PC Maker in Taiwan to Acquire Gateway

A Gateway computer is on display for retail sale at a Best Buy store in Los Angeles in this Aug. 23, 2006 file photo. Acer Inc. plans to acquire U.S. computer maker Gateway Inc. for $710 million in a deal that will push the Taiwanese company past China's Lenovo Group as the world's third largest vendor of personal computers. Acer said Monday, Aug. 27, 2007 it is offering to buy Gateway for $1.90 per share in a deal expected to close by December, pending regulatory approvals in Taiwan and the U.S. (AP Photo/Reed Saxon, file) (Reed Saxon - AP)

Computer maker Acer of Taiwan announced yesterday that it would acquire Gateway, the third-biggest U.S. personal-computer company, for about $710 million in cash.

This deal, the latest investment in a U.S. company by a foreign firm, gives Acer the well-known Gateway brand, and more than doubles Acer's U.S. market share to 11.1 percent from 4.8 percent, according to Doug Bell, a research analyst at IDC. Acer has struggled to gain U.S. brand recognition and retail space, and is expected to benefit from Gateway's strong relationship with Best Buy, he said.

The deal must win regulatory and antitrust approvals and, pending those approvals, is predicted to close in December, the companies said.

"Upon acquiring Gateway, we will further solidify our position as number three PC vendor globally," Acer chief executive J.T. Wang said in a statement.

Gateway's market value is far off of what it was in its heyday in 1999, when its stock reached $82.50. Acer said it would pay $1.90 a share.

With this deal, Acer also makes a defensive move against larger rival Lenovo. Gateway said yesterday that it would effectively block Chinese-based Lenovo's planned purchase of Packard Bell by exercising its right to acquire the shares of Packard Bell's parent company, PB Holding.

"Gateway was the best acquisition on the chessboard for Acer, and it took full advantage," said J.P. Gownder, principal analyst at Forrester Research.

Lenovo declined to comment on the two Gateway announcements yesterday, but spokesman Ray Gorman said Lenovo officials "remain interested in Packard Bell and are reviewing our options."

The Acer-Gateway acquisition also touched off some security concerns.

"It's always a concern when foreign companies start buying American companies that provide services that could be used for classified work," said Dan Scandling, chief of staff for Rep. Frank R. Wolf (R-Va.), who led the charge last year against the State Department's intention to use 900 Lenovo computers on its classified network. The U.S.-China Economic and Security Review Commission had notified Wolf, then an Appropriations subcommittee chairman, that using foreign-manufactured equipment could compromise the security of classified information.

Gateway and Acer said they would file voluntarily with the Committee on Foreign Investments in the United States this week. That interagency group will review the deal to determine whether it would threaten U.S. national security.

Analysts do not expect the group to block the deal. Hewlett-Packard and Dell, two U.S.-owned companies, still control about half of the PC market, so the U.S. national security and intelligence interests have options for buying computers from domestic companies.

The foreign investments panel allowed Lenovo to buy IBM's PC unit, ThinkPad, in 2005, a deal that drew more criticism because it put a large American computer company in the hands of a mainland Chinese company.

Gateway's brand embraced a folksy, down-home image by packaging its simple, user-friendly products in distinctive boxes with cow spots. The company was founded in an Iowa farmhouse in 1985. Initially calling it Gateway 2000, Theodore W. Waitt formed the company with a "$10,000 loan guaranteed by his grandmother, a rented computer and a three-page business plan," according to Gateway's Web site. In 1993, the direct-sales company made the Fortune 500 list and sold shares to the public.

But during the late 1990s, Gateway started to falter.

"They overexpanded too fast at a time when prices for computers were starting to plummet," said Tim Bajarin, president of Creative Strategies, who noted that Gateway started building retail stores and delving into other consumer products such as TVs. "They couldn't weather it."