Case study on Adidas and Reebok

SUBMITTED TO: SUBMITTED BY:

MAM NAVLEEN KAUR ABHINAV MEHRA
MBA-IB
A1802009094
INTRODUCTION

Adidas AG is a German-based sports apparel manufacturer and parent

company of the Adidas Group, which consists of the Reebok sports wear
company, Taylor Made-adidas golf company, and Rockport. Besides
sports footwear, the company also produces other products such as bags,
shirts,watches, eyewear and other sports and clothing related goods. The
company is the largest sportswear manufacturer in Europe and the
second biggest sportswear manufacturer in the world, after its U.S. rival
Nike. The company's clothing and shoe designs typically feature three
parallel bars, and the same is incorporated into Adidas's current official
logo. The"Three Stripes" were bought from the Finnish sport company
Karhu Sportsin the 1950s. The company revenue for 2009 was listed at
€10.38 billion andthe 2008 figure at €10.80 billion.

HISTORY
Founded in 1924 ,by Adolf Dassler (Adi) & his brother Rudolf Dassler 
under the name "Dassler Brothers OHG". The company's shoes made
their debut at the 1928 Olympics in Amsterdam.In 1930, the brothers
purchased the factory and named it "Dassler Brothers Sports Shoe
Factory." The company introduced tennis shoes in 1931. In the year
1935, the turnover of the company exceeded 400,000 Reichsmark.In
1938, a second production facility was bought in Herzogenaurach,
Germany.In 1948, the brothers decided to part ways. By August 18,
1949, Adidas was registered as a company -'Adi' from Adolf and 'Das'
from Dassler.Adi registered the "Three Stripes" as his official logo.
Rudolf set up another sporting goods company named Puma.
 ANALYSIS
Strengths 
-Competitive pricing

-Good financial position

-Effective Marketing Strategy

-Market Leadership

-Strong online presence & Brand

- Strong international operations

-Strong distribution chain

Weaknesses 
-High cost structure

-Over pricing

-Low quality products/services

-Limited product line.

 History of reebok

Ancestor company founded in 1895 by Joseph Foster in Bolton

England to manufacture running shoes with spikes.In 1958 two of
the Foster’s grandsons started a companion company known as
Reebok named for an African Gazelle

Reebok Sales History

1981 $ 1.5 Million
1985 $307 Million IPO
2002 $ 3.2 Billion

Corporate headquarters -- Canton, Massachusetts

Product distributed in more than 140 Countries
21 Foreign subsidiaries; 6,000 employees
Other companies owned: Rockport, Polo-Ralph Lauren footwear,
Greg Norman collection, and On Field 10-year licensing deals with
NFL and NBA
200 Outlet & Concept Stores in 12 Countries.

ANALYSIS
Strengths-
-Growing sales revenue
-Excellent marketing strategy
-Strong women’s sector

Weaknesses-
-‘Classics’ under fire

-Low market share in apparels

-Danger of stockpiling products by retailers

THE DEAL

Adidas and Reebok - Two mega brands, with great

strengths
1)In August 2005, German Adidas-Salomon AG announced plans to
acquire Reebok at an estimated value of € 3.1 billion ($3.78billion).

2)At the time, Adidas had a market capitalization of about $8.4billion,

and reported net income of $423 million a year earlier on sales of $8.1
billion.
3)Reebok reported net income of $209 million on sales of about $4
billion.

4)The share prices of both the companies recorded an increase on the

day of the announcement of the deal.

5)The share price of Adidas increased by 7.4% from €147.52 on August

02, 2005 to €158.45 on August 03, 2005 on the Frankfurt stock
exchange, while Reebok's share price at the New York Stock Exchange
rose to $57.14 on August 03, 2005, an increase of 30% over the August
02, 2005 share price of $43.95.

6)Analysts felt that the merger made sense, the purpose of the merger
was very clear. Both companies competed for No. 2 and No. 3 positions
following Nike. 

FINANCING THE DEAL

1)According to the merger deal, Adidas would buy all the outstanding
shares of Reebok at $59 per share in cash.
2)This price represented a premium of 34.2%, as per the closing share
price of $43.95 on August 02, 2005.
3)Adidas proposed to fund the purchase through an arrangement of debt
and equity.
4)The deal price was equal to the latest twelve month sales of Reebok
and 11.7 times its EBITDA .
5)The acceleration of both brands is brought about through increased
operating cash flows.
6)Along with the increased operating capital, other synergies such as
operating savings are realized.

7)Catching up to Nike's huge marketing budget is a challenge, but the

increased operating costs coupled with the synergies will help promote
further brand recognition through marketing.

