Gateway agrees to takeover for $710m

LOS ANGELES -- Taiwan-based Acer Inc. will acquire Gateway Inc. for $710 million in a deal designed to give the long-struggling US computer maker the size it needs to compete against larger players, the companies said yesterday.

The deal will push the combined company past China's Lenovo Group Ltd. to become the world's third-largest vendor of personal computers, behind Hewlett-Packard Co. and Dell Inc.

With the acquisition, Acer will absorb a company that made a splash when it was founded in 1985 in an Iowa farmhouse.

Gateway's 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, Calif., Gateway struggled in recent years amid fierce competition.

It branched out into consumer electronics -- selling TVs, music players, and other items -- but the strategy didn't work.

Neither did its retail stores, which shuttered in 2004.

"Having tried for several years to grow their way back up through various strategies, it seems a reasonable step to consider joining forces with another company," said Tom Smith, a computer hardware analyst with Standard & Poor's Equity Research.

Acer said it was offering to buy Gateway for $1.90 a share -- representing a premium of 57 percent to Gateway's Friday closing price of $1.21 but only 2 percent of Gateway's all-time high of $82.50 in late 1999.

Gateway shares climbed 61 cents, or 50.4 percent, to $1.82 yesterday.