Shopping time

Taipei, Aug. 27 (Reuters): Taiwan’s Acer said on Monday it would buy Gateway for $710 million, creating the world's No.3 PC maker, as Acer doubles its presence in Gateway's lucrative but highly competitive home market.

Acer said it would pay $1.90 per Gateway share, representing a premium of 57 per cent 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 United States.

“This acquisition of Gateway and its strong brand immediately completes Acer's global footprint by strengthening our US 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. Upon acquiring Gateway, we will further solidify our position as No. 3 PC vendor globally.”

Acer shares closed down 1.85 per cent at T$63.60 before the announcement.

It had said for months that it was in acquisition talks but had declined to name the target.

The deal would help Acer immediately double its US market share, combining its own 5.2 per cent of the market with Gateway's 5.6 per cent, according to second-quarter market data from IDC.

The merged company would still be a distant third in the highly competitive United States, behind No.2 Hewlett-Packard at 23.6 per cent and market leader Dell at 28.4 per cent, according to IDC.

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

On a worldwide basis, the merger would push Acer — Taiwan's most recognised global brand — to the No.3 position instead of Chinese rival Lenovo, which confirmed this month it was in talks to buy PC maker Packard Bell.

A merged Acer and Gateway would have sold about 18.6 million PCs worldwide last year, or about 8 per cent 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.

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 that Lenovo learnt 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.”