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Taiwan's Acer to buy Gateway

PC maker says it will acquire the struggling U.S. competitor for $710 million and pass Lenovo in global market share.

Taiwan's Acer on Monday said it will 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 percent 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 that 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 U.S. presence," Acer CEO 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 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 U.S. market share, combining its own 5.2 percent of the market with Gateway's 5.6 percent, 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 percent and market leader Dell at 28.4 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 merger would push Acer--Taiwan's most recognized global brand--to the No. 3 position, over Chinese rival Lenovo, which confirmed this month that it was in talks to buy PC maker Packard Bell.

Lenovo's plans were set back when Gateway declared Monday that it would exercise its right to take a first attempt at buying the parent of European-focused PC maker Packard Bell.

Packard Bell and Lenovo executives declined to comment.

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.

Acer said it expected to achieve at least $150 million in pretax 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 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," IDC's Ma said. "Can you integrate the operations of the two organizations quickly enough to reap the benefits of that kind of scale? That remains to be seen."