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Acer-Gateway Merger Looks Good

Irvine, Calif. — Industry followers gave an overall thumbs-up to the proposed Acer-Gateway merger that has the former entering into a definitive agreement to acquire Gateway for about $710 million.

The deal, announced today, has Acer purchasing all outstanding shares of Gateway for $1.90 per share. Both companies’ boards have approved the deal, but it still must pass Federal anti-trust measures. The transaction is expected to be completed by December.

According to second-quarter data from Gartner, Gateway was the third-largest shipper of PCs, with 6.1 percent of the U.S. market, with Acer right behind at 5.6 percent.

Acer chairman J.T. Wang expects the combined company to have combined sales in the $15 billion range and ship about 25 million computers within a year of the deal’s closure compared to the two firms 19 million shipped during the past year.

Kevin Jones

, Micro Center’s marketing VP, said he was excited about what the deal held for his chain. Micro Center was the first retailer to jump on board with Acer, Jones said, and it also has a strong relationship with Gateway.

“Acer will run a very lean operation and this can be a powerful entity in the U.S.,” he said.

Steve Baker, The NPD Group’s industry analysis VP, concurred.

“This makes a lot of sense for Acer. It does have market share, but it needed another way to penetrate to the higher price points,” he said.

The deal also offers Gateway’s stockholder’s a good opportunity.

“Gateway showed it didn’t have the financial heft to still be competitive at the level it wanted,” Baker said, adding Acer should be able to address this problem.

The merger is expected to create a cost saving of about $150 million for the combined company, Wang said. Full details have not been revealed, but initial reports indicate the newly combined company will retain the Gateway and eMachines brands and help further expand their international penetration.

Baker does not see all three brands residing side by side on retailer shelves because the Acer and eMachines’ models are very similar, but he could see how the different brands could be merchandised in different stores.

Gateway is also holding talks with an as-yet-unnamed third party to purchase its professional computer business. The sale is not imminent, said Ed Coleman, Gateway’s CEO, and that the sale of this business segment will not have any impact on the merger.

No mention was made of layoffs at Gateway, but industry sources expect a certain amount of consolidation. As of press time Acer did not return phone calls on this topic.

Acer does intend to keep Gateway’s consumer business operating as normal.

Gianfranco Lanci, Acer’s president, said the direct business will not be altered, but he does not see it expanding outside the United States.

The acquisition marks the end of a tumultuous three-year run at Gateway that saw the company reject a takeover offer in August 2006 when eMachines’ founder and a current large Gateway stockholder Lap Shun Hui attempted to purchase Gateway’s retail business for $450 million. Previously, there was the company’s failed attempt to remake itself as a CE player and the PC vendor spent millions expanding and upgrading  its Gateway Country Store retail only to shut it down within months of completing the task.

Next the company endured an attempt by Scott Galloway, CEO of the investment firm Firebrand Partners and a significant Gateway shareholder, to take over its board of directors. This chapter concluded in December 2006 with Galloway being placed on Gateway’s board and the company naming an additional board member with Galloway’s approval.

If this happens it could take several more months to close the deal, said Wang.

Galloway has not given his approval of the merger. This could prove necessary for the deal to be completed because he controls about 10 percent of the public stock. Acer must be able to buy 90 percent of the public shares or else the stockholders will have to vote on whether to approve. Gateway founder Ted Waitt, who owns about 12 percent of the stock, has given his OK