Acer plans to acquire Gateway in a deal worth $710 million that Acer says will make it the world's third-largest PC vendor.

Under terms of the agreement announced Monday, Acer will purchase all of Gateway's outstanding shares for $1.90 per share. The deal has already been approved by the boards of directors at both companies and should be completed by the end of this year, subject to government approval, Acer said in a statement. Gateway's shares ended at $1.21 Friday on the New York Stock Exchange.

"This is the biggest acquisition in Acer's 30 year history," said J.T. Wang, Acer's chairman, speaking at a news conference in Taipei.

"After this acquisition, we are solidly No. 3 in the global PC market," Wang said.

Acer's acquisition deal with Gateway also derails rival Lenovo Group's plans to acquire Packard Bell.

Alongside the acquisition deal with Acer, Gateway unveiled plans to exercise its right of first refusal to acquire shares in Packard Bell's parent company, PB Holding. SARL, from John Hui. Hui is the founder of eMachines, which Gateway acquired in 2004, and the largest shareholder in Packard Bell.

Gateway did not disclose how much it has offered for Hui's stake in PB Holding.

Acer's efforts to overtake Lenovo will get a big boost from Gateway, which was the world's 8th largest PC vendor during 2006. Together Acer and Gateway shipped 18.6 million PCs during 2006, compared to 16.6 million PCs shipped by Lenovo.

The Gateway acquisition will have the greatest impact in the U.S., where Acer has been growing fast but remains in sixth place among PC vendors.

"This is definitely a good play for them from the U.S. consumer perspective," said Bryan Ma, director of personal systems research at IDC Asia-Pacific. However, the big question is how Acer plans to integrate Gateway with its own operations, and how smoothly the integration process will go, he said.

Acer's share of the U.S. PC market grew 164% during the second quarter of 2007, compared to the same period last year. Acer shipped 888,000 PCs to U.S. customers, giving the company a 5.2% share of the market.

By comparison, Gateway was the fourth-largest PC vendor during the second quarter, shipping 965,000 PC and taking 5.6% share of the U.S. PC market. The Gateway acquisition vaults Acer into the No. 3 spot in the U.S. PC market, behind only HP and Dell.

The IDG News Service is a Network World affiliate.