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 (
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 (
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 (
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 (
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.