Why merger????
1)Nike was the leader in U.S. and had made giant strides
in Europe even surpassing Adidas in the soccer shoe
segment for the first time.

2)According to 2004 figures by the Sporting Goods

Manufacturers Association International, Nike had about
36%, Adidas 8.9% and Reebok 12.2% market share in
the athletic-footwear market in the U.S

3)Adidas was the No. 2 sporting goods manufacturer globally, but it

struggled in the U.S .Adidas was perceived to have good quality
products that offered comfort whereas Reebok was seen as as stylish and
hip brand.
4)Nike had both and was a favourite brand because of its fashion status,
colours, and combinations.

5)Adidas focused on sport and Reebok on lifestyle. Clearly the chances

of competing against Nike were far better together than separately.

6)Besides Adidas was facing stiff competition from Puma, the No. 4
sporting-goods brand. Puma had then recently disclosed expansion plans
through acquisitions and entry into new sportswear categories. For a
successful merger, the challenge was to integrate Adidas's German
culture of control, engineering, and production and
Reebok's U.S. marketing- driven culture.

The ADDYY and RBK Merger –

Impossible is Nothing
1)On January 31, 2006, Adidas closed its acquisition of Reebok
International Ltd. The combination provided the new Adidas Group with
a footprint of around €9.5 billion ($11.8 billion) in the global athletic
footwear, apparel markets.

2)Adidas-Salomon AG Chairman and CEO Herbert Hainer said,"We are

delighted with the closing of the Reebok transaction, which marks a new
chapter in the history of our Group. By combining two of the most
respected and well-known brands in the worldwide
sporting goods industry, the new Group will benefit from a more
competitive worldwide platform, well-defined and complementary brand
identities, a wider range of products, and a stronger presence across
teams, athletes, events and leagues.

3)Hainer also said, "The brands will be kept separate because each brand
has a lot of value and it would be stupid to bring them together. The
companies would continue selling products under respective brand
names and labels.

4)Adidas declared that the deal would involve investment in both Adidas
and Reebok. These investments would guide the companies towards
effective consolidation.

Adidas performance
1)Its net income rose to €21 million (US$31.9 million) from €13 million
in 2006.

2)Sales increased to €2.4 billion (US$3.7 billion) compared to nearly

€2.3 billion in 2006.

3)In 2007, total yearly earnings were €551 million

(US$837.9 million), up 14 percent from €483 million in
2006.

4)In 2007 Adidas brand had sales worth €7.1 billion (US$10.8 billion)
while Reebok had sales worth €2.3 billion (US$3.5 billion).In 2006 the
Adidas brand had sales worth €6.6 billion & Reebok’s €2.5 billion
Adidas-Reebok SWOT Analysis (Post merger)
Strengths-
-More products for different customers
-Increase in product line
- Acclivity in market share
- Now both upper and middle priced markets are covered.
-Shared R&D, Patents, technology & innovations

Weaknesses-
-Differing values among management

-Complexity of joining two corporate cultures

-Both companies belong to different countries

Issues facing Adidas
The most critical issue facing Adidas is its effort to turn
around Reebok. Company is working to change customer’s perception
of Reebok from that of discount shoe brand to a premium brand.

For this company has switched the Reebok whole sale

model form bulk preorder to pay as you go.
This step will make it less likely that retailers will discount Reebok
shoes in order to clear their inventories.

Present scenario

Nike completed acquisition of Umbro Plc on

March,2008. Takeover is an effort to consolidate its position in the
football market where Adidas has performed well.

Nike is planning to increase its business to $23

billion in revenue by 2011.
Will Nike do it or will the Adidas-Reebok merger spoil its plans, still
remains to be seen.

CONCLUSION
1)Analysis of the Adidas-Reebok merger shows how it will gain a
sustainable competitive advantage that may one day dominate the
footwear industry both domestically and internationally.
2)The fact that Adidas and Reebok control such different aspects of the
shoe industry will help to ensure their success.
3)Adidas will benefit from increased distribution in North America,
where Reebok already has a significant presence.
4)The addition of Reebok will enhance not only its position among the
top US distributors like Foot Locker and Dick's, but will also give
Adidas-Reebok more power over promotions and in-store displays.
5)Increasing its presence is the key to achieving sustainable competitive
advantage, because the increased presence further engrains the most
important advantage in this industry, brand name.
6)Thus ,we can conclude that if the acquisition is well planned, executed
and the necessary precautions taken for the deal a company can achieve
its strategic objectives and thus ensure its growth & profitability through
mergers & acquisition.