Tuesday, 28 August 2007

Acer Buys Gateway for USD 710M

After initially denying that it was buying Gateway corp, Taiwan based world’s third largest computer maker Acer has finally revealed that it is indeed buying the ailing American computer maker.

Acer said it would pay USD 710 million to buy Gateway to gain a stronger presence in the United States and improve its global ranking.

Both the companies said the transaction would create a PC powerhouse with USD 15 billion in annual sales and has been approved by their boards of directors. The combined company will displace China's Lenovo as the No. 3 global supplier of personal computers.

Acer and Lenovo have been in a stiff competition to become the world’s third largest computer maker behind HP and Dell. In fact Lenovo could have achieved the spot had it been successful in acquiring European computer brand Packard-Bell. However this looks like a remote possibility as Packard-Bell is controlled by Gateway and it has a final say in any transactions.

Acer said it would pay USD 1.90 for each Gateway share, representing a premium of about 57 per cent to Gateway stock's closing price of USD 1.21 on Friday, August 24.

Both Acer and Gateway have better reasons for merging their operations. Gateway is struggling for survival in an intensely competitive market. In 2006, the company reported a 3 per cent increase in revenue to USD 3.98 billion.

"Joining with Acer will enable us to bring even more value to the consumer segments we serve and capitalise on Acer's highly regarded supply chain operations and global reach to expand the scope of the Gateway and eMachines brands around the world," said Ed Coleman, CEO of Gateway.

Acer has also struggled to establish a strong brand presence in the United States where it trailed market leaders Hewlett Packard Co., and Dell Inc. In fact Acer was present in the US market till late 90s but withdrew due to collapsing sales as Americans viewed Asian brands with suspicion. The US consumers often regarded Acer as a low cost poor quality brand and hence Acer backed out of US and started concentrating on Europe and Asia-more so India, China, and a few other countries in the region.

Lenovo's acquisition of IBM’s PC business lifted the Chinese government backed company overtake Acer in the annual global ranking of the leading computer makers. On a quarterly basis, Acer regained the No. 3 position in the first quarter.

"The acquisition of Gateway and its strong brand immediately completes Acer's global footprint, by strengthening our US presence," said J.T. Wang, chairman of Acer in a statement.