Adidas is looking to top Nike (NKE) and be king of the hill in the world of sports shoes and apparel with its $3.8 billion acquisition of Reebok (RBK).
The deal, announced Wednesday, will help Adidas take on top sporting-goods brand Nike as it gives Adidas a stronger presence in North America, which accounts for nearly half the $33 billion in sales for all sports footwear and apparel and gives Reebok a stronger presence on the global stage, where it currently has a strong presence in the United Kingdom.
The cash transaction will buy out Reebok’s existing stock at $59 a share, a 34% premium over Reebok’s closing price Tuesday. Reebok founder Paul Fireman, who created the company in 1979, will sell his 17% stake as part of the buyout.
“We are very excited about this deal,” said Adidas CEO Herbert Hainer in a conference call. “This is a once-in-a-lifetime opportunity. This is a perfect fit for both companies, because the companies are so complementary.”
Adidas is grounded in sports performance with such products as a motorized running shoe and endorsement deals with such superstars as British soccer player David Beckham. Meanwhile, Reebok plays heavily to the melding of sports and entertainment with endorsement deals and products by Nelly, Jay-Z and 50 Cent. The combination could be deadly to Nike, says branding expert Peter Arnell, who helped reshape the Reebok brand into the street-smart brand that it is today.
“Reebok built an edge in the category,” says Arnell. “Adidas built the athletes in the category. Together, they will control the essence of sports and lifestyle colliding.”
The combined entity, with sales of $12 billion ($8 billion from Adidas and $4 billion from Reebok) will close the gap on Nike, which posted $14 billion in sales during its last fiscal year, ended May 31.
Each brand is expected to maintain its own identity under the acquisition, which is expected to close in the first quarter of 2006, pending regulatory approval from the European Union and the Federal Trade Commission.
But one brand expert cautions that by competing together, Adidas and Reebok could face more challenges in taking on Nike than by competing separately.
“Any time two competitors join forces, there is a tendency to stop competing — a concept that looks good on paper but can be deadly in-market,” says John Barker, president, DZP Marketing Communications, a New York-based marketing firm.
“If the new company tries to segment the target market, avoid direct competition and appeal to different consumers, the onus upon marketing could end up diluting both brands.