This action might not be possible to undo. Are you sure you want to continue?
The case discusses the proposed merger of Reebok International Limited with Adidas-Salomon AG. It describes the recent trends and studies the ongoing merger in the sporting goods industry. The case presents the rationale behind the decision to merge. Finally, the case ends with a debate on whether the merger would be successful.
» The recent trends and structure facing the sporting goods industry » The reasons for the ongoing mergers and acquisitions in the industry and its future » The rationale behind the Adidas and Reebok merger » Whether the merger will be successful in the long-term
On August 03, 2005, Adidas-Salomon AG (Adidas), Germany's largest sporting goods maker announced acquisition of the US-based Reebok International Limited (Reebok) for $3.8 billion. The share prices of both the companies recorded an increase on the day of the announcement of the deal The share price of Adidas increased by 7.4% from ¼147.52 on August 02, 2005 to ¼158.45 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. The deal would result in the union of two cutthroat competitors through a "friendly takeover". Adidas and Reebok claimed that the merger was decided upon because of the realization that their individual (company) goals would be best accomplished by joining instead of competing. Nike International Inc. (Nike) was the common competitor for both Reebok and Adidas. Analysts said that the merging companies were alike in many ways. Both the companies had a reputation of using cutting-edge technologies to produce innovative products and both had eminent brand ambassadors from the sports and entertainment worlds.
" The company introduced tennis shoes in 1931.Thus. Germany. Rudolf set up another sporting goods company named Puma. the company enhanced its capacity by taking on a new factory on lease. The company's shoes made their debut at the 1928 Olympics in Amsterdam. the turnover of the company exceeded 400. Nike acquired Converse in 2003 for $305 million. Adi registered the "Three Stripes"4 as his official logo. basketball balls) in 1961 and started manufacturing track suits in 1962 The company launched its first jogging shoe called. Adi and his brother Rudolf Dazzler (Rudolf) started a company under the name "Dazzler Brothers OHG". the brothers purchased the factory and named it "Dazzler Brothers Sports Shoe Factory. In 1960. In 1930. located in Gjovik. Adidas acquired the Salomon Group for $1. In 1959.3 In 1938. The essential feature of the logo was three leaves representing the Olympic spirit. Adidas was the dominant brand at the Olympic Game help in Rome. However. In the year 1927. He also signed a licensing agreement with the Norwegian Shoe factory. Norway. In 1956.4 billion in 1997.The ³Trefoil Logo´ was introduced in 1972. 1949. Adidas was registered as a company -'Adi' from Adolf and 'Das' from Dazzler. the brothers decided to part ways. some analyst had doubts about the success of the merger of the companies. In 1948. while Reebok acquired The Hockey . 1924. Adi's son Horst Dazzler (Horst) promoted Adidas strongly during the Olympic Games at Melbourne. the merger would help spreading the global appeal of the brands in places where they had not made a mark as individual¶s brand. On July 01. Adidas stepped into the production of apparel and balls (soccer balls. In the year 1935. Horst was assigned the job of establishing production facilities in France A factory in Schweinfeld. 75% of the track and field athletes used Adidas shoes. By August 18.000 Reichsmark. They cited that the merger that would not generate much synergy because the individual brand identities would be maintained even after the merger. Germany was started in the same year. They felt that the combined entity would have to work really hard to further expand its market share in the US market and globally ADIDAS (BACKGROUND) The story of Adidas dates back to the year 1920 when Adolf Dazzler (Adi) produced a handmade shoe fitted with black spikes. 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. ³Achilles´ in 1968 . as a strategy to beat Nick. a second production facility was bought in Herzogenaurach. joining the three continental plates. Analysts also doubted the effectiveness of the merger.
³Adidas is a perfect partner for Reebok´ Reebok¶s mission is to enrol global youth inclining to words the music-and lifestyle image that it promotes through sports.. The US market is the largest market for sporting goods. The new entity would continue to have separate headquarters and their individual sales forces." 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. THE MERGER According to the merger deal. Some analysts felt that the deal was priced too high. As Uwe Weinrich. Adidas would buy all the outstanding shares of Reebok at $59 per share in cash. This complement Adidas¶s mission to be the leading sport brand in the world. with a focus on performance and international presence« INTEGRATION ISSUES Adidas said the companies would grow as a combined entity but would retain separate management. As Fireman remarked. 2005. comfort ability and fashion.4 billion in 2004.9% between 2004 and 2008 to reach a value of $51 billion. an analyst at HVB Group remarked. sports apparel retail sales in the US were worth $38. "The price Adidas will pay for Reebok is ambitious. In 2004. Athletic footwear retail sales were $16.9 billion in 2003. The companies would also keep most of the distribution centres independent and would have separate advertising programs for their brands.Company in 2004 for $330 million. This price represented a premium of 34. The deal price was equal to the latest twelve-month sales of Reebok and 11.7 times it¶s EBITDA. 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. "The brands will be kept separate because each brand has a lot of value and it would be stupid to bring them together. music technology. Adidas proposed to fund the purchase through an arrangement of debt and equity. The companies also ruled out any workforce reductions. T-shirts and running shoes were considered as the top selected categories. These mergers were prompted by the increasing competition and growth in the industry. In 2004. Experts estimate that the US sporting goods market will grow at a rate of approximately 8.95 on August 02.compared with $37 billion in 2003." . 40% of the consumers of sports apparel lay in the age group 12-24.. forming 47.8 billion .2%. The companies would continue selling products under respective brand names and labels.6% of the world market. compared with $15. Haines said. as per the closing share price of $43.
