Acer Moves to Acquire Gateway, Block Lenovo

Taiwan-based Acer Monday shook up the PC market, unveiling plans to acquire Gateway for $710 million in a move the company said would catapult it into the No. 3 spot among the world's PC vendors.

The acquisition also serves another purpose for Acer: blocking rival Lenovo from its attempt to acquire Packard Bell.

Under terms of the agreement, Acer plans to pay $1.90 per share for Gateway, or roughly $710 million cash. The deal has been unanimously approved by the boards at both companies and is expected to close by December.

Acer's acquisition of Gateway, Irvine, Calif., would create a $15 billion company that ships over 20 million PC units per year, according to an Acer statement.

"The acquisition of Gateway and its strong brand immediately completes Acer's global footprint, by strengthening our U.S. presence," said J.T. Wang, chairman of Acer, in the statement. "This will be an excellent addition to Acer's already strong positions in Europe and Asia."

At the same time, Gateway Monday said in a statement that it plans to exercise its right of first refusal to acquire from Lap Shun (John) Hui all of the shares of PB Holding Company, the parent company for European PC vendor Packard Bell. Hui sold PC company eMachines to Gateway in March, 2004. With Gateway stepping in to buy out Packard Bell, Acer would end up owning both vendors if the deals close.

Gateway also said it plans to sell off its U.S.-based professional business to an undisclosed third party. That business unit focuses primarily on education, government and business customers.

Lenovo earlier this month said it was in talks to acquire Packard Bell via an independent third party. A Lenovo representative said the company remains interested in Packard Bell and is reviewing its options.

Gateway CEO Ed Coleman said Acer and Gateway fit well together. "We believe our complementary geographical and product mixes, and our mutual focus on the consumer market makes Acer an outstanding partner for Gateway," Coleman said in a statement.

Jack Gold, founder and principal analyst at J.Gold Associates expressed doubt that Acer's maneuvers would have much impact on the market leaders given that neither Acer nor Gateway have strong standing in the higher-margin enterprise market.

"We do not believe that much will change in the overall PC market. Acer does bring lots of manufacturing muscle to the table, but the Gateway brand will remain, and be primarily targeted at budget conscious consumers," Gold said via e-mail. "The acquisition should not have a major negative impact on either HP or Dell, although no doubt Acer/Gateway will attempt to go after both in the market."

In the second quarter, Acer held the No. 4 spot with a 7.1-percent share of the global PC market behind Hewlett-Packard's 18 percent, Dell's 14.8 percent and Lenovo's 7.9 percent, according Gartner. Together, Acer and Gateway had 8.8 percent of the market, which would push it into third, ahead of Lenovo.

The combined companies will have a full line of desktop and notebook PCs for both businesses and consumers.

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