Aug. 28 (Bloomberg) -- Acer Inc. shares fell by the daily limit on concern the Taiwanese personal computer supplier is overpaying for a $710 million acquisition of Gateway Inc. to become the world's third-biggest PC maker.

Shares of Acer fell 6.9 percent to close at NT$59.20 in Taipei, its biggest decline in two weeks. Acer yesterday agreed to pay $1.90 a share for Gateway, 57 percent more than its closing price on Aug. 24. Macquarie Securities Ltd. today downgraded the stock to ``neutral'' after the announcement.

The acquisition of Irvine, California-based Gateway would allow Acer to overtake Chinese rival Lenovo Group Ltd. by adding customers in Europe and the U.S. Acer yesterday reported second- quarter profit dropped 36 percent after Lenovo won customers.

Acer is ``wasting its cash bullets'' in an ``overly priced'' takeover of Gateway, Daniel Chang, an analyst at Macquarie Securities wrote in a report today. ``Acer focuses too much on market share and ignores its profitability.''

Chang cut Acer's rating from ``outperform,'' and lowered the company's 12-month share-price estimate to NT$63.50 from NT$80.70.

Acer's second-quarter net income slipped to NT$1.98 billion ($60 million). Acer was expected to post profit of NT$1.95 billion, according to the mean estimate of eight analysts compiled by Bloomberg.

In Corner

``Acer is making an inevitable move after being pushed into the corner,'' said Robyn Hsu, who helps manage the equivalent of $152 million at Truswell Securities Investment Trust Co. in Taipei. ``The company can boost its U.S. share immediately.''

Gateway shares climbed 50 percent to $1.82 in New York Stock Exchange composite trading yesterday. The company's market value was less than $500 million, based on the closing price last week.

Adding Gateway will double Acer's market share in the U.S. and allow it to exercise the right to buy Europe's Packard Bell BV, which Lenovo was in talks to acquire.

Shares of Lenovo fell 7.5 percent to HK$5.09 in Hong Kong.

Acer Chairman J.T. Wang told reporters in Taipei yesterday that his company will pay ``a small sum'' for Wijchen, Netherlands-based Packard Bell.

``Lenovo needs Packard Bell more than Acer which is already very strong in Europe,'' George Chu, an analyst at UBS AG in Shanghai, wrote in a note today. `We believe there is still a chance that Lenovo will acquire Packard Bell at a higher price.''

Chu kept his rating on Lenovo at ``neutral'' with a 12- month price target of HK$5.40.

Angela Lee, a spokeswoman at Lenovo, declined to comment.

To contact the reporter on this story: Chinmei Sung in Taipei at csung4@bloomberg.net.

Last Updated: August 28, 2007 02:30 EDT