Hosemann arranges sports shoes in his store in the northern German town of Hamburg
Christian Charisius  /  Reuters file
Tobias Hosemann arranges sports shoes in his store in the northern German town of Hamburg. German sports goods maker Adidas-Salomon said Wednesday it plans to buy rival Reebok for $3.8 billion.
updated 8/3/2005 9:33:25 AM ET 2005-08-03T13:33:25

Adidas said Wednesday it will buy shoemaker Reebok for $3.8 billion, giving the company about 20 percent of the U.S. market and the potential to better challenge leader Nike Inc. on its home turf.

Under the terms of the deal, Adidas-Salomon AG will pay $59 per share for all of Reebok International Ltd.’s outstanding stock, a premium of 34 percent to Tuesday’s closing price, said Adidas Chairman and CEO Herbert Hainer. U.S. shares of Reebok rose 30 percent on the news. Adidas shares rose more than 7 percent in Frankfurt trading.

“This is a once-in-a-lifetime opportunity to combine two of the most respected and well-known companies in the worldwide sporting goods industry,” he said.

Reebok’s board has signaled its approval of the offer price and approval by the company’s shareholders appeared likely, Hainer said.

The deal brings together two impressive stables of athletes and entertainment endorsers. English soccer star David Beckham and rap artist Missy Elliott are under contract to Adidas. Reebok sells a line of shoes branded with rapper 50 Cent’s G Unit logo and is endorsed by such NBA stars as Allen Iverson and Yao Ming.

It also gives Adidas, which has outfitted soccer stars for years, access to Reebok’s licenses to clothe players in the National Football League and National Basketball Association and sell the gear to fans.

Adidas said it did not expect any significant reductions in the work forces of both companies. Chief Financial Officer Robin Stalker said the deal would likely lead to little if any significant restructuring costs.

“I see the synergies very quickly outweighing the costs,” he told analysts in a conference call.

Expanded global reach
Hainer said the combined company would have an expanded global reach, with a sharp push into North America.

“With Reebok, we are advancing our position on the playing field of the sporting goods industry and are improving our financial strength to drive increased shareholder value,” he said.

Reebok Chairman and CEO Paul Fireman said the deal would put the company on track to take on Nike directly, among others.

“With Adidas, we are able to offer an enhanced portfolio of global brands that truly addresses the needs of today’s and tomorrow’s consumers,” he said.

But Gavin Finlayson, an analyst with Commerzbank, said the strategy doesn’t appear to make a lot of sense.

“This will raise significant debt and a dilution of holdings,” he said. “The message Adidas is making is ’We can’t cut it alone in the U.S.’ “

Still, Finlayson said, the combination of the companies could give them more muscle in dealing with suppliers and retailers.

“Adidas, in conjunction with Reebok, has the potential to say, ’We want better terms or conditions or we’ll take our business elsewhere’,” Finlayson said.

Chipping away at Nike
Paul Altman and Frederick Schmitt of The Sage Group said in an e-mail that the deal would give Adidas and Reebok an improved platform from which to try and chip away at Nike’s presence worldwide. The companies together would have about $12.3 billion in annual sales compared with Nike’s $13.7 billion, they said.

“Adidas would nearly double its U.S. presence,” they said. “It currently has $1.9 billion of U.S. sales and Reebok has $1.6 billion of U.S. sales.”

The deal is subject to regulatory approval in the United States and Europe as well as by shareholders. Both companies said the transaction could close during the first half of 2006.

In February, Reebok launched the “I am what I am” marketing campaign, which features pitches from celebrity entertainers and athletes in an effort to draw younger buyers who regard sneakers as high fashion. One of the ads featuring rapper 50 Cent was pulled in March amid complaints that it glorified gun violence.

The company said its second-quarter profit soared 71 percent on strong sales driven by its high-performance model shoes and the new marketing campaign.

Reebok will continue to operate under its own name and its headquarters will remain in Canton, Mass., the companies said.

Meanwhile, the Herzogenaurach, Germany-based Adidas posted a 30 percent gain in second-quarter net profit and improved sales.

The company earned $81.7 million (67 million euros) in the quarter ended June 30, compared with a profit of 45 million euros in the year-ago period. Sales totaled $1.85 billion (1.52 billion) in the latest quarter, compared with 1.4 billion euros a year ago.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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