Acer plans to acquire Gateway for $710 million, a deal that the company says will make it the world's third-largest PC vendor.
Under terms of the agreement announced on 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 number three in the global PC market," Wang said.
Acer's acquisition deal with Gateway also derails rival Lenovo'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, 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 eighth 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 US, where Acer has been growing fast but remains in sixth place among PC vendors.