Wed, Aug 29, 2007 page12

• Investors snub Acer's bid for Gateway

  BOTTOM LINE Analysts said that Acer's US$710 million offer to take over the US PC vendor was too expensive and would not contribute significantly to its earnings

  • AGENCIES
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  Wary investors yesterday snubbed plans by Acer Inc to boost its global presence through a friendly takeover of US-based Gateway Inc, sending the company's stock tumbling 7 percent.

  Dealers said investors feared Acer was paying too much for Gateway in its US$1.9 a share offer, which values the US company at US$710 million and represents a 57 percent premium over Gateway's Friday closing price of US$1.21.

  "This reflects prevailing concerns among foreign and domestic investors," said analyst Hank Chen (陳維隆) of National Investment Trust Co (建弘投信). "Acer's payment is higher than expected."

  

  A man reads an Acer advertisement at a computer store in Taipei yesterday. Shares in the Taiwanese computer vendor tumbled 7 percent as investors snubbed a bid by the group to boost market share through a takeover of US-based Gateway.

  PHOTO:AFP

  Acer closed down its daily limit of 7 percent, or NT$4.40, at NT$59.20, on volume of 34.72 million shares, in sharp contrast to the electronics sub-index, which was up 0.43 percent at 370.98 points.

  The benchmark TAIEX closed up 9.24 points or 0.11 percent at 8,727.55 on turnover of NT$111.43 (US$3.38 billion).

  Gateway shares climbed US$0.61, or about 50 percent, to US$1.82 on the New York Stock Exchange on Monday.

  "It's a very expensive deal," said Calvin Huang (黃文堯), an analyst at BNP Paribas, which maintained a "buy" rating on Acer's shares.

  He estimates the acquisition's fair value at a premium of 10 percent to 20 percent to Gateway's closing level on Friday.

  "Acer is now paying around US$350 million for every additional 1 percent of global market share," Huang said.

  By comparison, when Lenovo Group Ltd (聯想) bought the personal computer arm of IBM Corp in 2005, it paid US$290 million for every 1 percent of additional global market share, Huang said.

  There may be more selling pressure in coming days as investors wait for further details of the deal, especially the price of Gateway's planned acquisition of the parent company of Packard Bell BV, a PC maker based in the Netherlands, analysts said.

  Macquarie Research Ltd said the deal is expected to use up nearly half of Acer's current cash position but provide only limited earnings contribution.

  "We believe Acer has underestimated the risk it may encounter after the acquisition, due to the fast-dropping market share of Gateway and the weakening US PC market," Macquarie analyst Daniel Chang (張博淇) wrote in a research report yesterday.

  Chang downgraded Acer's rating to "neutral" from "outperform," and cut his share-price target for the company to NT$63.5 from NT$80.7.

  Acer hopes the Gateway merger -- which needs shareholder approval -- would boost revenues to US$15 billion and shipments to more than 20 million units per year, compared with 14 million units last year.

  However, Chen said this would be difficult to achieve over the short term as Gateway's operations were shrinking and there were big differences in corporate cultures which could prove difficult to overcome.

  "Acer may benefit from the deal, but there could be a long way to go before it can reach its target," he said.

  Gateway is the fourth-largest PC vendor in the US. Its made-to-order philosophy for selling computers made it a formidable player early on, and the brand became known for the cow-spotted boxes used to ship its products.

  Now based in Irvine, California, Gateway struggled in recent years amid fierce competition.

  It branched out into consumer electronics -- selling televisions, music players and other items -- but the strategy didn't work. Neither did its retail stores, which shuttered in 2004.

  Simon Yang (楊勝帆), a manager of private industry think tank Topology Research Institute (拓墣產業研究), was more optimistic and hailed the takeover, describing it as a smart move to keep it one step ahead of Lenovo.

  "Acer won in the race against Lenovo in winning the bride," Yang said, referring to Packard Bell.

  Earlier, China's state media reported that the bid by Lenovo to buy Packard Bell would probably fail due to the acquisition by Acer of Gateway.

  Gateway would exercise its right of first refusal to buy Paris-based PB Holding Co, the parent company of Packard Bell, the reports said.

  That will prevent John Hui (許立信), a major shareholder of Gateway who bought Packard Bell from Japan's NEC last year, from selling Packard Bell to Lenovo, the Shanghai Securities News said.

  Shares of Lenovo sank 6.7 percent to close at HK$5.13 in Hong Kong yesterday.
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