Acer to buy Gateway, to be No.3 PC maker

Taipei, Aug 27: Taiwan's Acer said on Monday it will buy Gateway for $710 million, creating the world's No.3 PC maker, as Acer doubles its presence in the United States, Gateway's fiercely competitive home market.

Acer said it would pay $1.90 per Gateway share, representing a 57 percent premium over Gateway's last closing price.

Acer said the merger would create a company with more than $15 billion in sales and 20 million PCs shipped per year, adding it would keep the Gateway brand in the U.S.

''This acquisition of Gateway and its strong brand immediately completes Acer's global footprint by strengthening our U.S. presence,'' Acer Chairman J.T. Wang said in a statement.

''This will be an excellent addition to Acer's already strong positions in Europe and Asia.'' Acer shares closed down 1.85 percent at T$63.60 before the announcement.

The Taiwan firm has said for months it was in acquisition talks, but had declined to name the target.

The deal would help Acer immediately double its U.S. market share, combining its own 5.2 percent share with Gateway's 5.6 percent, according to second-quarter market data from IDC.

The deal is expected to be completed by December, and the merged company would still be a distant third in the U.S.

behind market leader Dell, at 28.4 percent, and Hewlett-Packard, at 23.6 percent, according to IDC.

''Acer's fumbled around a bit in the U.S., so this will definitely help in that regard,'' said IDC analyst Bryan Ma.

On a worldwide basis, the deal pushes Acer -- Taiwan's most recognised global brand -- up to third ahead of Chinese rival Lenovo, which confirmed this month it was in talks to buy PC maker Packard Bell.

But officials from Acer and Citigroup, which advised on the deal, said Gateway had first rights to acquire Packard Bell, and that the pair had begun talks about such a deal that could eventually see them both folded into Acer.

A merged Acer and Gateway would have sold about 18.6 million PCs worldwide last year, or about 8 percent of global sales, compared to Dell's 39.1 million units, Hewlett-Packard's 38.8 million and Lenovo's 16.6 million, according to IDC.

Packard Bell is a relatively small player, No.18 worldwide, with under 1 million units shipped last year.

Acer said it expected to achieve at least $150 million in pre-tax synergies following the merger, which should be accretive to its earnings per share in 2008 without synergies.

But execution will be key -- a lesson Lenovo learned when it stumbled badly after forecasting similar cost savings following its 2005 acquisition of IBM's PC business.

''This starts to bring back memories of the whole Lenovo-IBM deal,'' said IDC's Ma. ''Can you integrate the operations of the two organisations quickly enough to reap the benefits of that kind of scale? That remains to be seen.'' Acer said its second-quarter profit fell 35.7 percent to T$1.983 billion (US$60 million) from T$3.08 billion a year ago -- in line with market forecasts.

Reuters
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