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Gateway Again Under Stockholder Pressure

Irvine, Calif. – Gateway announced on Oct. 26 that the investment firm Firebrand Partners, a substantial stockholder, is asking to place three people onto Gateway’s board of directors.

Scott Galloway, Firebrand’s founder, in a letter to Gateway’s CEO Ed Coleman and board chairman Richard Snyder, which was attached to a Securities and Exchange Commission filing made on Oct. 25, asked Gateway to take several steps to improve profitability. If the company refuses then Firebrand is prepared to take further measures.

“If we do not hear from you, we will take your silence as a sign of unwillingness to work together and will pursue these matters on our own, through the calling of a special meeting or otherwise,” Galloway wrote.

Firebrand’s requests include appointing three people of its choosing to Gateway’s board, declassifying the board of directors (which would shorten board terms to increase turnover) and eliminating any “poison pill” provisions the board has to limit takeover attempts.

“We are troubled that the board appears to lack the sense of urgency to address the company’s challenges and capitalize on its opportunities. A company with a great brand and channel strength, but 5.5 percent gross margins, requires a board whose oversight and experience can aid in the development and articulation of a strategy to improve margins,” Galloway wrote.

The letter stated that Firebrand believes there is a great deal of untapped potential at Gateway, but if action is not taken the ability to take advantage of this will pass. Galloway looked even further down the road stating that if the current board, plus the Firebrand additions could not squeeze more profitability out of Gateway then the company should be sold.

Gateway’s response was a written release stating that Gateway’s Corporate Governance and Nominating Committee will review the request and pass its recommendation on to the full board of directors. The board has eight directors, seven of which are independent of Gateway.

Galloway requested an answer by Oct. 31.

Firebrand Partners is part of an investment group that includes Harbinger Capitol funds, which bought just over 10 percent of Gateway’s stock in September. Firebrand also recently invested in specialty retailer Harvey Electronics and Scott Galloway, Firebrand’s founder, now sits on Harvey’s board.

Firebrand’s Web site states it targets companies with, “ recent operational stumble(s); poor corporate governance; a decline in analyst coverage; and (iv) limited earnings visibility. The result is a stock that is trading well below industry comparables.

As of press time neither Gateway nor Firebrand had returned calls.