1 position Nike was a preferred brand because of its fashion status. Nike was perceived as having both 'hipness' and quality. These investments would guide the companies towards effective consolidation. colours." However. and combinations. ADIDAS CORE COMPETENCIES y y y y y Technology Customer Focus Brand Recognition Supply Chain Collaboratively Competitive REEBOK CORE COMPETENCIES y y y y Trend Identification Ability to Market to a Niche Segment Women¶s Shoe Design Celebrity Relationships COMBINNG CORE COMPETENCIES y y y y Adidas Technology with Reebok Design Adidas Sports with Reebok Woman¶s Market Adidas Shoes with Reebok Apparel Adidas Global Strength Reebok US Strength IMPLEMENTATION y y y y y Blending The Cultures Successfully Protect The Strengths of Acquired Company Maintaining Both Brands Capitalising On supply Chain Economies of Scale Nurturing the Partnership Between Technology and Design . "The biggest benefit is that it removes a competitor. all they need to do is to focus all their efforts on competing with Nike. THE TRACK AHEAD Analysts had varied opinions about the deal. a few analysts opined that it was impossible to dislodge Nike from its No.Adidas declared that the deal would involve investment in both Adidas and Reebok. Al Rise said that. Some analysts felt that Adidas could beat Nike to become the industry leader.. Although Adidas was perceived to have good quality products that offered comfort and Reebok was perceived as a 'cool' brand. Now..
Solo man was a leading player in the sports good manufacturing company. Nike. with a particular emphasis on footwear its main strengths lied in its size and strong brand awareness STRENGTHS .SOLOMON (BEFORE THE MERGER) Adidas. Puma Freeing Exchange Fluctuations Weak Global Economy Impact of Scandals in the US and Germany REEBOK SWOT ANALYSIS (BEFORE THE MERGER) Reebok international was a major player in the sports and fitness products market. STRENGTHS y y y y y Leading Player in The Sporting Goods Industry Steady Increase in Sales Revenues Successful New Product Innovations Lead time Improvements Marketing Strength WEAKNESSES y y y y Unfocused Strategy Own ±Dependence on Adidas Brand Segment High Level of Long Term Borrowings Order Cancellations OPPOPTUNITIES y y y Strategies Acquisitions and agreements Supply-chain and manufacturing initiatives Own retail Stores THERATE y y y y y Competition With Company¶s Traditional Competition Like Reebok.SWOT ANALYSIS ADIDAS.
Technology Innovations WEAKNESSES y y y Differing Values Among Managements Complexity of joining two corporate cultures Both Companies Belong to Different Countries . Patents .y y y y Growing Sales Revenue Excellent Marketing Strategy Celebrity Associated Sponsors ships Strong Women¶s Sector WEAKNESSES y y y Classics Under Fire Low Market Share in Apparels Danger of Stockpiling Products by Retailers OPPORTUNITIES y y y y Increase Average Shoe Price Draw Attention to Word New Technological Developments Encourage a Strong Brand Push in Europe Exploit Nike¶s Lack of High Profile THREATS y y y Owr Reliance on Footwear Sales Diverted From Historical Markets Potentially Expensive New Product Marketing ADIDAS-REEBOK SWOT ANALYSIS (AFETER THE MERGER) STRENGTHS y y y y y More Products for Different Customers Increase in Product Line Acclivity in Market Share New both upper ade middle priced market are covered Shared R&D.
´ Adidas chief fexecubiw herbert hainer said time .8 billion to gain a firmer footing in the U. 2007. 2005. thanks to ³improvements in all three brand segment´ for the group.OPPORTUNITIES y y y y Reduction in Costs Decreased Competition Cross-owr Promotion by Sponsored Athletes Enter to new market /segments THREATS y y y Nike Nike Possible Acquisition of Puma Danger of Cannibalisation Between the Two Separate Brands POST MERGER PERFORMANCE 7th march. but were moving in the right direction´ The company says expects these efforts to increase sales of the Reebok brand this year in the low. that it would snap up rival Reebok for $3.single. and challenge market leader that the combo will work True to its mantra .up with Reebok brand to widen its appeal ³our focus this year will be on getting Reebok back onto a growth track. however .S.2 sporting goods market announced in August. the company expects sales in 2007 to grow in the ³mid-single-digit ³range.Adidas says its racing flat-out to make its tie. . Adidas expects its gross margin in 2007 to be between 45%and 47%.digit ³range.Adidas groups motto is ³IMPOSSIBLE IS NOTHING´ But since the No.