Gateway Investor Group Demands Change

| About: Gateway Inc. (GTW)

In an amended 13D filing with the SEC on Gateway (GTW) after the close, 10.7% holder Harbert Management/Firebrand disclosed a letter sent to the company on October 25 regarding actions it desires that the board of directors take. Specifically, the firm urged Gateway to de-classify its board, eliminate its shareholder rights plan, and appoint three Firebrand designees to the board.

The group said, "As the scale of our share purchases suggests, we believe the opportunity to increase shareholder value is dramatic. However, we also believe it is perishable and demands decisive action on the part of the Board. We are troubled that the Board appears to lack the sense of urgency to address the Company's challenges and capitalize on its opportunities. A company with a great brand and channel strength, but 5.5% gross margins, requires a Board whose oversight and experience can aid in the development and articulation of a strategy to improve margins. We believe that continued inertia at the Board level is unacceptable. If, working together, we cannot leverage these assets, then they should be put in the hands of an organization that can (i.e. the Company should be sold)."

A Copy of the Letter:

Dear Rick and Ed:

I hope this letter finds the two of you well. The discussions we have had over the last two months have confirmed our original thesis: there is nothing wrong with Gateway that can't be fixed with what's right with Gateway. We believe there is a great deal of common ground and that we share a workable vision of how shareholder value can be restored... To that end, we are requesting that the Board do the following:

  • Appoint three Firebrand designees to the Gateway Board of Directors;
  • Redeem the Company's shareholder rights plan ("Poison Pill"); and
  • Call a special meeting of shareholders for the purpose of adopting an amendment to the Company's certificate of incorporation to declassify the Board.

The Board's skills set should reflect its needs. We believe the addition of three Firebrand designees will bring much needed domain expertise in brand and design to the boardroom that can immediately aid management's efforts to create customer differentiation and improve margins. In addition, staggered boards and poison pills are relics of a by-gone era; weapons of mass entrenchment that do nothing but hamstring shareholder value.

The steps we have outlined above reflect our continued enthusiasm and resolve to work with the Board and management for the benefit of all Gateway shareholders. We request a response by October 31, 2006 to confirm your intention to comply with our requests. If we do not hear from you, we will take your silence as a sign of unwillingness to work together and will pursue these matters on our own, through the calling of a special meeting or otherwise...


Scott Galloway

Firebrand Partners

Related: Harbert Management Discloses 10.2% Stake in GatewayHarbert Management Increases Gateway Stake; Enters Confidentiality Agreement

Gateway Chart 27 10 06

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