MPC will buy Gateway division
Most of North Sioux pro division workers will keep jobs
By Dave Dreeszen Journal business editor | Posted: Thursday, September 06, 2007
NORTH SIOUX CITY -- Idaho-based MPC Corp. plans to buy Gateway Inc.'s professional division, and keep the unit in North Sioux City, MPC Chairman and CEO John Yeros said Wednesday.
"We're very excited about the opportunities for merging these two businesses ...," Yeros told the Journal.
The majority, if not all, of the estimated 300 pro division workers based in North Sioux City will be asked to transition to MPC's new operation, said Ross Ely, the company's executive vice president for sales and marketing.
As part of the $90 million deal announced Wednesday, MPC also will take over the portion of Gateway's consumer direct unit that targets small businesses. The estimated 100 employees working with those accounts also will be offered jobs with MPC in North Sioux City. In addition, Yeros said MPC will need to fill a yet-to-be-determined number of other positions to support the professional division, such as human resources and financial personnel.
Altogether, MPC anticipates employing 400 and 500 in North Sioux City. That would represent half or more of the total Gateway employment of 950 at the black-and-white cow-spotted complex.
The remaining Gateway employees are waiting to hear what Acer Inc. plans to do with the North Sioux City complex. Last week, Taiwan-based Acer announced a $710 million deal for financially troubled Gateway that creates the world's third largest PC maker. In a separate announcement that same day, Gateway also said it was in talks to spin off its professional segment to a third party, which turned out to be MPC.
MPC's Yeros and Ely, accompanied by Gateway CEO Ed Coleman, discussed details of the MPC deal in a half hour interview at the North Sioux offices. Earlier in the day, the MPC executives toured the complex and visited with the professional division staff for an hour and 45 minutes.
"From our side, we felt the meeting went well and there was some real enthusiasm for the change -- that they're looking at being THE company, as opposed to a smaller part of another company," Yeros said.
Local economic development leaders came away heartened by what they heard about MPC's plans.
"While Siouxland has not always fared well with similar mergers and acquisitions in the past, we are cautiously optimistic and very encouraged by MPC's statements that they have every intention of retaining the vast majority of Gateway's professional business unit," said Chris McGowan, executive vice president of the Siouxland Initiative.
"We wish MPC every success with this new venture and look forward to welcoming them into the Siouxland business community."
Much like Gateway's professional division, MPC specializes in the sale of custom-built desktops, notebooks, servers and related products for the business, education and government sectors. In the U.S., MPC is in the top 10 in PC sales, but ranks behind industry leaders like Dell and H-P. "We're the largest of the small guys," Yeros said.
Adding Gateway's professional division creates efficiencies and economies of scale that should allow MPC to better compete with the largest players. In 2006, the combined revenue of MPC and Gateway's professional business would have been $2.6 billion.
Coleman said spinning off the pro division fits Gateway's strategic plans. "As (MPC) concentrates on the pro business, that frees us up to concentrate on the consumer business," he said.
As part of the deal, MPC will acquire Gateway's 180-employee configuration plant in Nashville, Tenn., which performs final assembly of Gateway Professional products. MPC plans to operate both the Nashville facility, which opened last November, and its own assembly plant in Idaho, Yeros said.
MPC plans to keep the Gateway Professional name for the business and then move to the MPC brand within a year.
Under the transaction, MPC will immediately assume responsibility for the Gateway unit's operations and warranty support services, which Gateway values at about $60 million. After the deal closes, Gateway also will invest about $10 million in MPC for a 19.9 percent stake in MPC.
MPC also will be required to raise an additional $9 million by exercising some of its outstanding warrants, which are priced at $1.10 per share.
Rick Hanna, a Morningstar analyst who covers the PC industry, noted that no cash changes hands in the deal, and the main benefit for Gateway is the reduction of its projected warranty obligations. Even with the added sales of Gateway's professional business, Hanna said he personally doubts that Micron can survive long term as a stand-alone company in a competitive market.
"The company has seen double-digit declining revenues and is not generating profit," Hanna said. "The deal with Gateway gives them a little breathing room, but only very little."
