| Acer buys Gateway for $710 million
27 August, 2007
By Liam Lahey
Acer Inc. has bought rival PC vendor Gateway Inc.
for $710 million (U.S.).
Gateway is the fourth largest PC vendor in the U.S.
and a top retail PC provider. The acquisition will
create a multi-branded PC-company with over $15 billion
in revenues and shipments in excess of 20 million
PC units per year, officials said.
Acer will purchase all the shares of Gateway for
$1.90 per share, which represents total equity value
consideration of approximately $710 million. The acquisition
was unanimously approved by the boards of directors
of both Gateway and Acer and is subject to standard
closing conditions, including approval under Hart
Scott Rodino, Exon Florio and similar laws outside
the U.S. The acquisition is expected to close by December
2007.
Interestingly, Gateway had earlier announced that
it intended to acquire from Lap Shun (John) Hui, all
of the shares of PB Holding Company, the parent company
for Packard Bell BV -- a PC vendor based in France.
Moreover, Gateway was reportedly in discussions with
a third party regarding a sale of its U.S. based professional
business.
"This strategic transaction is an important
milestone in Acer's long history" said J.T. Wang,
chairman of Acer, in a statement. "The acquisition
of Gateway and its strong brand immediately completes
Acer's global footprint, by strengthening our U.S.
presence. This will be an excellent addition to Acer's
already strong positions in Europe and Asia. Upon
acquiring Gateway, we will further solidify our position
as number three PC vendor globally."
The combination of Acer and Gateway is expected to
result in significant revenue and cost synergies,
company officials stated. The considerable increase
in scale would result in reductions in per unit procurement
and component costs for both companies.
However, Rob Enderle, principal analyst for The Enderle
Group, warned this merger would prove to be no simple
undertaking.
Acer is focused on the consumer and it was making
a broad play to move into Europe with Packard Bell,
he said, adding that while Packard Bell is now basically
a dead brand in the U.S., it remains a strong premium
consumer brand in Europe.
"Lenovo was the lead bidder for Packard Bell
until Acer moved around Lenovo by acquiring Gateway,
a company that has the first right of refusal for
Packard Bell. The business market is a very low margin,
has very low growth, has long lead times, and it is
currently wondering why it buys PCs at all with increasing
speculation that it will allow/promote employees buying
their own PC products," he said. "Look at
Apple's growth, which is all consumer, and HP's consumer
growth, as the mobile consumer was a whopping 70 per
cent for them last cycle."
Acer wants to be number three and is in a position
to get there, Enderle continued, as it fancies taking
a run at Dell and HP while better defending against
Asus which was coming up fast.
Acer is as aggressive in terms of logistics with
the retail market as Dell is in direct, he said, adding
he expected Acer would make use of the newly acquired
retail shelf space they'd get with Gateway, and from
there move hard against HP.
"HP has been doing very well in consumer of
late so this will be a major battle," he told
eChannelLine. "Recall HP is already suing Acer,
but Gateway has cross licenses with HP that Acer may
be able to use post-acquisition."
Enderle said he wasn't surprised at word of the merger.
He wrote a paper on the subject in 2004, stating then
that the Acer acquisition of Gateway was likely but
that it would be difficult to achieve.
"This won't be an easy merger. This in many
ways this pits the future of Lenovo (as they move
back into consumer segment) against Acer hard,"
he said, adding Acer's market share was more likely
at risk due to Lenovo's reach into the global consumer
PC segment.
"Not that there is ever any competition between
Taiwan and China," he quipped sarcastically.
According to figures from IT market research firm
IDC Corp., the merging of the two companies would
give Acer a 10.8 per cent share of the American PC
market, based on IDC data for PC shipments in 2Q07.
Gateway was the third ranked vendor in the U.S. market
in 2Q07 behind second place HP (23.6 market share)
and top ranked Dell (28.4 per cent). Acer was ranked
sixth, the data indicated. Though often referred to
as competitors, Acer and Gateway were not in competition
in the American market, Daoud added. While Gateway
focused near exclusively on the consumer retail space,
Acer's primary focus in North America has been in
the small business segment via the reseller channel.
As such, there are no overlaps between the two companies
but plenty that would be complementary.
The pressure would be on Acer to deliver results
in an intense competitive landscape and resuscitate
what has been a dormant Gateway, he said. Focusing
on the small business market served Acer well but
now it is expanding into mass retail in the demanding
U.S. market, and that could lead the company into
more difficult territory.
"HP has been working hard to consolidate its
position in consumer retail. And Dell has been engineering
a comeback that could lead to further market fragmentation,"
he noted. "Although Gateway has always been a
well-recognized brand, it has slowly lost ground these
past years and Acer's challenge will be to restore
the Gateway name first as we enter the busy year-end
holiday season."
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