October 26, 2006 8:44 AM PDT

Gateway investors want board seats

A group of Gateway investors on Wednesday called on the company to appoint three of the group's representatives to its board of directors and to remove obstacles to its potential sale.

Firebrand Partners and Harbinger Capital Partners are seeking to increase their role and influence in the struggling computer maker's future. Last August, the investor group, which holds a 10.7 percent stake in Gateway, requested that the company's management meet with their representative.

But despite the discussions, the investor group remains concerned and seeks more action.

Scott Galloway Scott Galloway

"We are troubled that the board appears to lack the sense of urgency to address the company's challenges and capitalize on its opportunities," Scott Galloway, managing member of Firebrand, stated in a letter to Gateway Chief Executive Ed Coleman and Chairman Richard Snyder. "We believe that continued inertia at the board level is unacceptable."

The letter, contained in a U.S. Securities and Exchange Commission filing, noted that while Gateway has a great brand and strength in the distribution channel, it has manages to have only a 5.5 percent gross profit margin.

"If, working together, we cannot leverage these assets, then they should be put in the hands of an organization that can," Galloway wrote in his letter. He noted that such action would entail the company's sale.

The investor group is proposing that Gateway's directors appoint three Firebrand representatives to serve on the board, redeem the company's "poison pill"--which can act as a deterrent to unsolicited buyout offers--and change the election cycle of directors to a one-year term rather than the current three-year term.

Gateway's eight-member board has three directors up for re-election next year. Douglas Lacey has served on Gateway's board since 1989, George Krauss since 1991, and Joseph Parham since 2005, according to the company's 2006 proxy filing with the SEC.

Gateway announced on Thursday that its board of directors corporate-governance and nominating committee will review Firebrand's request and then make a recommendation to the company's full board of directors.

"Gateway's board and management team remain committed to doing what is in the best interest of all Gateway shareholders," the company said in a statement.

The investors group has set an Oct. 31 deadline for Gateway to respond to its proposal.

Last month, Gateway rejected an unsolicited buyout offer for its retail unit from former eMachines owner Lap Shun "John" Hui. Gateway acquired eMachines in 2004 for $262 million, which has given it a presence among large electronics retailers.

Gateway's stock was up slightly in morning trading at $1.74 per share.

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Gateway Inc., investor, representative, eMachines Inc., sale

 

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