Gateway Board Rejects Offer for Retail Business
The board of directors at Gateway Inc. apparently thinks there’s milk left yet in that cow.
The struggling Irvine computer maker, famous for its black-and-white cow-spot packaging, said Friday that directors had rejected a $450-million offer from its fourth-largest shareholder to buy Gateway’s retail business.
Last week’s unsolicited bid from Lap Shun “John” Hui “is not in the best interests of shareholders,” the directors said in a statement, adding that they “remain committed” to shoring up the company’s stock price.
Gateway shares fell 10 cents to $1.90, a price that values the company at $707 million. They rose 23 cents to $1.95 on Aug. 23, the day Hui’s bid was divulged. Hui took a 5% stake in the company after he sold his EMachines Inc. to Gateway in 2004.
Neither Hui nor his spokeswoman could be reached Friday.
Industry analysts scoffed at Hui’s low bid and his idea of buying only the retail operations -- the biggest part of the company. Gateway also sells directly to businesses, governments and schools and sells online to all customers.
“He bid so incredibly low for a component he was looking at that directors had no basis to continue talks with him,” analyst Rob Enderle of the Enderle Group said. “It’s like going into an expensive restaurant and asking what they have for 25 cents.”
Buying just the retail portion isn’t feasible, Enderle said.
“It’s not physically possible to sell off the retail end,” he said. “Everything is integrated: sales force, management and so forth.”
Gateway’s online and the direct sales operations wouldn’t survive if Hui ripped out the retail business, which accounts for about 70% of revenue, said analyst Roger Kay of Endpoint Technologies Associates Inc.
Charles Smulders, an analyst at research firm Gartner Inc., said Hui was focused on selling PCs through retail outlets, a sales channel that has made a big comeback this year.
“I’m not sure he has the background to deal with a broader-based company,” Smulders said. He thinks Hui may have been making an “opening salvo” and could be back.
But the analysts also think Hui has other motives, including an effort to put Gateway in play and garner other bids to lift the value of the stock.
A major problem is that the company hasn’t had a chief executive or a corporate vision since Wayne Inouye left abruptly in February.
An activist investor group consisting of Harbinger Capital Partners and Firebrand Partners recently bought 10% of the company. It is working with management to improve profit margins and recruit a new CEO.
Gateway spokesman David Hallisey said the board was on schedule to hire a new leader by the end of October.
“Gateway is not in that bad a shape,” Enderle said. “It has been profitable and recently unprofitable by only a small amount.”
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