Aug. 27 (Bloomberg) -- Acer Inc., the Taiwan personal computer supplier, agreed to acquire Gateway Inc. for $710 million to surpass Lenovo Group Ltd. as the world's third- biggest PC maker.

Acer will pay $1.90 a share for Irvine, California-based Gateway, according to a statement from the Taipei-based company today. That's 57 percent more than Gateway's closing price of $1.21 on Aug. 24. Acer will fund the acquisition from its cash holdings, Chairman J.T. Wang said at a news briefing in Taipei.

The takeover will double Acer's 5.2 percent market share in the U.S. and give it an option to buy Packard Bell NV in Europe, a company Lenovo is in talks to acquire. Gateway stock has lost 99 percent of its value since 1999 after the company lost market share to Dell Inc. and Hewlett-Packard Co.

``It's eat or be eaten,'' said Christopher Wong, who helps manage $20 billion at Aberdeen Asset Management in Singapore. ``Acer realizes it needs a U.S. footprint to complete its global positioning.''
Acer today reported second-quarter net income fell 36 percent to NT$1.98 billion ($61 million) as China's Lenovo gained customers. Acer stock fell 1.9 percent to NT$63.60 at the Taipei close, before the earnings and acquisition announcements.

Combined sales of Acer and Gateway would top $15 billion with shipments of more than 20 million PCs, the Taiwan company said in the statement. About $150 million will be saved from the merger, Acer said, without specifying the timeframe.

`Straightforward'
``The acquisition seems the most straightforward way to expand market share in U.S,'' said Ross Teverson, who helps manage $4 billion of Asian equities for Standard Life Investments (Asia) Ltd. in Hong Kong.
Citigroup Global Markets Inc. advised Acer, while Goldman, Sachs & Co. advised Gateway. Citigroup also advised Benq Corp., an offshoot of Acer, in 2005 on its takeover of Siemens AG's unprofitable mobile phone unit.
Gateway will exercise the right of first refusal to acquire Packard Bell in Europe, Acer's Wang and President Gianfranco Lanci wrote in a letter to employees today, a copy of which was obtained by Bloomberg.

Texas Instruments
``This is the most important international transaction we have undertaken'' since the purchase of Texas Instruments Inc.'s laptop business a decade ago, the executives wrote. ``There are many steps required to close the combination of Acer, Gateway and Packard Bell and we cannot yet give assurance that it will close.''

John Hui, the biggest shareholder of Packard Bell and the second-biggest shareholder of Gateway, said on Aug. 8 that Lenovo had sole negotiating rights to buy Wijchen, Netherlands- based Packard Bell. He didn't return e-mails seeking comments about the acquisition before U.S. office hours on Monday.

Gateway says it has right of first refusal as part of a June 2006 agreement when Hui submitted a proposal to buy Gateway.

Angela Lee, a spokeswoman at Lenovo, declined to comment.

Gateway, founded in 1985, acquired rival eMachines in 2004 and had 1,645 employees as of April, according to its Web site. The company, the fourth-biggest PC maker in the U.S., withdrew from European and Asian markets in 2001 to cut costs.

The transaction is subject to U.S. regulatory scrutiny and is expected to close by December 2007.