Gateway lifted by Lenovo offer for rival

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Gateway shares rose almost 8 per cent on Wednesday on hopes the struggling computer maker might be put into play following Lenovo’s proposed bid for Packard Bell, a smaller European rival.

The rise came as Lenovo, the Chinese computer maker that bought IBM’s PC business two years ago, was understood to be close to sealing a deal to buy Packard Bell, a small computer maker owned by John Hui, who also has a stake of just under 3 per cent in Gateway.

The Hong Kong-born entrepreneur declined to comment on Gateway’s price movement. But when asked about the prospects for second-tier PC makers in today’s environment, he told the Financial Times that he believed the sector was ripe for a shake-up. “There will be more consolidation coming,” Mr Hui said.

The renewed speculation over Gateway came one year after Mr Hui launched an unsolicited $450m bid for the retail portion of Gateway’s computer business. That offer was later rebuffed.

Mr Hui, who sold eMachines, his previous computer company, to Gateway for $290m in 2004, had urged Gateway to adopt a “sense of urgency” to address increased competition and a declining stock price.

Gateway has been hit hard by a combination of fierce price competition and a sluggish market for PCs in the US. Shares in the company have fallen more than 80 per cent during the past three years. Gateway’s stumbles have relegated it to a distant third among US computer makers behind Dell and Hewlett-Packard, although it swung into quarterly profit last week.

Competition from US rivals has been compounded by a surge in market share by low cost Asian computer makers such as Acer and Lenovo.

Gateway declined to comment on the Lenovo and Packard Bell deal.

Mr Hui declined to comment on the progress of any talks between Packard Bell and Lenovo. However, he said Packard Bell, a mid-tier PC maker with estimated revenues of €1.5bn ($2bn) last year, would be a good fit for Lenovo, which has been looking to penetrate the European consumer PC market.

Mr Hui also declined to comment on the possible value of any deal for Packard Bell, but JPMorgan estimates the acquisition would cost Lenovo less than $250m – compared with the $90m that Mr Hui was thought to have paid a year ago.

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