In Gateway's professional division, MPC inherits a business with $900 million in revenue in 2006 and $75 million in gross margin dollars over the past four quarters. But in the second quarter, which ended June 30, the segment reported a 31 percent drop in revenue and 36 percent decrease in sales volume, compared to the same quarter last year.
Yeros said his company looked hard at the declining revenues, but came to the conclusion the situation had stabilized. He attributed some of the revenue losses to selling computers to schools for low bids that lose money. That practice has been discontinued, and those contracts have been expiring.
Nampa, Idaho-based MPC, founded as HyperSpace Communications in 2001, acquired then-MPC Computers in July 2005. The PC business, which traces its roots to Micron Technology in the 1990s, was once a $1.5 billion operation, Yeros noted. In recent years, MPC has made a series of moves to improve its bottom line and better position itself for the future, he said.
"Gateway also was a much larger company at one point in time," Yeros said. "As it downsized, from our perspective, it never really shed all of that fat. So, it had a cost structure that never really allowed the pro business unit, for example, to make money.
"The first thing that happens here is this new pro business unit gets under our kind of cost structure, as opposed to the old Gateway structure."
Coleman added, "We believe if you take what the pro team can do, have it operate under a leaner infrasturcture, it can be a good profitable business, that we hope, as a major shareholder, to be advantaged by."
MPC's deal, which is subject to regulatory approval, is expected to close in early October. Afterwards, there will be a 120-day transition period, during which the new MPC employees will relocate to a common space in the Gateway complex.
MPC has signed a five-year lease for about 90,000 square feet of space on the second floor of Gateway's former Argentina building. Alorica, a California-based teleservices firm that does business with Gateway, leases most of the first floor of the building.
MPC Corp.
History: Founded in 1991 as HyperSpace Communications Inc. MPC Corp., also formerly known as Micron PC, acquired MPC Computers in 2005.
Headquarters: Nampa, Idaho
CEO: John Yeros
FY2005 revenue: $187million
AMEX ticker symbol: MPZ
On the Web: www.mpcorp.com
"We're very excited about the opportunities for merging these two businesses ...," Yeros told the Journal.
The majority, if not all, of the estimated 300 pro division workers based in North Sioux City will be asked to transition to MPC's new operation, said Ross Ely, the company's executive vice president for sales and marketing.
As part of the $90 million deal announced Wednesday, MPC also will take over the portion of Gateway's consumer direct unit that targets small businesses. The estimated 100 employees working with those accounts also will be offered jobs with MPC in North Sioux City. In addition, Yeros said MPC will need to fill a yet-to-be-determined number of other positions to support the professional division, such as human resources and financial personnel.
Altogether, MPC anticipates employing 400 and 500 in North Sioux City. That would represent half or more of the total Gateway employment of 950 at the black-and-white cow-spotted complex.
The remaining Gateway employees are waiting to hear what Acer Inc. plans to do with the North Sioux City complex. Last week, Taiwan-based Acer announced a $710 million deal for financially troubled Gateway that creates the world's third largest PC maker. In a separate announcement that same day, Gateway also said it was in talks to spin off its professional segment to a third party, which turned out to be MPC.
MPC's Yeros and Ely, accompanied by Gateway CEO Ed Coleman, discussed details of the MPC deal in a half hour interview at the North Sioux offices. Earlier in the day, the MPC executives toured the complex and visited with the professional division staff for an hour and 45 minutes.
"From our side, we felt the meeting went well and there was some real enthusiasm for the change -- that they're looking at being THE company, as opposed to a smaller part of another company," Yeros said.
Local economic development leaders came away heartened by what they heard about MPC's plans.
"While Siouxland has not always fared well with similar mergers and acquisitions in the past, we are cautiously optimistic and very encouraged by MPC's statements that they have every intention of retaining the vast majority of Gateway's professional business unit," said Chris McGowan, executive vice president of the Siouxland Initiative.
"We wish MPC every success with this new venture and look forward to welcoming them into the Siouxland business community."
