The Background

Dazhong Electrical Appliance was established by Mr. Dazhong Zhang (Mr. Zhang) in 1982 in Beijing. After two decades of development, Dazhong Electrical Appliance stabilized its position as the largest household electronic appliance retailer in Beijing. On April 19th 2006, Dazhong Electrical Appliance, Mr. Zhang and Yongle Electrical Appliance entered into a Strategic Cooperation Agreement pursuant to which (i) Dazhong Electrical Appliance and Yongle Electrical Appliance agreed to form a strategic alliance; and (ii) Mr. Zhang agreed to transfer the registered capital of Dazhong Electrical Appliance to Yongle during the term of the Strategic Cooperation Agreement. Gome Electrical Appliance and Yongle Electrical Appliance released a joint announcement in the Hong Kong Stock Exchange dated July 25th 2006, announcing Gome’s acquisition of all of the issued shares of Yongle Electrical Appliance. Dazhong Electrical Appliance filed an arbitration request notice to China International Economic Trade Arbitration Commission on October 18th, to gain its purport on the rescission of the Strategic Cooperation Agreement.

After nearly 40-hour continuous negotiation, Mr. Zhang finally entered into an Equity Transfer Agreement with Beijing Zhan Sheng Investment Limited Company (Zhan Sheng Company) dated December 12th 2007, whereby Mr. Zhang sold the entire registered capital of Dazhong Electrical Appliance in a consideration of RMB 3.6 billion. On the same day, Dazhong Electrical Appliance and Gome Electrical Appliance compromised the arbitration. Suning Electrical Appliance released a joint announcement in Shenzhen Stock Exchange dated December 12th 2007, announcing it had terminated its acquisition of Dazhong Electrical Appliance. Two days later, Gome Electrical Appliance announced in the Hong Kong Stock Exchange, declaring that one of its subsidiaries will provide a loan in the amount of RMB 3.6 billion to Zhan Sheng Company. And the Loan will be used by Zhan Sheng Company for the purpose of acquiring the entire registered capital of Dazhong Electrical Appliance.

The transaction was reported by CBN Weekly on June 9, 2008.

The Project

On the first business day after Labor Day 2006, that is, 15 days after the signing of the Strategic Cooperation Agreement, Mr. He Jie met with Mr. Zhang for the first time regarding the transaction. After that meeting, Kejie lawyers, as Mr Zhang`s legal counsel (i) assisted Mr. Zhang in negotiating with Yongle Electrical Appliance to rescind the Strategic Cooperation Agreement, (ii) assisted Dazhong Electrical Appliance in cooperating with other potential investors for their due diligence investigation, participated in structuring, negotiation and documentation of the potential investment, and (iii) drew up drafts of the transaction, negotiated and completed the transaction with Zhan Sheng Company.

The Challenge

As the legal counsel for the most influential merge transaction in the household electrical appliance retail industry in 2007, Kejie lawyers were confronted with intense pressure. In the face of a complex negotiation environment and strong negotiators, Kejie lawyers stuck to their own position with substantiated reason all the time, protecting Mr. Zhang`s interests through their prudent, decisive and professional negotiation. Whether it was the transaction with Zhan Sheng Company or other potential acquisition against Dazhong Electrical Appliance, both the buyer and the seller were more or less industry competitors. To Dazhong Electrical Appliance (as the target company), the failure of the transaction would mean that, its opponents would obtain some of its important and confidential information. This required Kejie lawyers to protect with their professional experience Dazhong Electrical Appliance against the law risks among "disclose or not" and "trust (sincerity) or defend".

The one and half year witnessed the change of buyers from Yongle Electrical Appliance to Suning Electrical Appliance, and finally to Zhan Sheng Company. Kejie lawyers facilitated successfully Mr. Zhang`s sale of his entire equity interests in Dazhong Electrical Appliance in a consideration of RMB 3.6 billion.

The Team

Kejie team was led by Partner He Jie, and included Cao Lei and Yu Jiazhi.