Taiwan's Acer snags Gateway

[kidd]

http://www.slashgear.com/wp-content/uploads/2007/08/acer_bought_gateway.jpg

Acer to leapfrog Lenovo with Gateway deal

By Kathrin Hille in Taipei and Kevin Allison in San Francisco

Updated: 8:12 p.m. CT Aug 27, 2007
Acer of Taiwan agreed to buy Gateway of the US for $710m on Monday. A deal would put it ahead of Lenovo, its Chinese rival, as the world's third-largest personal computer maker.

The transaction, approved by the boards of both companies, will strengthen Acer's position in the US retail market. It will also give it control of Packard Bell in Europe, a PC vendor, only weeks after Lenovo announced it was in exclusive talks to acquire the company.

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"The company that loses the most from this is Lenovo," said JP Gownder, a PC analyst at Forrester Research. "Acer is saying [it's] going to be a world player. That is a huge stake in the ground."

Gateway's shares surged nearly 50 per cent to $1.80 on news of the proposed deal, which valued the company at $1.90 a share – a 57 per cent premium to Friday's closing price for Gateway shares.

Acer was able to snatch Packard Bell out of Lenovo's hands because Gateway has a say over any sale of the PC vendor under a contract with John Hui, a big shareholder in both companies.

For Gateway shareholders, the Acer deal represents a way out after years of waiting for a turnround at the computer maker, which swung into profit last quarter in spite of falling sales.

Gateway's shares had fallen 80 per cent since 2004 after competition from Hewlett-Packard and Dell and slow US consumer sales left it a distant third among US computer makers.

"While much diminished in the US market, Gateway still has a foothold in certain retail outlets and Acer hasn't been able to crack into that," Mr Gownder said.

Acer and Lenovo have been fighting for third place in the global PC industry behind Hewlett-Packard and Dell.

On completion of the deal, which is expected in December at the latest, the combined companies are expected to have revenues in excess of $15bn.

Annual PC shipments would surpass 20m units, said Gianfranco Lanci, Acer president.

Acer and Gateway combined command 8.8 per cent of the global PC market by unit shipments, followed by Lenovo with 7.9 per cent, according to Gartner, the market research company. Acer alone held 7.1 per cent market share.

Gateway was advised by Goldman Sachs.

Copyright The Financial Times Ltd. All rights reserved.

[kidd]

Taiwan's Acer snags Gateway

By Rex Crum and Angela Moore

MarketWatch

JB REED / BLOOMBERG NEWS

A customer shops Monday for computers above boxes containing Acer computers at a Best Buy store in Watertown, Mass. Upon acquiring Gateway, Acer will become the third-largest maker of personal computers, surpassing China's Lenovo Group.

Ted Waitt founded Gateway in 1985.

CEO Jeffrey Weitzen left in 2001 as sales fell.

Wayne Inouye was CEO from 2004 until he was fired in 2006.
SAN FRANCISCO — Gateway, once one of the highest fliers of the personal-computer industry but in recent years reduced to a niche player, said Monday that Taiwanese PC giant Acer is buying it for $710 million.

Although the price represents a 57 percent premium for Gateway stock, it's far below the all-time high of $84 in November 1999.

Acer plans to keep the familiar U.S. Gateway brand, known for its cow-spot logo. It's also keeping the eMachines brand, which Gateway acquired through a 2004 merger.

The deal "creates a more diversified and formidable company," Acer CEO J.T. Wang said.

However, despite Gateway remaining one of the top PC sellers in the U.S., its sales have declined dramatically compared with the overall market and the performance of its competitors.

According to research firm IDC, Gateway's second-quarter PC sales in the U.S. fell 7 percent from a year ago. Acer was the No. 6 PC company in the U.S. during the second quarter of this year, but its U.S. sales rose almost 164 percent from last-year's second quarter.

Adding in Gateway's sales figures would lift Acer to the No. 3 rank behind Hewlett-Packard and Dell.

The acquisition would give Acer a stronger presence in North America, particularly in the lower end of the market. Both Gateway and Acer sell value-priced desktops and laptops, and they rely extensively on resellers and Internet sales.

BMO Capital Markets analyst Keith Bachman said Acer's acquisition appears to give it a better market position on paper, but it will have its hands full integrating and distinguishing the brands of Acer, Gateway and low-cost PC maker eMachines, which Gateway owns.

"Gateway as a company and a brand has struggled to resonate with consumers," Bachman said.

