Why would Acer buy Gateway? Think components and shelf space

Why would anyone want to buy Gateway (GTW)?

The PC maker has squeezed out the slimmest of profits lately. Hewlett-Packard’s (HPQ) size has helped it secure components at affordable prices, and Apple’s (AAPL) design and innovation have helped it rise through the ranks. Meanwhile, Irvine, Calif.-based Gateway has continued to eke out a meager existence on the PC sales charts, not really knocking anyone’s socks off.

That’s why, until Taiwan-based Acer announced plans to buy the company for $710 million this morning, Gateway stock was trading at about $1.21 per share, with investors valuing the company at less than half a billion dollars. Gateway stock is up about 50 percent today, and its market cap is now close to $675 million.

But Gateway is probably a more valuable company than investors gave it credit for. Despite the fact that its products have been overshadowed lately, Gateway still managed to take fourth place on the global PC shipment charts in the second quarter, according to research firm Gartner. In the U.S., Gateway took third place.

Even better for acquirer Acer, which doesn’t have much of a presence in the United States, Gateway still has a lot of creative fight left in it. A couple of weeks ago I got an early look at Gateway’s holiday product lineup, and a couple of the offerings left me downright impressed. Consumers at retail still seem to feel comfortable with Gateway’s down-home brand, and if Acer’s scale can help the company to strike better deals for components, Gateway’s overall profitability should improve.

This is also good news for Intel (INTC), since Gateway has been heavily using its chips in desktops and laptops lately. Gateway also has several models using chips from Advanced Micro Devices (AMD).

This Acer acquisition, which doesn’t seem likely to raise any regulatory hackles, is bad news for PC incumbents like HP, Sony (SNE) and Dell (DELL). Just as Dell’s trying to claw back some market share by entering the retail market, a company that already understands the ups and downs of PC retail could be getting a new lease on life.

Of course, mergers and acquisitions can be messy affairs, and much depends on how Acer management goes about folding Gateway in. But if the company can handle the transition smoothly, Gateway could end up growing its business until the cows come home.

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