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Wednesday, August 03, 2005

Adidas buys Reebok

In a word. Wow!


The news hit late Tuesday night with the blockbuster headline: Adidas To Buy Reebok.

Like most major mergers, it seemed too big to be real. Wendy's doesn't usually buy Burger King. Hilton doesn't buy Marriott.

But these deals do happen, often when top officials with one behemoth realize that that their goals will be best accomplished by joining instead of competing. Mergers have reordered the rank of companies in the energy and telecommunications businesses in recent years. Sports is no exception: In July 2003, Nike bought Converse for $200 million, and in April 2004, Reebok bought The Hockey Company for roughly the same price.

But never something like this -- two of the world's largest footwear and apparel companies teaming up to create a company that grossed $11.1 billion in revenues last fiscal year.

For lovers of the Reebok brand, word out of Germany is that the Reebok vector isn't going to disappear any time soon. They'll essentially operate as two separate brands under adidas' watch, which means that Reebok logos will still appear on NFL jerseys (as part of the company's exclusive apparel deal with the league) and Reebok pumps won't have to wait for the shoes to be refitted with the three stripes.

So why would adidas do this?

Although the brand was doing well in Europe (adidas controls 35 percent of the world's soccer cleat market), it wasn't making any progress in North America. Last year, adidas had a 9 percent share of the $9 billion U.S. athletic shoe market, compared to Reebok's 12 percent and Nike's 36 percent. Adidas had an 11 percent share of the U.S. shoe market in 2001, but the brand was never able to eclipse that mark.

On the surface, the deal appears to be very favorable for Reebok, with adidas agreeing to pay $59 per share, a 34.2 percent premium over Tuesday's closing price. But the legacy of Reebok chairman and CEO Paul Fireman, who will still be at the helm of the Reebok brand, will partly be in the hands of his company's German acquirer. If adidas destroys the Reebok brand, the 61-year-old Fireman -- who reportedly put in an initial investment of $35,000 in 1979 -- still will make hundreds of millions when the deal closes in the next six to nine months, but the move will tarnish how people perceive him.

As a result of the alliance, adidas will automatically double its share in the United States, but in order for the deal to work out financially -- as with any merger, the company will have to effectively consolidate, or as Adidas chairman and CEO Herbert Hainer says, investing in both brands is "what is necessary to drive them forward."

Adidas officials are expected to embrace Reebok's sports and entertainment strategy, with the recent signings of 50 Cent, Jay-Z and Nelly. Adidas has dabbled by signing Missy Elliott, but Reebok has made a greater commitment in recent years in letting entertainers sell their shoes and apparel.

"They have brought a new kind of business to the table -- the fusion of sport and lifestyle and music," Hainer said. "I would say they have done it


Check out the whole story on ESPN.com



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