The Adidas - Reebok Merger

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Case Details:

Case Code : BSTR177
Case Length : 21 Pages
Pages Period : 1997-2005
Organization : Voltas Ltd
Pub Date : 2005
Teaching Note :Not Available
Countries : US, Germany
Industry : Footwear and Apparel

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Please note:

This case study was compiled from published sources, and is intended to be US, Germanyed as a basis for class discUS, Germanysion. It is not intended to illUS, Germanytrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Sporting Goods Industry

Mergers and Acquisitions (M&As) had become quite common in the sporting goods industry during the late 1990s and the early 2000s. Adidas acquired the Salomon Group for $1.4 billion in 1997. Nike acquired Converse in 2003 for $305 million, while Reebok acquired The Hockey Company in 2004 for $330 million. These mergers were prompted by the increasing competition and growth in the industry.

The US market is the largest market for sporting goods. Experts estimate that the US sporting goods market will grow at a rate of approximately 8.9% between 2004 and 2008 to reach a value of $51 billion, forming 47.6% of the world market. It is estimated that 33% of the athletic footwear purchased by the US consumers is used for sports and fitness activities and bought on the basis of price, comfortability and fashion. In 2004, 40% of the consumers of sports apparel lay in the age group 12-24. T-shirts and running shoes were considered as the top selected categories. In 2004, sports apparel retail sales in the US were worth $38.8 billion - compared with $37 billion in 2003. Athletic footwear retail sales were $16.4 billion in 2004, compared with $15.9 billion in 2003...

The Merger

According to the merger deal, Adidas would buy all the outstanding shares of Reebok at $59 per share in cash. This price represented a premium of 34.2%, as per the closing share price of $43.95 on August 02, 2005. Adidas proposed to fund the purchase through an arrangement of debt and equity. The deal price was equal to the latest twelve month sales of Reebok and 11.7 times its EBITDA . Some analysts felt that the deal was priced too high. As Uwe Weinrich, an analyst at HVB Group remarked, "The price Adidas will pay for Reebok is ambitious." He added that acquisitions in the sporting goods industry rarely brought in good returns...

The Synergies

Both the companies claimed that their missions were complementary. As Fireman remarked, "Adidas is a perfect partner for Reebok.

Reebok's mission is to enroll global youth inclining towards the music-and-lifestyle image that it promotes through sports, music and technology.

This complements Adidas's mission to be the leading sports brand in the world, with a focus on performance and international presence"...

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