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Gateway Looking to Acquire eMachines
Feb 3, 2004
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PC maker Gateway Inc. has announced a U.S. $253 million deal to acquire privately held eMachines Inc.

The transaction calls for Poway, CA, U.S.-based Gateway to pay eMachines 50 million shares of its common stock and $30 million in cash. Should eMachines break off the deal and find another buyer, it would have to pay Gateway a termination fee of roughly $8 million.

Gateway, which late Jan. 29 posted its 12th loss in the past 13 quarters, said a major reason for buying Irvine, CAA, U.S.-based eMachines is the company's lean cost structure, which Gateway intends to adopt.

"We clearly needed a scale increase in PCs," said Ted Waitt, Gateway's founder and CEO, during a conference call with analysts. "Our cost structure was still too high."

The deal also brings Gateway a leader in the low-end PC market, which the computer maker has struggled to crack, Mr. Waitt added. Gateway, which will become the third-largest desktop maker when this deal closes later this quarter, has been trying to expand into consumer electronics to broaden its offerings beyond the sluggish PC market. But the deal for eMachines highlights the importance Gateway still places on competing in its core market, said Piper Jaffray & Co. analyst Ashok Kumar.

EMachines clawed its way to be a top provider of cheap PCs only after a long, hard struggle. In 2000 the company, hobbled by slowing sales, a falling stock price and poor product quality, was a poster child for the troubled computer industry. That year, when it went public, eMachines lost $220 million on annual sales of $684 million; it delisted from Nasdaq in May 2001. (The Daily Deal/Deal.com)

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