Acer expects this acquisition to expand its global footprint, by strengthening its US presence and surpass the Hong Kong-based Lenovo Group Ltd. (LNVGF.PK, LNVGY.PK) as the world's third largest PC company. According to a research data, the Palo Alt, California-based Hewlett-Packard Co. (HPQ | charts | news | PowerRating) holds the top slot as the largest PC maker, followed by the Round Rock, Texas-based Dell Inc. (DELL | charts | news | PowerRating) and Lenovo in the second and third positions respectively.
Both the board of directors Acer and Gateway have approved the acquisition transaction. Under this deal, Acer said it would commence a cash tender offer to purchase all the outstanding shares of Gateway for $1.90 per share, representing a premium of 57% over Friday's closing price of $1.21 at the NYSE. The transaction, which is subject to standard closing conditions, including approval under Hart Scott Rodino, Exon Florio and similar laws outside the US, is anticipated to close by December 2007.
For the second quarter of 2007, Gateway reported net income of $1.9 million or $0.01 per share compared to a net loss of $7.7 million or $0.02 loss per share in the year-ago quarter. Revenues fell 8.5% to $841 million from $919 million in the previous year quarter.
Acer said it expects Gateway transaction to be accretive to its earnings per share in 2008 without synergies. Acer anticipates Gateway combination to result in significant revenue and cost synergies. Acer also sees significant savings through the increased efficiency of the combined back-office functions. The pre-tax synergies are expected to be at least $150 million. The considerable increase in scale is expected to result in reductions in per unit procurement and component costs for both companies.
Further, Acer specified that, with this acquisition, it would have the opportunity to implement an effective multi-brand strategy and cover all the major market segments. Acer also said that it intends to actively manage its brand portfolio and differentiate brands to address different consumer segments.
For this transaction, Citigroup Global Markets Inc. acted as exclusive financial advisor to Acer and Goldman, Sachs & Co. served as exclusive financial advisor to Gateway.
Commenting on this acquisition, J.T. Wang, Chairman of Acer, said, "This strategic transaction is an important milestone in Acer's long history. The acquisition of Gateway and its strong brand immediately completes Acer's global footprint, by strengthening our US presence. Upon acquiring Gateway, we will further solidify our position as number three PC vendor globally"
In another development, Gateway, which was founded in 1985, announced that it intends to exercise its right of first refusal to acquire from Lap Shun Hui all of the shares of PB Holding Co. S.ar.l, the parent company for Packard Bell BV, an European PC vendor based in Paris. This initiative by Gateway with respect to acquisition of PB Holding is measured as an effort to enhance Acer's expansion into Europe.
Gateway acquired this right of first refusal as part of a June 2006 agreement with Hui that waived certain non-compete arrangements in connection with his purchase of Packard Bell BV. Pursuant to the right of first refusal, Gateway said it has received a notice from Hui offering to sell all of the shares of PB Holding to Gateway at a price based on an offer received by Hui from a third party. Previously in March 2004, Hui sold the privately-held eMachines Inc. to Gateway.
Gateway also disclosed that it is in discussions to sell its US-based Professional business, which is focused primarily on education, government and business customers, to a third party.
In a separate press release, Acer reported financial results for its second quarter and first half of 2007. For the second quarter, Acer reported profit after-tax of NT$1.98 billion or US$60.58 million and earnings per share of NT$0.76. Consolidated revenue reached NT$93.52 billion or US$2.86 billion, representing a growth of 28.4% from last year' quarter's NT$72.86 billion or US$2.23 billion. Operating income for the quarter was NT$1.96 billion or US$59.9 million, an increase of 29.4% over NT$1.52 billion or US$46.31 million in the same period last year.
For the first half of the year, Profit after tax rose to NT$7.65 billion or US$233.54 million, from NT$7.1 billion or US$216.98 million in the previous year period. Earnings per share for the period was NT$3.23, up from NT$3.09 in the last year period. Consolidated revenues for the half-year period improved 23.9% to NT$193.03 billion or US$5.9 billion, from last year period's NT$155.85 billion or US$4.76 billion. Operating income was NT$3.91 billion or US$119.41 million, an increase of 13.6% over last year period's NT$3.44 billion or US$105.09 million.
GTW closed Friday's regular trading session at $1.21.
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