Taiwan's Acer will buy Gateway for $710 million to double its U.S. presence and unseat China's Lenovo as the world's No. 3 PC maker, while dealing a blow to its efforts to grow in Europe.

Gateway said on Monday it would exercise its right to take a first attempt at buying the parent of Paris-based PC maker Packard Bell. The move is a setback for Lenovo, which had also been courting Packard Bell to expand its relatively weak presence in the European consumer market.

Acer said it entered a definitive agreement to pay $1.90 per Gateway share, representing a premium of 57 percent over its Friday close on the New York Stock Exchange. Gateway stock rose 59 cents, or 49 percent, to $1.80 on Monday.

Acer plans to keep the Gateway brand in the United States and said the deal would create a company with more than $15 billion in sales and 20 million PCs shipped per year.

The acquisition would help Acer displace Lenovo, which only recently regained its No. 3 spot globally. But Taiwan's most recognised global brand will still be a distant third behind Hewlett-Packard and Dell.

"This will now bring Lenovo and Acer into head-to-head competition globally," said IDC analyst Kitty Fok. "And if Acer manages to acquire both Gateway and Packard Bell, this will help it maintain third place in the world once it reaches it."

Lenovo declined to comment. The company, one of a handful of Chinese firms trying to forge a global brand by investing abroad, said in early August that it was in exclusive talks to buy Packard Bell, valued at around $800 million.

The latest development may mean that Lenovo has to think of other ways to break deeper into Europe, analysts said.

"Lenovo will have to go back to what they were doing earlier, which is build their own distribution channels. It's taking away their easy entry into the European market," said Jenny Lai, a Taiwan-based analyst with CLSA.

Packard Bell could not be reached for comment. It is a relatively small player, No. 18 worldwide.

Acer shares closed down 1.85 percent at T$63.60 before the news. The deal would help Acer double its U.S. market share, combining its own 5.2 percent of the market with Gateway's 5.6 percent, according to second-quarter market data from IDC.

Hewlett-Packard has a 23.6 percent share and Dell has a 28.4 percent, according to IDC.

"Acer's fumbled around a bit in the U.S., so this will definitely help in that regard," said IDC analyst Bryan Ma.

Gateway, famous for shipping computers in cow-spotted boxes that recalled its origins in an Iowa farmhouse, has a stronger brand than Acer in the United States. But it has faltered since the dot-com bubble burst and its share price is far short of a $83.94 peak in 1999.

"This acquisition of Gateway and its strong brand immediately completes Acer's global footprint by strengthening our U.S. presence," Acer Chairman J.T. Wang said in a statement. The deal is set to close by December.

A merged Acer and Gateway would have sold about 18.6 million PCs worldwide last year, or about 8 percent of global sales, compared with Dell's 39.1 million units, Hewlett-Packard's 38.8 million and Lenovo's 16.6 million, according to IDC.

Acer forecast at least $150 million in pre-tax savings after the deal, which should add to 2008 earnings per share.

"It's not a huge game changer. It's not like the PC market in the United States was not already competitive. But it does give Acer a little better presence in the United States," Robert W. Baird & Co analyst Daniel Renouard said.

Execution will be key—a lesson that Lenovo learned when it stumbled badly after forecasting similar cost savings following its 2005 acquisition of IBM's PC business. The Chinese company has been saddled with expenses arising from lay-offs and corporate streamlining.

"This starts to bring back memories of the whole Lenovo-IBM deal," said IDC's Mr. Ma. "Can you integrate the operations of the two organisations quickly enough to reap the benefits of that kind of scale? That remains to be seen."

Acer also said on Monday its second-quarter profit fell 35.7 percent to T$1.983 billion (US$60 million), in line with market forecasts.