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FOCUS-eMachines, FreePC to merge, e Internet

Added: (Mon Nov 29 1999)

Pressbox (Press Release) - By Scott Hillis

LOS ANGELES, Nov 29 (Reuters) - EMachines Inc., a leading maker of low-priced computers, said on Monday it was merging with FreePC Inc. and adding Web-friendly features to its PCs in a further challenge to industry leaders such as Compaq Computer Corp. and Dell Computer Corp.

EMachines, which specializes in computers priced at just a few hundred dollars, did not disclose terms of the deal. But it said it aimed to spur growth in electronic commerce by cashing in on FreePC's way of targeting users with highly personalized advertising.

Closely held FreePC gives users a free computer in exchange for monitoring their Web browsing habits and using the data to target consumers with on-screen ads.

While FreePC, started by Pasadena, Calif.-based idealab!, has helped lower the bar to jumping into cyberspace, it has delivered just 30,000 PCs, versus nearly half a million by eMachines in its latest quarter.

"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.

Irvine, Calif.-based eMachines would soon fit computers with links to companies selling services or goods over the Internet. The links could range from special keys on keyboards to icons on the screen, Web browser or through an Internet access service, Dukker said in a conference call.

Dukker said some 47 percent of eMachines' customers were first-time buyers whose main goal was to access the Internet, and the merger with FreePC would make it easier for those buyers to enjoy the fruits of the Internet.

"Customers purchase these machines to get online, and we have the opportunity to make introductions between the people looking to get on the Internet and the providers of e-commerce and services," Dukker said.

Dukker said customers would not have to volunteer private information if they preferred to keep it confidential.

In the merger, shareholders of FreePC, based in Houston, would exchange their stock for an undisclosed number of eMachines shares. Dukker, who would serve as chief executive of the merged company, said further details of the deal would be revealed in Securities and Exchange Commission filings.

EMachines said the new company would not sign up new customers to FreePC or FreePCNet, a no-cost Internet access service. Idealab! Chairman Bill Gross will serve on the merged company's board of directors.

The deal would also postpone eMachines' initial public offering under the first quarter of next year, Dukker said. The company was originally scheduled to make its IPO in late November on the Nasdaq trading system under the ticker symbol 'EEEE.'

Founded in September 1998, eMachines quickly rose to No. 3 among companies selling low-cost PCs through retail outlets. Its products are made in Malaysia, South Korea and China.

The company counts Circuit City Stores Inc. (NYSE:CC - news) and Best Buy Co. Inc. (NYSE:BBY - news) among its big retail partners and says it has sold 1.6 million computers to date.

But the company has not been without its headaches. In July, Compaq filed a complaint against eMachines and its Korean-based supplier Trigem Computer Inc. alleging patent infringements. In August, Apple Computer Inc. (NasdaqNM:AAPL - news) sued eMachines, charging its blue eOne computer illegally copied the design of Apple's popular iMac.

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