UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE 14D-9
(Rule 14d-101)
Solicitation/Recommendation Statement under
Section 14(d)(4)
of the Securities Exchange Act of 1934
(Amendment No. 3)
GATEWAY, INC.
(Name of Subject Company)
GATEWAY, INC.
(Names of Person(s) Filing Statement)
Common Stock, par value $0.01 per share
(including associated Preferred Share Purchase Rights)
(Title of Class of Securities)
367626108
(CUSIP Number of Class of Securities)
J. Edward
Coleman
Chief Executive Officer
7565 Irvine Center Street
Irvine, California 92618
(949) 471-7000
(Name, address and telephone number of person authorized to
receive
notices and communications on behalf of the person(s) filing
statement)
With
copies to:
Brian J.
McCarthy, Esq.
David C. Eisman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
300 South Grand Avenue
Los Angeles, California 90071
(213) 687-5000
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Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
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This Amendment No. 3 (this
Amendment
No. 3
) amends and supplements the
solicitation/recommendation statement on
Schedule 14D-9
initially filed with the Securities and Exchange (the
SEC
) on September 4, 2007 (the
Initial
Schedule 14D-9
),
as amended and supplemented by Amendment No. 1 thereto
filed with the SEC on September 5, 2007
(Amendment
No. 1)
, as amended and supplemented by Amendment
No. 2 thereto filed with the SEC on September 14, 2007
(Amendment No. 2
and, collectively with
the Initial
Schedule 14D-9
and Amendment No. 1, the
Schedule 14D-9)
,
by Gateway, Inc., a Delaware corporation
(Gateway)
, relating to the cash tender offer
by Galaxy Acquisition Corp.
(Acquisition
Sub)
, a Delaware corporation and a wholly owned
subsidiary of Acer Inc., a company organized under the laws of
the Republic of China
(Acer)
, disclosed in a
Tender Offer Statement on Schedule TO dated
September 4, 2007 (as it may be amended from time to time,
the
Schedule TO
) filed with the
Securities and Exchange Commission (the
SEC
)
on September 4, 2007, to purchase all of the outstanding
shares of common stock, $0.01 par value per share, of
Gateway, including the associated rights to purchase shares of
Series B Junior Participating Preferred Stock,
$0.01 par value per share, of Gateway (the
Rights
), issued pursuant to the Rights
Agreement, dated as of January 19, 2000, as amended,
between Gateway and UMB Bank, N.A., as rights agent (such shares
of common stock, together with the associated Rights, the
Shares
) at a price of $1.90 per Share, net to
the seller in cash, without interest thereon (the
Offer
Price
), upon the terms and subject to the conditions
set forth in the Offer to Purchase dated September 4, 2007
(together with any amendments or supplements thereto, the
Offer to Purchase
), and the related Letter of
Transmittal (together with any amendments or supplements
thereto, the
Letter of Transmittal,
and
together with the Offer to Purchase, the
Offer
).
The Offer is being made pursuant to an Agreement and Plan of
Merger, dated as of August 27, 2007 (together with any
amendments or supplements thereto, the
Merger
Agreement
), by and among Acer, Acquisition Sub and
Gateway. The Merger Agreement is filed as Exhibit (e)(1) to the
Schedule 14D-9
and is incorporated in the
Schedule 14D-9
by reference. The Merger Agreement provides, among other things,
for the making of the Offer by Acquisition Sub and further
provides that, as soon as practicable after the satisfaction or
waiver of the conditions set forth in the Merger Agreement, and
upon the terms contained in the Merger Agreement and in
accordance with the Delaware General Corporation Law (the
DGCL
), Acquisition Sub will merge with and
into Gateway (the
Merger
), the separate
corporate existence of Acquisition Sub shall cease, and Gateway
will continue as the surviving corporation and as a wholly owned
subsidiary of Acer. In the Merger, the Shares issued and
outstanding immediately prior to the effective time of the
Merger (other than Shares owned by Gateway or any direct or
indirect subsidiary of Gateway and any Shares owned by Acer,
Acquisition Sub, or any subsidiary of Acer or Acquisition Sub or
held in the treasury of Gateway, all of which will be cancelled
for no consideration, and other than Shares, where applicable,
held by stockholders who are entitled to and who have properly
perfected appraisal rights for such Shares in respect of the
Merger under the DGCL) will be converted into the right to
receive an amount in cash equal to the Offer Price.
