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Firebrand Cracks Gateway’s Board

Gateway’s board of directors struck a deal with a major stockholder group that will add one of its members to the board and take under review proposed changes to its stockholder rights plan.

Under the agreement Scott Galloway, CEO of the investment firm Firebrand Partners, which owns 10.7 percent of Gateway’s stock, will immediately join the board. A second independent director who is acceptable to Firebrand and the current board will be named later. In addition, Gateway will take under consideration the company’s stockholder-rights plan and then make recommendations concerning the rights plan prior to the 2007 annual stockholder meeting to be held next May. At that meeting the board will also recommend that stockholders declassify the board which, if approved, will force board members to be re-elected every year.

In return Firebrand has agreed to abide by certain standstill provisions through Dec. 31, 2007. A standstill provision means the investment group will not make any demands upon Gateway.

These changes are the result of a request made by Firebrand Partners to Gateway in October that asked the company to name three Firebrand-chosen people to the board in order to improve profitability. If Gateway had refused, Firebrand was willing to take additional, and undefined, steps to rectify what it considers to be Gateway’s profitability problems.

Firebrand laid out its strategy in a letter to Gateway CEO Richard Snyder that was published in a Gateway Securities and Exchange Commission filing in October.

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.

The Firebrand story is the latest in a string of Gateway sagas that started in August when eMachines’ founder and a current large Gateway stockholder Lap Shun Hui attempted to purchase Gateway’s retail business for $450 million. In a letter to Gateway’s board that was very similar to Galloway’s, Hui expressed his dissatisfaction with Gateway’s retail performance and that company executives would not accept his advice. Gateway’s board officially turned down Hui’s offer on Sept. 1.

In addition to running Firebrand Partners, Galloway is a clinical associate professor at New York University’s Stern School of Business.