updated 9/1/2006 12:04:31 PM ET 2006-09-01T16:04:31

Gateway Inc., the No. 3 PC-maker in the U.S., said Friday it will reject the unsolicited $450 million offer for its retail business from the founder of eMachines Inc., Lap Shun Hui.

Gateway said the Aug. 23 offer for the retail operations, which accounted for 64 percent of the company's second-quarter revenue, is not in the best interest of its shareholders.

In 2004, Gateway bought eMachines from Hui. The company closed its own stores and adopted eMachines' strategy of selling through big-name retailers.

Hui is Gateway's second-largest shareholder after Ted Waitt, who founded the company in 1985.

Shares of Gateway fell 5 cents, or 2.5 percent, to $1.95 in morning trading on the New York Stock Exchange.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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