Hillhouse wins battle for China electronics player Gree

Gree Group said in a statement that after a comprehensive review of the two applicants, it had opted for Zhuhai Mingjun Investment, which is backed by Hillhouse. If the management of Gree Electric accepts the offer, a share transfer agreement will be signed within 10 days.

Hillhouse is an established technology investor with a portfolio that includes Midea Group, Gree Electric’s largest competitor. In recent years, Gree Electric has sought to diversify the business into smart home appliances, mobile phones, and electric vehicles, so it may find opportunities for synergies with other Hillhouse investees.

The relationship between the new investor and Mingzhu Dong, Gree Electric's strong-willed chairman, will likely be crucial. Dong enjoys an unusually high profile for the head of a state-controlled business. She even took over from actor Jackie Chan in an advertising campaign for Gree Electric's air conditioning units, effectively making her face recognizable to most households in China. In 2015, she was removed from her position as chairman of Gree Group, while remaining head of Gree Electric.

Speaking at the World Internet Conference recently, Hillhouse CEO Lei Zhang shared some thoughts on working with entrepreneurs. “The keyword for collaboration in industry digitalization is ‘respect’ - respect entrepreneurship, respect industry rules, respect enterprise employees," he said. "Let the entrepreneur sit in the central position, this is the first principle we have always adhered to in our digital explorations with entrepreneurs.” 

Hillhouse Capital will pay at least RMB39.8 billion ($5.5 billion), according to a filing by Shenzhen-listed Gree Electric. It has already made a downpayment of RMB6.3 billion. The company's stock has climbed 30% since the potential deal was announced in April. It was trading at RMB58.42 as of mid-morning on October 29, valuing the company at approximately RMB344 billion.

Since Dong took over in 2012, Gree Electric's revenue has doubled. It reached RMB200 billion in 2018, up 33% year-on-year, while net profit increased 17% to RMB26.2 billion. However, the company's core air conditioning business has slowed in recent years as the industry saturates. Revenue rose 4.6% to RMB79.3 billion in the first half of 2019, while air conditioner sales in China as a whole fell by 1.4%.

Gree Electric saw faster growth in sales of smart phones and other devices like rice cookers, but their revenue contributions were just RMB415 million and RMB2.6 billion, respectively.

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• Topics
• Greater China
• Consumer
• PIPEs
• China
• Hopu Investment Management
• Hillhouse Capital Management