Sportswear maker Adidas to buy Reebok
$3.8 billion deal boosts company’s prospects of challenging Nike
FRANKFURT, Germany - Adidas said Wednesday it will buy shoemaker Reebok for $3.8 billion, giving the company about 20 percent of the U.S. market and the potential to better challenge leader Nike Inc. on its home turf.
Under the terms of the deal, Adidas-Salomon AG will pay $59 per share for all of Reebok International Ltd.'s outstanding stock, a premium of 34 percent to Tuesday’s closing price, said Adidas Chairman and CEO Herbert Hainer. U.S. shares of Reebok rose 30 percent on the news. Adidas shares rose more than 7 percent in Frankfurt trading.
Reebok’s board has signaled its approval of the offer price and approval by the company’s shareholders appeared likely, Hainer said.
The deal brings together two impressive stables of athletes and entertainment endorsers. Adidas has contracts with stars like David Beckham and Missy Elliot and Reebock has many NBA stars like Allen Iverson and Yao Ming.
It also gives Adidas, which has outfitted soccer stars for years, access to Reebok’s licenses to clothe players in the National Football League and National Basketball Association and sell the gear to fans.
Adidas said it did not expect any significant reductions in the work forces of both companies. Chief Financial Officer Robin Stalker said the deal would likely lead to little if any significant restructuring costs.
Chipping away at Nike
Paul Altman and Frederick Schmitt of The Sage Group said in an e-mail that the deal would give Adidas and Reebok an improved platform from which to try and chip away at Nike’s presence worldwide. The companies together would have about $12.3 billion in annual sales compared with Nike’s $13.7 billion, they said.
“Adidas would nearly double its U.S. presence,” they said. “It currently has $1.9 billion of U.S. sales and Reebok has $1.6 billion of U.S. sales.”
The deal is subject to regulatory approval in the United States and Europe as well as by shareholders. Both companies said the transaction could close during the first half of 2006.
In February, Reebok launched the “I am what I am” marketing campaign, which features pitches from celebrity entertainers and athletes in an effort to draw younger buyers who regard sneakers as high fashion. One of the ads featuring rapper 50 Cent was pulled in March amid complaints that it glorified gun violence.
The company said its second-quarter profit soared 71 percent on strong sales driven by its high-performance model shoes and the new marketing campaign.
Reebok will continue to operate under its own name and its headquarters will remain in Canton, Mass., the companies said.
Meanwhile, the Herzogenaurach, Germany-based Adidas posted a 30 percent gain in second-quarter net profit and improved sales.
The company earned $81.7 million (67 million euros) in the quarter ended June 30, compared with a profit of 45 million euros in the year-ago period. Sales totaled $1.85 billion (1.52 billion) in the latest quarter, compared with 1.4 billion euros a year ago.