Gateway mulls offer for retail business

Executives at Gateway Inc. are weighing a surprise offer to sell the company's retail operations to the California entrepreneur whose eMachines business they bought in 2004.

Lap Shun "John" Hui offered Tuesday to buy Gateway's retail arm, which consists of a series of agreements with third-party resellers like Best Buy Co. Inc., Circuit City Stores Inc. and Wal-Mart Stores Inc.

The company sells the rest of its computers through direct sales channels on the telephone and Internet, and through its professional business channel.

Gateway, of Irvine, California, once had 188 retail stores throughout the U.S., but shuttered them in 2004. Since then, the company has expanded its contracts with retailers, including partners in the U.K. and Japan inherited through the eMachines deal, and announced in April that it would start selling PCs in France.

Hui founded eMachines Inc., an entry-level PC maker he sold to Gateway in 2004 for US$234 million. He still owns a large holding of Gateway stock, according to published reports.

Hui also made an offer in June to buy a stake in NEC Corp.'s Packard Bell BV unit, based in the Netherlands, according to a Wall Street Journal story.

A Gateway spokesman had no comment on Hui's offer, referring all questions to the company's brief news release.

Gateway certainly needs the money; it is the third-largest PC vendor in the U.S. behind Dell Inc. and Hewlett-Packard Co., but has posted weak results recently, including a net loss of $12.3 million in the first quarter and $7.7 million in the second quarter.

Still, analysts said the company would have less value if it were broken up.

"Even if Gateway wanted to go for this deal, there's no way they could separate their sales lines without crippling both entities, and after owning eMachines he would know that," said Rob Enderle, an analyst with The Enderle Group.

One explanation for the dramatic offer is that Hui is trying to boost Gateway stock value in preparation to sell his 5 percent stake in the company, Enderle said. "There's only two ways to look at this; either he needs to get back on his meds, or he wants to drive the stock price up."

Gateway stock was up $0.28 to $2.00 in late-morning trading on the New York Stock Exchange.

IDG News Service

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