Advanced Logic OKs Buyout by Gateway 2000

IRVINE — Microcomputer maker Advanced Logic Research Inc. agreed to a $194-million cash buyout by Gateway 2000 Inc., the nation’s biggest direct marketer of personal computers, the companies announced Thursday.

The acquisition will provide Gateway with a much-desired entree to the corporate market. Irvine-based Advanced Logic, though profitable on its own, will gain the brand name, deeper pockets and distribution channels of the larger company.

Advanced Logic rose $2.125 a share in heavy Nasdaq trading to close at $14.125 on Thursday--still below the $15.50-a-share purchase price.

“Today, we see a new course for increasing market share together,” said Advanced Logic Chief Executive Eugene Lu. “This is truly an alliance that symbolizes strength and force.”

Advanced Logic will become a wholly owned subsidiary of Gateway, with its operations remaining in Irvine and Lu staying in his current position, the companies said.

Advanced Logic’s 400 local employees will be unaffected by the acquisition, the companies said, adding that the merger might result in an expansion of the work force in Orange County.

“We plan to continue to invest in research and development in the server technology area,” said Ted Waitt, Gateway’s chief executive. “We will be using the ALR facility and people in the Orange County area as the basis for those investments.”

The high-end servers that Advanced Logic makes are the core computers that provide the basic brains and memory for businesses’ networks of desktop terminals.

Gateway, based in North Sioux City, S.D., takes orders directly from customers, builds computers to order and ships them by mail. Started by Waitt, 34, in 1985 in an Iowa farmhouse, the company has kept its folksy image and cow mascot as it has grown to more than $5 billion in sales, with 10,000 employees scattered around the globe.

But the cutthroat personal computer business is plagued by price wars and low profit margins. Earlier this week, Gateway said it expects its second-quarter revenue to fall short of expectations.

Although the company’s earnings are still expected to be comparatively healthy for the remainder of the year, the announcement heightened concerns about a slowdown in demand for computer products.

Gateway had reportedly been close to a deal to be acquired by Compaq Computer Corp. earlier this spring, but Waitt said Thursday that the company is not for sale.

Waitt has made no secret of his desire to take on the corporate market, but many observers have questioned Gateway’s ability to achieve credibility in that business. Advanced Logic provided the perfect opportunity, Waitt said.

“We feel this is the right way for us to enter the server business and expand our business over time,” he said.

Gateway’s stock closed Thursday at $33.125 a share, up $1.125, on the New York Stock Exchange.

Analyst Mark Kelleher of Fechtor, Detwiler & Co. in Boston called the acquisition “a perfect fit” for Gateway. The server business has “a large, growing marketplace that has higher margins.”

Advanced Logic got its start in the server market in 1984, but detoured into personal desktop computers in the 1980s. It shifted back to servers and the business market about five years ago and has reported increasing profits for the past couple of years.

In the six months ended March 31, Advanced Logic’s earnings rose 46% to $6.38 million from $4.37 million a year earlier, while its net sales were flat at $112 million.

The deal, which is expected to be completed at the end of July, is subject to a majority of Advanced Logic’s shares being tendered. Lu and other investors holding 42% of the outstanding shares have agreed to the deal, the companies said.

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Advanced Logic Research

* Headquarters: Irvine

* Business: Computer hardware

* Chairman/President/CEO: Eugene Lu

* Status: Public

* Exchange: Nasdaq

* Employees: About 400

* Fiscal 1996 sales: $217.9 million

* Fiscal 1996 net income: $10.6 million

* Purchaser: Gateway 2000, based in South Dakota

* Purchase price: Approximately $194 million in cash

Source: Bloomberg News, PR Newswire