All information in the
Schedule 14D-9
is incorporated by reference in this Amendment No. 3,
except that such information is hereby amended and supplemented
to the extent specifically provided herein.
Item 4.
The
Solicitation or Recommendation.
Item 4(b) Background and Reasons for the Gateway
Board of Directors Recommendation Background
of the Offer and Merger of the
Schedule 14D-9
is hereby amended and supplemented as follows:
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By adding the following sentence as the second sentence of the
third paragraph thereof
(please refer to page 8 of the
Initial
Schedule 14D-9)
:
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Gateway management, after consultation with Goldman Sachs,
identified these eight potential strategic partners based on
their views with respect to such potential partners
financial capability to acquire Gateway, such potential
partners interest in a transaction with Gateway and
certainty of closing a transaction between Gateway and such
potential partner, including the likelihood that there would be
limited antitrust and other regulatory impediments to a closing.
1
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By adding the following sentence as the third sentence of the
thirteenth paragraph thereof
(please refer to page 9 of
the Initial
Schedule 14D-9)
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Acer, too, had evaluated Packard Bell for potential
acquisition, engaging in a due diligence review in early 2007
that considered various financial, operational and legal issues.
Prior to Lenovos announcement, Acer and Packard Bell had
been unable to reach mutually agreeable terms and had ceased
negotiations.
Item 4(d) Opinion of Gateways Financial
Advisor of the
Schedule 14D-9
is hereby amended and supplemented as follows:
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By adding the following sentence as the fourth sentence of the
fifth paragraph thereof
(please refer to page 17 of the
Initial
Schedule 14D-9)
:
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For the reasons described in Item 8(i) (Internal
Financial Forecasts), the value of Gateways
contractual right of first refusal to acquire the Packard Bell
Shares was not reflected in the Forecasts. Therefore, in
performing its financial analyses and rendering its opinion,
Goldman Sachs did not independently analyze the value of
Gateways contractual right of first refusal to acquire the
Packard Bell Shares.
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By deleting the first sentence of the second paragraph under the
subheading Selected Companies Analysis in its
entirety and replacing it with the following
(please refer to
page 19 of the Initial
Schedule 14D-9)
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Although none of the selected companies is directly comparable
to Gateway, the Selected PC Companies were chosen because they
are publicly traded personal computer companies with product
lines focused on personal computers and peripherals and equity
market capitalization of less than $10 billion and with
operations, market size and product profiles that for purposes
of analysis may be considered similar to certain of
Gateways operations, market size and product profile. The
Other Diversified PC Companies were chosen because they are
publicly traded electronics and hardware companies with more
diversified product lines including, but not limited to,
personal computers and larger equity market capitalization, that
for purposes of analysis may be considered similar to certain of
Gateways operations and product profiles. The five-year
compound annual earnings per share growth rates for the selected
companies ranged from 12% to 20%.
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By adding in the first paragraph under the subheading
Present Value of Future Share Price Analysis the
following parenthetical after the defined term Pro
(please refer to page 19 of the Initial
Schedule 14D-9)
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(see Item 8(i) Internal Financial Forecasts)
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By adding the following sentence as the second sentence of the
second paragraph under the subheading Present Value of
Future Share Price Analysis
(please refer to
page 20 of the Initial
Schedule 14D-9)
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The range of forward earnings per share multiples used by
Goldman Sachs in this analysis was derived by Goldman Sachs
utilizing its professional judgment and experience. The discount
rate of 14% used by Goldman Sachs in this analysis was derived
by Goldman Sachs utilizing a cost of equity analysis based on
certain financial metrics including betas, for Gateway and the
selected companies described under Selected
Companies Analysis above and illustrative capital
structures for Gateway and the selected companies.