He added that in the retail market, "all three Acer [and] Gateway brands were chasing similar consumers," and that Acer will need to develop a clear product-segmentation strategy.

Acer has been believed to be in the market for a U.S. acquisition for a long time. Wang, its chairman, said in a statement that the acquisition "completes Acer's global footprint, by strengthening our U.S. presence."



The acquisition, which received the backing of both Gateway and Acer's boards, is expected to close by December, the companies said.

Under terms of the deal, Acer will pay $1.90 for each share of Irvine, Calif.-based Gateway, the one-time Wall Street star that's struggled since the end of a high-tech boom in 2001.

After the deal's announcement, Gateway's shares soared 60 cents, or nearly 50 percent, to close at $1.81.

Upon acquiring Gateway, Acer will vault above Lenovo Group to become the No. 3 PC vendor globally. The combined company would generate $15 billion in annual revenue and account for more than 20 million PC shipments each year.

The two companies expect to generate savings of up to $150 million from eliminating duplicate operations and from wielding greater purchasing power. By negotiating larger component purchases, Acer should be able to secure lower prices.

The deal signals the end of a run for Gateway that spanned much of the PC era in which the company followed the classic example of a one-man startup and became an industry icon — only to falter during an economic downturn and never fully regain momentum.

Founded in 1985 by Ted Waitt in an Iowa farmhouse, Gateway became quickly known for three things: Waitt's ponytail, the company's distinctive cow-spotted boxes and being based in South Dakota, as opposed to Silicon Valley.

Gateway moved its headquarters near San Diego in 1998, then to Irvine in 2004.

Gateway showed it could be ahead of its time when in 1996 it opened the first of its Gateway Country retail stores, setting a blueprint Apple would use to great success years later. By 1999, Gateway's market capitalization was estimated to be more than $27 billion.

However, a downturn in industry sales hit Gateway particularly hard in 2000 and led to the departure of CEO Jeffrey Weitzen in 2001. Weitzen was replaced by Waitt, who remained as CEO for the next three years.

Weitzen also had legal difficulties, as the Securities and Exchange Commission charged him in 2003 with fraud related to alleged material misstatements in a regulatory filing regarding Gateway's quarterly earnings in 2000. Those charges were later thrown out.

In April 2004, Gateway bought low-priced PC maker eMachines and named that company's CEO, Wayne Inouye, as its chief executive. One of Inouye's first steps was to close Gateway's remaining 188 retail stores, resulting in 2,500 job cuts.

Gateway never regained its footing, and Inouye was fired early last year.

Takeover talk began to grow a year ago, when Harbert Management disclosed it had acquired 10.2 percent of Gateway's outstanding stock and met with company executives to discuss ways to improve business and market positions.

Last September, the company turned down an offer from Lap Shun "John" Hui to buy Gateway's retail business for $450 million. Hui, the former owner of eMachines, owns about 8 percent of Gateway's outstanding stock.

Hui also controls PB Holding, the parent of European PC vendor Packard Bell. Gateway said it intends to exercise its right of first refusal to acquire Hui's stake in PB Holding.

Gateway said it acquired the right when Hui agreed to some noncompete deals when he bought Packard Bell.

Additionally, Gateway said it is also in talks with a "third party" over the potential sale of its U.S.-based professional business. When Gateway reported second-quarter financial results Aug. 2, the company said professional sales were $173 million, down 31 percent from the prior year.

Citigroup Global Markets acted as financial adviser to Acer, while Goldman Sachs served as adviser to Gateway.

Information about Acer's plans for the Gateway and eMachine brands provided by Gannett News Service

Copyright © 2007 The Seattle Times Company

[kidd]

From The Times

August 28, 2007

Acer buys Gateway to cramp Chinese plans for Lenovo

Tom Bawden and Sarah Butler

A Taiwanese computer maker has dealt a significant blow to China’s hopes of making Lenovo a flagship global PC brand.

Acer, Lenovo’s arch rival, has agreed to buy Gateway, the American computer maker, for about $710 million (£353 million).

The deal will catapult Acer above Lenovo to make it the world’s third-biggest PC manufacturer, give the Taiwanese company a significant presence in the United States for the first time and strengthen its position in Europe.

In addition, Gateway has announced its intention to “exercise its right of first refusal” to buy Packard Bell, the Dutch PC maker that Lenovo had been pursuing as it tries to compete more effectively with Acer in Europe. Gateway’s rights to the company stem from its purchase in 2004 of eMachines, a low-cost PC maker.

