Adidas- Reebok Merger

Group Members:
Tanvir Islam – 17221012
Towseef Ul Hameem – 17221076
Tajul Al Tonoy – 17221052
Sharif Bin Abu Shahriar – 17221072
Shurid Rahman - 17221068
Brief history of ADIDAS

Adolf Dassler Rudolf Dassler

Dassler Brothers Shoe Factory Germany

1947

ADIDAS PUMA
Market Positioning of Adidas
The company sells a wide range of sports clothing items both for men and women
which are t-shirts, hoodies, jackets, pants & leggings.
Adidas is one of the major companies in the global supply team for International
and Club football teams.
They also provide baseball equipment for Major League Baseball and Nippon
professional Baseball in Japan.
Adidas began manufacturing cricket kits and footwear in the mid 70’s.
Adidas also manufactures accessories for Golf, Gymnastics, running,
skateboarding and tennis.
Their products are renowned for their durability, comfort and advanced
technologically
Brief history of Reebok

England

J.W. Foster and Sons Paul Fireman

1958 1979
Market Positioning of Reebok

Reebok was the first company to make athletic shoes for women.
From the 80’s, Reebok started expanding their variation of products from tennis shoes to running,
acrobatic and basketball.
In the mid 80’s Reebok became the largest athletic footwear industry.
In 2001, Reebok became one of the trending outfitters for NBA.
In 2003 they became the official supplier of the Canadian Football League.
Reebok manufactures fitness, running and multiple sportswear and distributes them in Asia,
Europe, Russia, North America, South America and in United states.
Like Adidas, they produce high quality sport goods.
Their strategic decision is to produce goods cheaply. Due to this, they found immense popularity in
the Asian market.
 Adidas’ Condition

• Adidas-Salomon Group was the second largest sporting goods company in the world
with its core brands Adidas and Taylor Made–Adidas Golf. The Adidas group had
14,217 employees and reached sales of €5.9 billion in 2004, excluding the Salomon
Group which was sold off later. The Group’s net income attributable to shareholders
from continuing and discontinued operations reached €314 million in 2004. Before
the Adidas-Reebok merger. Adidas has a rich heritage but was unable to beat the
strong brand image and the loyal customers of Nike.
 Problems faced by Adidas
•.
•Losing market share to Nike - Adidas was losing a huge segment of
the market to Nike. Nike was the market leader in U.S.A and had
made giant strides in Europe even surpassing Adidas in the soccer
shoe segment for the first time.

•Stiff competition from Puma - Adidas was facing stiff competition

from Puma, the fourth market leader of sporting-goods. Puma had
disclosed expansion plans through aggressive mergers and
acquisitions and entry into new sportswear categories and Adidas
feared losing its market position to Puma.

•Quality of Adidas - Adidas sports products are relatively cheaper

compared to Nike but a bit expensive compared to Reebok. Adidas
was perceived to have good quality products that offered comfort
whereas Reebok was seen as stylish and hip brand.
 Reebok’s Condition

• Sales and Net Income had been growing consistently and strongly over the
last few years before its merging with Adidas. Sales for 2004 was
approximately $3.8 billion. Pre-merger, Reebok reported net income of $209
million on sales of about $4 billion
• Reebok had a market share equal to 9% during the first quarter of 2004,
which was relatively lower compared to its market share in 2000 of 12.2%.
Again, just like the case of Adidas, the main factor for the decrease of
Reebok's market share was attributed to the:
 Slowing growth of the American market, and
 Tight competition as Nike continues to dominate the sporting goods industry
of United States.
 Problems faced by Reebok

• Was only the third in market power in the United States as well as globally
• Being perceived as a technologically inferior brand, as compared to Nike, Adidas or
Puma
• Much smaller than both Nike and Adidas, and as such faced the risk of poor sales,
especially since it has less brand value
• Products seen as inferior to Nike or Adidas due to the lower price tag
 Motives of Adidas and Reebok for merging

• Enhancing United States market position : One of the main motives of the merger of Reebok and
Adidas would be for Adidas to enhance its market position in the United States.
• Benefits from overlapping operations: The merger had the potential for the companies to decrease
their fixed and variable costs as well as achieve economies of scale, caused by the overlapping of
operations.
• Achieving cost-cutting strategies : The merger will bring many cost cutting strategies to both the
companies, especially since they operate in similar industries.
• Benefits from technology sharing : Adidas is good at the manufacturing of the sports apparel
whereas Reebok is proficient in the sports equipment making. The merger will help them both to
share.
 Motives of Adidas and Reebok for merging

