxiong.
Gree executive team, picture source Gree 2022 annual report
Among them, Zhang Jundu and Guo Shuzhan are the general managers of Zhejiang Shengshi Xinxing Gree Trading Co., Ltd. and Henan Shengshi Xinxing Gree Trading Co., Ltd. respectively, and are representatives of Gree's core dealers.
Zhuang Pei and Tan Jianming have 20 to 30 years of experience in Gree Electric, but they are both 58 years old now, close to retirement age. Another vice president, Shu Lizhi, once served as deputy director and director of the Wuhan Special Office of the National Audit Office, and did not join Zhuhai Gree Electric until December 2019. Deng Xiaobo "airborne" to Gree Electric after Wang Jingdong resigned. From December 2020 to now, he has served as the company's vice president and secretary of the board of directors. His qualifications in Gree are still relatively young.
The head of finance, Liao Jianxiong, is 49 years old and has been working for Gree for 30 years. He seems to be a good "successor candidate." However, Liao Jianxiong only has experience in financial positions. Another vice president, Fang Xiangjian, who is only 45 years old, has also been with Gree for nearly 20 years. He has been in charge of the quality management business of Gree Electric Appliances and has no experience in other positions.
Gree, which is in a critical period of transformation, may need a successor with experience in marketing, production, R&D, quality, finance and other positions to take over the reins and promote Gree's steady development.
Dong Mingzhu once wrote a book called "Playing Chess without Regrets". Looking at it now, Dong Mingzhu can play chess without regrets, but Gree cannot. Dong Mingzhu, who is approaching 70 years old, has nothing to lose, but Gree, which was founded in 1991, is in its prime and is facing the eager eyes of many companies.
In order to secure its position as the top three white goods giants, Gree will also start to "overwinter", but when will spring arrive?