December 7, 2006 8:13 AM PST

Shareholder activist to join Gateway board

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To avoid a proxy battle with one of its largest investors, Gateway plans to add a shareholder activist to its board of directors, the PC maker announced Thursday.

Under the agreement, Scott Galloway, founder of Firebrand Partners, will join the PC maker's board. Galloway will be accompanied by a second mutually accepted independent director, not yet named.

Scott Galloway Scott Galloway

The agreement also calls for Gateway to seek approval from its investors to change the timing of its board elections from being staggered to being held on an annual basis. Such a move would make it easier for investors to demonstrate any displeasure with board members, as it would set the stage to let an opposing slate of directors be elected in a proxy fight and gain control of the company's governance.

Gateway is making the changes to avoid a potential proxy fight with Firebrand and Harbinger Capital Partners, which holds a 10.7 percent stake in the company, according to a Gateway statement. In October, the investor group called on Gateway to add three board members and remove several obstacles that could deter unsolicited buyout offers; otherwise, it would reach out to other Gateway investors.

Galloway, a clinical associate professor at New York University's Stern School of Business, is also familiar with brand strategies. Galloway is a co-founder and director of multichannel retailer Red Envelope, as well as founder of brand strategy consulting firm Prophet.

"We believe Scott's brand experience will be particularly helpful toward the development of Gateway's brand," Rick Snyder, Gateway's chairman, said in a statement. "We plan to continue our ongoing dialogue with Gateway's stockholders, as our board works to identify an additional independent director and consider governance matters over the next several months."

Other requested changes the investor group outlined in its October letter included eliminating Gateway's shareholder rights plan, or "poison pill." Such plans are designed to flood the market with additional shares of a company's stock should a hostile takeover arise, making it prohibitively expensive for the suitor to buy the company.

Gateway said it will review its shareholder rights plan and make "associated recommendations" prior to its annual shareholder meeting next year.

Firebrand and Harbinger, in return, agreed to abide by certain standstill provisions that would run through the end of next year. Such a provision would aid in keeping a proxy fight at bay.

"There is nothing wrong with Gateway that can't be fixed with what's right with Gateway," Galloway said in a statement.

The investor group, which notified Gateway last August that it wanted to hold discussions with the company on ways to increase its financial performance, had become disenchanted with the pace of change over the subsequent months.

Gateway's financial performance and market share have been under pressure for several years. The company, which is known for its quirky cowhide brand, has been outpaced by PC giants Dell and Hewlett-Packard, and by others, including Taiwan's Acer.

Last September, the company hired a new chief executive, J. Edward Coleman--its fourth CEO in six years.

The company noted in its statement that the agreement will enable Gateway's management to focus its efforts on returning Gateway to profitability, without the distraction of a looming proxy fight.

See more CNET content tagged:
shareholder, brand strategy, Gateway Inc., investor, Harbinger

 

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