Acer CEO defends Gateway (GTW) acquisition

While the news that Acer would be acquiring Gateway (NYSE: GTW) did wonderful things for shares of Gateway, the same cannot be said for Acer. Acer, a Taiwanese company also traded on the London Stock Exchange, is down more than 10% since the announcement of the deal.

Critics believe that Acer is overpaying for Gateway, and also anticipate that the company will have trouble integrating the brand. But in an interview with the Financial Times, the usually soft-spoken Wang-Jen Tang defended the acquisition, saying that it was the company's best shot at achieving profitability in the North American markets -- Acer simply doesn't have strong brand recognition here, and Tang is hoping that the Gateway and eMachines brands will allow the company to lift its net margin in the US into the 2-3% range.

Only time will tell who is right, Tang of the market, which has spoken clearly about how it feels about the deal. But history has demonstrated amply that, the vast majority of the time, acquisitions fail to create value. If Tang is right, this will have to be the exception.

From an investor's perspective, Gateway shares are probably not worth buying, as some had suggested as recently as last week. Given that many observers feel Acer is overpaying, a competing bid seems unlikely to emerge. And what company would want to jump in when the company that just announced the deal has seen its stock hammered in the past week?