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By adding the following sentence as the second sentence of the
third paragraph under the subheading Present Value of
Future Share Price Analysis
(please refer to
page 20 of the Initial
Schedule 14D-9)
:
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The range of forward earnings per share multiples used by
Goldman Sachs in this analysis was derived by Goldman Sachs
utilizing its professional judgment and experience. The discount
rate of 15.1% used by Goldman Sachs in this analysis was derived
by Goldman Sachs utilizing a cost of equity analysis based on
certain financial metrics including betas, for Gateway and the
selected companies described under Selected
Companies Analysis above.
2
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By deleting the first sentence of the first paragraph under the
subheading Discounted Cash Flow Analysis in its
entirety and replacing it with the following
(please refer to
page 20 of the Initial
Schedule 14D-9)
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Goldman Sachs performed an illustrative discounted cash flow
analysis to determine a range of implied present values per
Share based on the Forecasts (assuming the sale of Pro (see
Item 8(i) Internal Financial Forecasts) and the
receipt by Gateway of the Financing).
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By adding the following sentence as the third sentence of the
first paragraph under the subheading Discounted Cash Flow
Analysis
(please refer to page 20 of the Initial
Schedule 14D-9)
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In conducting the discounted cash flow analyses, Goldman Sachs
used a range of discount rates derived by utilizing a weighted
average cost of capital analysis based on certain financial
metrics for the Company and selected companies which exhibited
similar business characteristics to the Company. The applied
discount rates ranging from 12% to 15% were based upon Goldman
Sachs judgment of an illustrative range based upon the
above analysis. Goldman Sachs selected terminal one-year forward
EBITDA multiples ranging from 5.5x to 7.5x in order to calculate
the terminal value based upon several factors, including
analysis of the one-year forward EBITDA multiples of selected
companies which exhibited similar business characteristics to
the Company.
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By replacing the last sentence of the last paragraph thereof in
its entirety with the following
(please refer to page 21
of the Initial
Schedule 14D-9)
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In connection with the above-described services, Goldman Sachs
has received compensation, including aggregate fees of
approximately $8,000,000 in connection with the eMachines, Inc.
acquisition and the offering of Gateways Convertible
Senior Notes, and may receive compensation in the future.
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Item 5.
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Persons/Assets
Retained, Employed, Compensated or Used.
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Item 5 of the
Schedule 14D-9
is hereby amended and supplemented as follows:
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By adding the following sentence as the third sentence of the
first paragraph thereof
(please refer to page 21 of the
Initial
Schedule 14D-9)
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Pursuant to the terms of this engagement letter, Gateway has
paid Goldman Sachs fees of approximately $1,000,000 for
financial advisory services unrelated to the Offer and the
Merger, which will be credited against any transaction fee
payable in connection with the Offer and the Merger.
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By then adding the following sentences as the fifth and sixth
sentences of the first paragraph thereof
(please refer to
page 21 of the Initial
Schedule 14D-9)
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The aggregate consideration is defined in the
engagement letter as the sum of (i) the total consideration
paid or received by Gateway and its stockholders, as the case
may be, plus (ii) amounts paid by Acer with respect to
contingently issuable securities, including shares issuable
pursuant to options, warrants and convertible or exchangeable
securities, plus (iii) the principal amount of all
indebtedness for borrowed money as set forth on the most recent
consolidated balance sheet of Gateway prior to the consummation
of the Merger. Any shares issued by Gateway pursuant to any
exercise of the Top Up Option (as described under Item 8(f)
below) and the payment by Acer or Acquisition Sub for any such
shares will not be taken into account in calculating the
aggregate consideration for purposes of calculating the Goldman
Sachs fee.
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Item 8.
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Additional
Information.
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Item 8(d) Regulatory Approvals of the
Schedule 14D-9
is hereby amended and supplemented as follows:
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By deleting the second sentence of the second paragraph thereof
in its entirety and replacing it with the following
(please
refer to page 23 of the Initial
Schedule 14D-9)
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At 11:59 p.m., New York City time, on September 17,
2007, the waiting period under the HSR Act expired.
