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Gateway 2000 to Acquire Advanced Logic

Computers: The deal, for $194 million in cash, will give Gateway entree into the corporate market.


Irvine microcomputer maker Advanced Logic Research Inc. agreed to a $194-million, $15.50-a-share cash buyout by Gateway 2000 Inc., the nation's biggest direct marketer of personal computers, the companies said Thursday.

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

Advanced Logic rose $2.125 to close at $14.125 in heavy trading on Nasdaq before activity was halted in advance of the announcement. Gateway stock closed up $1.125 at $33.125 on the New York Stock Exchange.

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

Advanced Logic's operations will remain in Irvine and Lu will stay in his current position, the firms said.

The companies said the deal 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," Gateway Chief Executive Ted Waitt said. "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 PCs to order and ships them by mail. The firm, started by Waitt, 34, in 1985 in a farmhouse, has kept its folksy image as it has grown to more than $5 billion in sales and 10,000 employees worldwide.

But the PC 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 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 sector. Advanced Logic provides the perfect opportunity, Waitt said.

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 last couple of years.

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