The deal represents a double setback to Lenovo and to China, which has a bitter and longstanding dispute with Taiwan over the island’s independence. Roger Kay, the president of Endpoint Technologies, an American consultancy, said: “There is a political struggle at the highest level between China and Taiwan [relating to the autonomy of the latter] and, in that context, this is a blow to China. On a company level, the deal will see Acer dwarf Lenovo in Europe and pull ahead in the US. In Asia it won’t make much difference.”

Lenovo had been the world’s third-biggest PC company, behind Hewlett-Packard and Dell, almost continuously since it bought the PC unit of IBM in 2005. The Beijing Government is the largest shareholder in Lenovo through the Chinese Academy of Sciences.

The sale of Gateway comes after a marked decline in the company’s fortunes, as the dot-com bust and a sustained price war instigated by Dell combined to cut down the group’s fortunes and, in turn, its share price. The company has lost 99 per cent of its market value since its peak in 1999, as the meteoric rise of Hewlett-Packard and Dell forced Gateway into an unsuccessful diversification away from PCs, in the shape of plasma televisions and other consumer electronics. The company, which had begun as a direct-selling operation but later opened hundreds of stores, closed the last 188 of its retail outlets in 2004.

Gateway pulled out of the UK and the Irish Republic in 2001 with the loss of about 1,000 jobs, most of them in Ireland, where the group’s factory was based. It sells computers in Britain and Eastern Europe through Tesco.

The takeover of Gateway will double Acer’s 5.2 per cent market share in America and create a group with $15 billion in sales. A merged Acer and Gateway would have sold about 18.6 million PCs last year, or about 8 per cent of global sales.

[pierre-laurent]

it's a good operation for acer...:yes:

[Razqal]

i hope what happened to Benq after they bought siemens doesn't happen to acer. i think acer should change their logo too. could be better looking. and they need to develop more premium, high performing computers. dell and hp have more expensive, advanced models marketed towards gamers and animation/web/product designers.

[SpeedoPro]

i m no expert but isn't gateway half dead? do ppl still buy gateway pcs? i think acer paid way too much for a brand that's already on its way out...:shrug:

[kidd]

i m no expert but isn't gateway half dead? do ppl still buy gateway pcs? i think acer paid way too much for a brand that's already on its way out...:shrug:

I am no expert either. Nonetheless, Gateway is still no. 4, 5 PC seller in the States according to IDC. In terms of paying too much for the deal? I think Gateway is still much better known in the States than Acer. Interestingly though, same comments were made when Lenovo acquired IBM a few years back... ;)

[Razqal]

i think $710 million for an entire computer company ranked #4-5 in the u.s. is pretty cheap considering hp wanted to buy gateway for like $7 billion or something back in the 1990s.

[superchan7]

Suspicions abound, but we always hope for the best...that's what the executives do too. It's their job and they believe they've done their homework =)

[sungFFman]

Think of it this way. If Acer can successfully merge the two companies together successfully, Acer just won itself an entrance to the American market. In addition, Gateway having the right to refuse Packard Bell's acquisition by any company just screwed another company over, Lenovo, who's trying to break into the European market.

If you think about it, it's a pretty sweet deal really... Now the thing is, will Acer pull a BenQ?

p.s. Speaking of BenQ, wtfu is up with Qisda... I mean... Qisda? As if BenQ's not hard enough to prounce for most english speaking people.

[Razqal]

Think of it this way. If Acer can successfully merge the two companies together successfully, Acer just won itself an entrance to the American market. In addition, Gateway having the right to refuse Packard Bell's acquisition by any company just screwed another company over, Lenovo, who's trying to break into the European market.

If you think about it, it's a pretty sweet deal really... Now the thing is, will Acer pull a BenQ?

p.s. Speaking of BenQ, wtfu is up with Qisda... I mean... Qisda? As if BenQ's not hard enough to prounce for most english speaking people.

i know!!! i've noticed that this pattern for most taiwanese companies - they just don't know how to pick marketable, catchy names for their company that is easy to pronounce and international in scope. it makes you wonder if there's any local taiwanese that speaks decent english despite the fact that taiwanese spend so much money on english cram schools. i mean, doesn't anyone know that 'asus' is one letter away from becoming an obscene name??? ('anus'...hello?!?!) acer is a good name. i like benq too. but i dont like hon hai. just sounds too ethnic. and anglicizing chinese names just doesnt work as well as anglicizing japanese names (e.g., sony, honda, nissan, toyota, etc. at least i think those are japanese names.)