Adidas/Reebok
The announced merger between German-based Adidas-Salomon and US-based Reebok looks like one of a long line of mergers between the #2 and the #3 company in a market segment. Both companies lag behind #1 Nike and the idea is that a united company will compete more successfully, both in the US and worldwide. The deal is worth about $4 billion.
The world market in the athletic shoes category is around $33 billion. 50% of that market is in the US, and there Nike is the leader by far, with a 36% share. Reebok has about 12% of the market while Adidas is around 9%. The rest of the market is divided between a number of smaller companies. The merger would put Adidas into a better position as #2. Adidas is the leader in Europe, with Nike threatening. Up for grabs is Asia, where the athletic footwear market is growing fast, fueled by a rise in purchasing power and a growing interest in sports in China. In that country, Reebok has one big asset -- an endorsement contract with China's only international sport superstar, Yao Ming.
The reason for the merger is the usual one, clout. As a New York Times article ("Adidas Agrees to Acquire Reebok in $3.8 Billion Deal", 8/3/2005) points out,
The combined company would likely have increased clout among retailers and an ability to command shelf space. The company would also be better positioned to bid on endorsement contracts and to wring discounts from the multitude of media outlets from which it buys advertising.
In fact, most analysts point out that Reebok and Adidas are quite complementary, Reebok is stronger in the area of lifestyle footwear, with an emphasis on hip-hop culture. Adidas is best known for its technological prowess. They also tend to cover different sports, with Reebok leaning toward basketball and football, Adidas towards soccer and tennis. Adidas is a major sponsor of the next Olympics (in Beijing).
Adidas is definitely playing gin rummy, preparing for the pickup with a recent discard. According to a Wall Street Journal article ("Adidas to Buy Reebok In Bid to Gain on Nike ". 8/3/2005)
Adidas, meanwhile, has been restructuring, under Chief Executive Herbert Hainer. His most important move came in May, with the sale of Salomon, the French winter sports specialist, for about $590 million. Adidas acquired the company in 1997 for $1.3 billion, but failed to turn it into a reliable profit driver. Getting rid of Salomon freed Mr. Hainer's hands to make more acquisitions.
Not that Adidas bought Salomon some eight years ago for almost twice the selling price. The sale went to winter sports rival Amer Sports, a Finnish company. The move is a classic dicarf/pickup, where both companies now how to improve their hands and where Adidas has decided the profits were in its core industry, footwear, and that building its presence in that market was the critical issue.
