Gateway to acquire eMachines in $234M deal

IDG News Service - Gateway Inc. plans to acquire eMachines Inc. for about $200 million in an effort to bolster its shrinking PC revenue while it pursues the consumer electronics market, the companies announced today.
The deal will provide Gateway with the revenue generated by eMachines' strength among retail consumers, the companies said. EMachines sells low-cost PCs that have made inroads with U.S. consumers, who purchased enough PCs from the company to lift it into fourth place ahead of Gateway in the fourth quarter, according to market research firm IDC.
Gateway Chairman and CEO Ted Waitt will give up the CEO title to eMachines CEO Wayne Inouye, but Waitt will remain as chairman and will have an active role in Gateway's future, the company said. Inouye will also be named to Gateway's board of directors, it said.
The deal involves 50 million shares of Gateway stock and $30 million in cash. Based on the closing price of Gateway's stock yesterday of $4.09, the total deal is worth $234 million.
Gateway has aggressively shifted its business during the past year from PCs to consumer electronics, especially digital televisions. Many PC companies think the higher growth rates of the consumer electronics business will allow them to grow as the PC market matures.
But while Gateway has successfully introduced a number of plasma and LCD televisions, its revenue from PCs remains its single largest segment, and that segment has dropped steadily over the past year. During the fourth quarter, overall revenue fell 17%, and PC shipments declined 27%, while revenue from products other than PCs grew 39% compared with last year's fourth quarter, Gateway reported yesterday.
Revenue for the fourth quarter of 2003 dropped to $875 million from $1.1 billion a year earlier, the Poway, Calif., company said. It reported a net loss of $114 million for the quarter ended Dec. 31, or 35 cents per share. The net loss figures include restructuring and other charges, which accounted for $65 million of the loss, or 20 cents per share. In comparison, Gateway lost $72 million, or 22 cents per share, a year earlier.
For the full fiscal year, the company reported revenue of $3.4 billion and a net loss of $526 million, or $1.62 a share.
PCs with the eMachines brand will be sold only through third-party retail channels in the U.S. and in other countries around the world, the companies said. Gateway hasn't sold products outside the U.S. for several quarters.
Gateway also hopes to build on eMachines' channel strength by introducing more of its digital televisions and consumer electronics products into third-party retail stores, it said. Gateway currently operates about 190 retail stores around the U.S. and also sells products through its Web site.
After the acquisition is completed, Gateway expects to post a profit in 2005, it said.
Scarlet Pruitt of the IDG News Service contributed to this report.

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