Acer to Acquire Gateway in $710 Million Deal

Acer plans to acquire Gateway in a deal worth $710 million that Acer says will make it the world's third-largest PC vendor.

Under terms of the agreement announced Monday, Acer will purchase all of Gateway's outstanding shares for $1.90 per share. The deal has already been approved by the boards of directors at both companies and should be completed by the end of this year, subject to government approval, Acer said in a statement. Gateway's shares ended at $1.21 Friday on the New York Stock Exchange.

"This is the biggest acquisition in Acer's 30 year history," said J.T. Wang, Acer's chairman, speaking at a news conference in Taipei.

"After this acquisition, we are solidly number three in the global PC market," Wang said.

Thwarts Lenovo-Packard Bell Merger

Acer's acquisition deal with Gateway also derails rival Lenovo's plans to acquire Packard Bell BV.

Alongside the acquisition deal with Acer, Gateway unveiled plans to exercise its right of first refusal to acquire shares in Packard Bell's parent company, PB Holding Co. SARL, from John Hui. Hui is the founder of eMachines, which Gateway acquired in 2004, and the largest shareholder in Packard Bell.

Gateway did not disclose how much it has offered for Hui's stake in PB Holding.

Acer's efforts to overtake Lenovo will get a big boost from Gateway, which was the world's eighth largest PC vendor during 2006. Together Acer and Gateway shipped 18.6 million PCs during 2006, compared to 16.6 million PCs shipped by Lenovo.

The Gateway acquisition will have the greatest impact in the U.S., where Acer has been growing fast but remains in sixth place among PC vendors.

"This is definitely a good play for them from the U.S. consumer perspective," said Bryan Ma, director of personal systems research at IDC Asia-Pacific. However, the big question is how Acer plans to integrate Gateway with its own operations, and how smoothly the integration process will go, he said.

Shifting Market Share

Acer's share of the U.S. PC market grew 164 percent during the second quarter of 2007, compared to the same period last year. Acer shipped 888,000 PCs to U.S. customers, giving the company a 5.2 percent share of the market.

By comparison, Gateway was the fourth-largest PC vendor during the second quarter, shipping 965,000 PC and taking 5.6 percent share of the U.S. PC market. The Gateway acquisition vaults Acer into the number three spot in the U.S. PC market, behind only HP and Dell.

"Acer is an outstanding strategic partner for Gateway," said Ed Coleman, CEO of Gateway, in a video feed at the Taipei news conference to announce the deal.

Gateway reported net income of $1.9 million for the second quarter, compared to a loss of $7.7 million one year earlier. The company said gains in its retail division during the period were offset by declining revenue in its professional and direct divisions.

However, talks are currently underway to sell off the professional division to a third party, Gateway said Monday. The company did not offer details of those discussions.