FreePC and eMachines said Monday they would merge in a stock swap, creating a bigger low-cost challenger to industry giants Compaq and Dell.
EMachines, which specializes in computers priced at just a few hundred dollars, said it hopes to spur growth in electronic commerce revenues by cashing in on FreePC's way of targeting users with highly personalized advertising.
FreePC gives users a computer in exchange for monitoring their Web browsing habits and using the data to place advertisements on the screen.
"When you merge our distribution base of retail PC sales with FreePC's Internet e-commerce partnerships, you get a killer combination," Stephen Dukker, chief executive of eMachines, said in a statement.
"EMachines' goal has always been to capitalize on Internet revenue opportunities arising from the fact that the vast majority of our customers are purchasing PCs to go online," Dukker said.
In the merger, shareholders of FreePC will exchange their stock for shares of eMachines, based in Irvine, California. The exchange ratio was not disclosed. Dukker will be chief executive of the merged companies.
Other details of the merger were not disclosed, but eMachines said the new company would not focus on attracting new customers to FreePC or FreePCNet, a no-cost Internet access service.
FreePC was created by Idealab, a Pasadena, California-based "incubator" of Internet companies. Idealab chairman Bill Gross will serve on the merged companies' board of directors, eMachines said.
EMachines was founded in September 1998 and quickly rose to No. 3 among companies selling PCs through retail outlets. Its low-priced machines are made in South Korea, China, and Malaysia.
The company counts Circuit City Stores and Best Buy among its premier retail partners and says it has sold 1.6 million computers to date. It has filed for an initial public stock offering and is seeking to list its shares on the Nasdaq stock market under the ticker symbol "EEEE."
But the company has not been without its headaches.
In July, Compaq Computer filed a complaint in Texas against eMachines and its Korean-based supplier Trigem Computer alleging infringement of 13 patents held by Compaq for faster processing speed, better graphics, and overall system architecture.
In August, Apple Computer sued eMachines, charging its translucent blue eOne computer illegally copied the design of Apple's popular iMac.
Copyright 1999 Reuters Limited.