3
Item 8(e) Foreign Antitrust Approvals of the
Schedule 14D-9
is hereby amended and supplemented as follows:
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By deleting the last two sentences of the paragraph under the
subheading Canada in their entirety and replacing
them with the following
(please refer to page 24 of the
Initial
Schedule 14D-9)
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It is a condition of the Offer that the required waiting period
shall have expired or been earlier terminated or the
Commissioner shall have issued an advance ruling certificate or
an appropriate no-action letter. Acer and Gateway
submitted an advance ruling certificate request and short-form
pre-merger notifications on September 12, 2007. On
September 27, 2007 the Canadian Commissioner of Competition
issued an Advance Ruling Certificate clearing the transaction.
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By deleting the last sentence of the paragraph under the
subheading Republic of China (Taiwan) in its
entirety and replacing it with the following
(please refer to
page 24 of the Initial
Schedule 14D-9)
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It is a condition to the Offer that the review period of the
Fair Trade Act of 2002 shall have expired or otherwise been
terminated prior to the Expiration Date. Gateway has been
informed by Acer that Acer submitted a notification to The Fair
Trade Commission of Taiwan on September 10, 2007, and
received clearance from The Fair Trade Commission of Taiwan on
September 27, 2007.
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By deleting the last sentence of the paragraph under the
subheading The Peoples Republic of China in
its entirety and replacing it with the following
(please
refer to page 24 of the Initial
Schedule 14D-9)
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It is not a condition to the Offer that the review period of the
Rules on Mergers with and Acquisitions of Domestic Enterprises
by Foreign investors shall have expired or otherwise been
terminated prior to the Expiration Date. Acer and Gateway
submitted a notification to the MOFCOM and the SAIC on
September 14, 2007. The statutory review period will expire
on October 30, 2007.
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By deleting the last sentence of the paragraph under the
subheading Germany in its entirety and replacing it
with the following
(please refer to page 24 of the
Initial
Schedule 14D-9)
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It is not a condition to the Offer that the review period of the
ARC shall have expired or otherwise been terminated prior to the
Expiration Date. Acer and Gateway submitted a notification to
the FCO on September 7, 2007. On September 24, 2007,
Acer and Gateway received clearance for the transaction from the
FCO.
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By deleting the last sentence of the paragraph under the
subheading Mexico in its entirety and replacing it
with the following
(please refer to page 24 of the
Initial
Schedule 14D-9)
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It is not a condition to the Offer that the review period of the
FLEC shall have expired or otherwise been terminated prior to
the Expiration Date. Acer and Gateway submitted a notification
to the Commission on September 21, 2007. Clearance is
expected within 35 working days after the filing unless the
Commission requires additional information.
Item 8(i) Internal Financial Forecasts of the
Schedule 14D-9
is hereby amended and supplemented as follows:
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By deleting the third sentence of the first paragraph thereof in
its entirety and replacing it with the following
(please
refer to page 27 of the Initial
Schedule 14D-9)
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These internal financial analyses and forecasts consisted of
(i) base case forecasts, dated as of August 2007 (the
Forecasts
), that assumed a sale of
Gateways Professional
(Pro)
business,
(ii) downside case forecasts, dated as of August 2007 (the
Downside Case Forecasts
), that assumed a
shutdown of Gateways Pro business, and
(iii) aggressive case forecasts, dated as of August 2007
(the
Aggressive Case Forecasts
, and,
collectively with the Forecasts and the Downside Case Forecasts,
the
Internal Financial Forecasts
), in each
case that assumed a sale of Gateways Pro business.
4
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By adding the following sentence as the fourth sentence of the
first paragraph thereof
(please refer to page 27 of the
Initial
Schedule 14D-9)
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The Internal Financial Forecasts did not take into account the
acquisition of the Packard Bell Shares by Gateway or any other
transaction with respect to Packard Bell because, as described
under Background and Reasons for the Gateway Board of
Directors Recommendation Background of the
Offer and Merger, the acquisition of Packard Bell did not
fit into Gateways existing business plan and given the
substantial financial resources required for the Packard Bell
transaction, Gateway lacked the financial or management
resources to exercise the right of first refusal for the Packard
Bell Shares absent third party funding and Gateway therefore
would not exercise its right of first refusal for the Packard
Bell Shares absent the Acer transaction or another transaction
pursuant to which a third party funded the acquisition of the
Packard Bell Shares.