Much like Gateway's professional division, MPC specializes in the sale of custom-built desktops, notebooks, servers and related products for the business, education and government sectors. In the U.S., MPC is in the top 10 in PC sales, but ranks behind industry leaders like Dell and H-P. "We're the largest of the small guys," Yeros said.
Adding Gateway's professional division creates efficiencies and economies of scale that should allow MPC to better compete with the largest players. In 2006, the combined revenue of MPC and Gateway's professional business would have been $2.6 billion.
Coleman said spinning off the pro division fits Gateway's strategic plans. "As (MPC) concentrates on the pro business, that frees us up to concentrate on the consumer business," he said.
As part of the deal, MPC will acquire Gateway's 180-employee configuration plant in Nashville, Tenn., which performs final assembly of Gateway Professional products. MPC plans to operate both the Nashville facility, which opened last November, and its own assembly plant in Idaho, Yeros said.
MPC plans to keep the Gateway Professional name for the business and then move to the MPC brand within a year.
Under the transaction, MPC will immediately assume responsibility for the Gateway unit's operations and warranty support services, which Gateway values at about $60 million. After the deal closes, Gateway also will invest about $10 million in MPC for a 19.9 percent stake in MPC.
MPC also will be required to raise an additional $9 million by exercising some of its outstanding warrants, which are priced at $1.10 per share.
Rick Hanna, a Morningstar analyst who covers the PC industry, noted that no cash changes hands in the deal, and the main benefit for Gateway is the reduction of its projected warranty obligations. Even with the added sales of Gateway's professional business, Hanna said he personally doubts that Micron can survive long term as a stand-alone company in a competitive market.
"The company has seen double-digit declining revenues and is not generating profit," Hanna said. "The deal with Gateway gives them a little breathing room, but only very little."
In Gateway's professional division, MPC inherits a business with $900 million in revenue in 2006 and $75 million in gross margin dollars over the past four quarters. But in the second quarter, which ended June 30, the segment reported a 31 percent drop in revenue and 36 percent decrease in sales volume, compared to the same quarter last year.
Yeros said his company looked hard at the declining revenues, but came to the conclusion the situation had stabilized. He attributed some of the revenue losses to selling computers to schools for low bids that lose money. That practice has been discontinued, and those contracts have been expiring.
Nampa, Idaho-based MPC, founded as HyperSpace Communications in 2001, acquired then-MPC Computers in July 2005. The PC business, which traces its roots to Micron Technology in the 1990s, was once a $1.5 billion operation, Yeros noted. In recent years, MPC has made a series of moves to improve its bottom line and better position itself for the future, he said.
"Gateway also was a much larger company at one point in time," Yeros said. "As it downsized, from our perspective, it never really shed all of that fat. So, it had a cost structure that never really allowed the pro business unit, for example, to make money.
"The first thing that happens here is this new pro business unit gets under our kind of cost structure, as opposed to the old Gateway structure."
Coleman added, "We believe if you take what the pro team can do, have it operate under a leaner infrasturcture, it can be a good profitable business, that we hope, as a major shareholder, to be advantaged by."
MPC's deal, which is subject to regulatory approval, is expected to close in early October. Afterwards, there will be a 120-day transition period, during which the new MPC employees will relocate to a common space in the Gateway complex.
MPC has signed a five-year lease for about 90,000 square feet of space on the second floor of Gateway's former Argentina building. Alorica, a California-based teleservices firm that does business with Gateway, leases most of the first floor of the building.
MPC Corp.
History: Founded in 1991 as HyperSpace Communications Inc. MPC Corp., also formerly known as Micron PC, acquired MPC Computers in 2005.
Headquarters: Nampa, Idaho
CEO: John Yeros
FY2005 revenue: $187million
AMEX ticker symbol: MPZ
On the Web: www.mpcorp.com
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Great day! wrote on Sep 7, 2007 6:35 AM:
GWE2 wrote on Sep 6, 2007 10:03 PM:
To Wife Of Gateway Employee wrote on Sep 6, 2007 8:22 PM:
computer owner wrote on Sep 6, 2007 5:31 PM:
Wife of Gateway Employee wrote on Sep 6, 2007 4:22 PM: