Adidas to buy Reebok for $3.8b, chases Nike

FRANKFURT— Germany’s sporting goods maker Adidas-Salomon has agreed to buy US rival Reebok for $3.8 billion, closing the gap on Nike and promising a profit jump by expanding in the United States and entering new markets.

By (AP)

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Published: Thu 4 Aug 2005, 10:24 AM

Last updated: Thu 2 Apr 2015, 4:11 PM

The world’s second- and third-biggest sports goods companies said yesterday Adidas would buy the outstanding shares of Reebok for $59 per share in cash, a 34 per cent premium to Reebok’s closing share price on Tuesday.

The combination will create a more formidable competitor to battle Nike’s dominance of the market for athletic gear, particularly in the United States, which accounts for 50 per cent of the sports footwear market alone.

Reebok, based in the Boston suburb of Canton, Massachusetts, brings along key equipment licensing contracts with major North American professional sports leagues, including the National Football League, National Basketball Association, National Hockey League and Major League Baseball.

Also coming aboard are top endorsement contracts with NBA stars like Alan Iverson and Yao Ming. Both boards agreed to the takeover, which will create a company with combined annual sales of some $11.1 billion. Nike’s sales in its 2004-05 business year to May were $13.7 billion. Reebok shares surged 32 per cent to $58 on Instinet ahead of the New York open, while Adidas was up 5.7 per cent at 156 euros in much higher volumes than usual after it painted a bright outlook for the merged firm in a conference call. Shares in Adidas had initially dropped 4 per cent on the news, as some analysts questioned the deal’s benefits and cost.

The takeover complements Adidas’s strengths in Europe with Reebok’s strong position in the United States.

“The deal makes sense. In one go, both brands are expanding significantly in Asia, North America and Europe,” said HVB analyst Uwe Weinreich.

Puma, the world’s fourth-biggest sporting goods company, last week also unveiled aggressive expansion plans through acquisitions and entry of new sportswear markets.

Adidas said it was confident Reebok’s shareholders would approve the deal, which includes Reebok’s net cash position of $84 million.

Adidas said the deal with Reebok, which it expects to close in the first half of next year pending antitrust and shareholder approval, would boost net income of the new Adidas Group by more than 10 per cent per year in the medium term.

Sales are seen growing at a mid- to high-single-digit rate, and cost savings are expected to reach $150 million annually by the third year after the deal closes.

Adidas said it expected no significant restructuring costs and that they would quickly be outweighed by synergies. Dresdner Kleinwort Wasserstein raised its investment view to ”buy” from “add”, saying Adidas’ margins would grow. In the key US market where Adidas has repeatedly changed strategy to attack market leader Nike Adidas and Reebok said sales would double as Adidas gets access to Reebok’s popular basketball, American football, hockey and womenswear products.

“North America is the market where you have to be,” Adidas Chief Executive Herbert Hainer told a conference call. In the second quarter, Adidas’s sales grew in all regions except Europe, meeting expectations by rising 8.2 per cent to 1.52 billion euros. Net income rose 33 per cent to 94 million euros ($116 million), when adjusted for the sale of Salomon -- beating the average estimate of 86 million euros forecast in a Reuters poll of 18 analysts. For 2005, the Bavarian firm reiterated net income from continuing and discontinued operations would rise 20 per cent.

Analysts said Adidas would also benefit from Reebok’s strong lifestyle fashion business. Reebok Chairman and CEO Paul Fireman will continue to run the Reebok brand.

Adidas, best known for its trademark three-striped running shoes, has been trying to imitate the success of German rival Puma, whose trendy sportswear has spread far beyond the gym or running track.

But some investors were cautious about how successfully Adidas would integrate Reebok, and questioned the deal’s timing ahead of next year’s World Cup soccer tournament in Germany, of which Adidas is a major sponsor.

“I would watch the execution of the integration very carefully because it won’t be easy to integrate the businesses Adidas’s focus is on sport but Reebok’s is on lifestyle,” said Volker Riehm, fund manager at Activest.

“Apart from that, Adidas is creating a load of work for itself when the World Cup mega-event is just around the corner.”

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