Acer shares fall after Gateway deal

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Taipei/Hong Kong, August 28:: Shares in Taiwan's Acer Inc fell sharply on Tuesday after investors chafed at the premium the PC maker was paying for loss-making US rival Gateway to gain the spot as the world's No 3 maker.

Shares in Chinese rival Lenovo, currently the world's third largest maker, also fell steeply following news that Gateway could block its plans to buy Europe-focused Packard Bell BV so it can grow its weak presence in the region.

Analysts said Acer's offer to pay USD 1.9 per Gateway share -- a 57 per cent premium over the stock's Friday close -- was too steep, given Gateway's lacklustre growth.

"The deal would not help Acer's profits in the short term, and they bought Gateway for an overly high premium, but the fall should only last for one or two days," said Jerry Chang, fund manager for National Investment Trust Co., which manages T$1.5 billion (USD 45.5 million) in funds, and owns Acer shares.

Acer said on Monday it would buy Gateway for USD 710 million to take Lenovo's No 3 spot.

"Gateway is not a brand that is growing, and investors may question if the company is spending its cash wisely on this purchase," said an analyst at a major investment bank.

Acer's shares closed down 6.9 per cent at T$59.20, lagging a slight dip in the benchmark index.

But some analysts said Acer's deal could reap benefits in the long term as it would help the Taiwanese company grow its global PC business in regions such as North America.

"Gateway's brand name is still strong in the US and this acquisition is positive for Acer's long-term growth and expansion," said National Investment's Chang.

Lenovo Foiled

Shares in Lenovo, which bought IBM's PC business two years ago, slid as much as 12 per cent at one stage on news of its European setback. The stock ended the morning session down 7.5 per cent at HK$5.09.

Analysts are divided over what this hurdle could mean for corporate-focused Lenovo's strategy to tackle the US and European consumer PC market.

Some view the loss of Packard Bell as a longer-term blow to Lenovo's global ambitions, which the PC maker has said hinges on being able to grab market share in a consumer market it has little knowledge of.

"Its share price is likely to take a hit in the near term," JP Morgan analyst Charles Guo said on Tuesday.