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By deleting the table following the sixth paragraph thereof in
its entirety and replacing it with the following (
this table
adds the Gross Margin, Gross Margin Percent, SG&A and
Microsoft Benefit line items to the Revenue and Operating Income
line items disclosed in, and which are unchanged from, the
Initial Schedule 14D-9;
(please refer to
page 28 of the Initial
Schedule 14D-9)
:
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Forecast Year Ended December 31,
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Forecasts
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Downside Case Forecasts
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Aggressive Case Forecasts
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2008
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2009
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2010
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2008
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2009
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2010
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2008
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2009
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2010
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(dollars in millions)
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Revenue
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$
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3,286
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$
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3,679
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$
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4,142
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$
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3,286
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$
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3,679
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$
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4,142
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$
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3,556
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$
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4,106
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$
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4,773
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Cost of Goods Sold
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3,114
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3,468
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3,902
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3,119
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3,478
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3,909
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3,363
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3,869
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4,498
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Gross Margin
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172
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211
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240
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167
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201
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233
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193
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237
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275
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Gross Margin Percent
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5.2
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%
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5.7
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%
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5.8
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%
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5.1
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%
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5.5
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%
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5.6
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%
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5.4
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%
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5.8
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%
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5.8
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%
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SG&A
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125-127
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124-126
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131-133
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125-128
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124-126
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131-133
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127-129
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128-130
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136-139
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Microsoft Benefit
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35
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35
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35
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Operating Income
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$
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80-82
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$
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85-87
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$
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106-108
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$
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73-75
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$
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75-77
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$
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100-102
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$
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98-100
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$
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107-109
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$
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136-139
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Item 8(j) Certain Litigation of the
Schedule 14D-9
is hereby amended and supplemented by adding at the end of such
Item the following paragraph (
please refer to page 29 of
the Initial
Schedule 14D-9,
as amended by Amendment No. 1 and Amendment No. 2
):
On September 24, 2007, the parties executed a memorandum of
understanding (
MOU
), pursuant to which all of
the purported stockholder class action lawsuits will be
resolved, including those disclosed under this Item 8(j),
related to the Offer and the Merger in both Delaware and
California. The MOU provides that Gateway will file an amended
Schedule 14D-9
containing additional disclosures regarding the Offer and the
Merger. The MOU also provides that in any proceeding to
determine the fair value of the Gateway shares in the Delaware
Court of Chancery pursuant to Section 262(h) of the DGCL,
Gateway and the members of the class will be deemed to have
waived and shall not present (except pursuant to explicit
direction from the Delaware Court of Chancery) any argument that
any effect should be given to (i) the issuance of any
Gateway shares issued to Acer, Acquisition Sub or any of their
respective affiliates as a result of the exercise of the
Top-Up
Option; or (ii) the receipt by Gateway of any consideration
for the issuance of such shares; it being expressly understood,
however, that this provision is not conditioned on, nor subject
to, the Delaware Court of Chancery taking any position with
respect to such issues or arguments in any such proceeding, or
otherwise on the outcome of such proceeding. The settlement is
subject to approval by the Delaware Court of Chancery, which, if
granted, will release defendants from all claims under both
federal and state law that were or could have been asserted in
the lawsuits or which arise out of or relate to the transactions
contemplated by the Merger Agreement.
Item 8(k) Pro Transaction of the
Schedule 14D-9
is hereby amended and supplemented as follows:
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By adding at the end of such Item the following
(please refer
to Amendment No. 1)
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On September 14, 2007, Gateway was informed by the Federal
Trade Commission that early termination of the waiting period
under the HSR Act with respect to the Pro Transaction had been
granted.
5
SIGNATURE
After due inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this
statement is true, complete and correct.
GATEWAY, INC.
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By:
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/s/ John P. Goldsberry
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Name: John P. Goldsberry
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Title:
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Senior Vice President and Chief Financial Officer
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Dated:
September 27, 2007
6
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