• Targeting emerging markets : Adidas’s primary objective was to gain a strong foothold in the
huge US market. Adidas with the support of Reebok can compete with Nike and can reach the rival
Nike in the regions of the United States and the European nations.
• Targeting all market segments : Adidas is perceived to have good quality and premium
products that offer comfort and are technologically advanced whereas Reebok is seen as a stylish
and hip brand. Through this merger, Adidas can focus solely on sports and Reebok can focus solely on
lifestyle.
• Announcement of Puma to acquire new companies : Puma’s decision to recapture market
through a series of mergers made Adidas afraid of losing their situation in the USA.
Merger Process
Merger Announcement
3 rd August 2005

=
 Merger Announcement

100% $59/share
Of Reebok 34.2% premium
International over last price
 Merger Announcement

30% 7%
Rise in US Rise in German
Reebok shares Adidas Shares
($44 to $57) (€147 to €158)
Type of Merger
 Type of Merger

Friendly, Horizontal and Cross-border

Merger
 Type of Merger
Objectives
• • Emerge as a market leader and beat Nike and the new competition
from Puma
• • Explore unpenetrated markets as the popular markets for Reebok
and Adidas were different
• • Achieve balanced geographic sales
• • Achieve synergy, and share R&D, resources, technology,
sponsorships deals, cost of raw materials etc.,
• • Have a complete and whole product portfolio in the sports and
footwear category
Key Merger Decisions and
Organizational Changes
 Key Merger Decisions

• • Both the brands were to be kept separate and their operations were
kept independent of each other.
• • Reebok could continue to operate under its own name, and its
headquarters remained unchanged, situated in Canton, Massachusetts
• • No significant reductions in the workforces of either company •
Paul Fireman was initially allowed to continue his position as the
CEO of the Reebok brand, but it wasn’t followed
 Organizational Changes

• • Herbert Hainer remained the Chairman and the CEO of Adidas Group
• • Paul Fireman, Reebok’s CEO of 26 years stepped down, but
remained to serve as an advisor to Mr. Hainer
• • New brand presidents were named as each both Adidas and Reebok
had very distinct brand image and values. Erich Stamminger was
appointed as the new CEO and President of the Adidas brand while Paul
Harrington was appointed as the CEO and President of the Reebok
brand
 Regulatory Approval

No Objection
objection
Regulatory Approval

• There were horizontal overlaps

• However, both has different brand
and pricing positions
• Adidas – professional and
technically oriented. Roots in Europe
• Reebok – leisure brand, targeted
young people and women and
popular in Asia and America
• Hence, wouldn’t impede
competetion
 Merger Financing
Debt

Financing the
Merger

Equity

Sale of Salomon
division for €485
million
Merger Financing
Completing the merger
January 2006
New Adidas Ag Overview

$11.1 billion
Pro-Forma Aggregate Revenue

25,000 +
Aggregate Revenue

28%
International Market

€9.5 billion
International Sales
Consolidated Financial Statement
Preparation
 Historical Cost basis
EXCEPT

Derivative Instruments
FAIR Financial Instruments
VALUE Plan Assets
Preparation of Statements
Preparation of Statements
EXTENT OF MERGER SUCCESS
Short Term Results
Long Term Results
 Short Term Results
26% Increased Profit
Remarkable 2006 half year result because of FIFA world Cup

26% Increased Profit

52% Sales revenue in last 8 years
LONG TERM RESULT

Financial Performance
Market Performance
 Current Situation of ADIDAS
Adidas has managed to achieve it’s target of higher Asian
sales as it has become the market leader in Asian sales.
Moreover, marketeers have found that the marketing buzz
around Adidas is significantly greater than that of Nike,
brought about by collaborations with football clubs and stars
such as Kanye West
However, Adidas still hasn’t been able to achieve its’ primary
target of becoming the market leader in US. Although its share
prices have significantly increased, it still lags behind Nike in
the sheer volume of sales, market capitalization and brand
value.
 Conclusion
Adidas and Reebok had merged together to compete with Nike in North
America and to increase their sales revenue and reduce operating costs
through synergy of operation and to expand into Asia’s market. The
merger’s main aim to compete with Nike in North America market was a
failure as both Adidas and Reebok lost their market share after the
merger. But at the same time the merger was successful in its other
prospects of increasing sales, cost reduction and expansion into new
market, creating a new value to the merger. Hence it can be said that the
merger between Adidas and Reebok is an example of a successful,
horizontal, cross-country merger.
Thank You