Frankfurt, Germany – By combining Adidas’ popularity in Europe among soccer fans with Reebok’s appeal to U.S. fans of basketball and football, the architects of the $3.8 billion sportswear and athletic-gear deal hope to create a more muscular rival to world leader Nike Inc.
Adidas-Salomon AG said Wednesday it has agreed to buy Reebok International Ltd. for $59 a share – a healthy 34 percent premium over Reebok’s closing price of $43.95 a share Tuesday.
While Nike still has the clout to stay on top, it will face a fiercer challenge from a company that will combine strengths to grab more market share and gain access to bigger markets.
“Adidas-Reebok will make inroads against Nike by presenting a stronger fashion brand, which will also gain wider support and endorsement deals,” said Faith Hope Consolo, a retail consultant and lecturer who also works for Prudential Douglas Elliman in New York. “When they present this united brand, they will have the luster to get more endorsements from high-profile athletes.
“Separately they had a very small niche, but together Adidas and Reebok will have a global presence to compete one-on-one with Nike.”
At the same time, neither company is forfeiting its own brand. Adidas chief executive Herbert Hainer said the brands would stay separate but complement each other – a move that is likely to help them in their competition with Nike.
German-based Adidas has its roots in soccer and track and field, while Reebok’s line of sneakers and athletic gear is visible across American sports such as football, baseball and basketball.
Combining the two, executives said, will mean more access to athletic events just about anywhere there is a stadium.
“This portfolio will present us in all the major sport categories around the world. Reebok is extremely strong in the American sports like NFL, NBA – and Adidas is very strong in the FIFA World Cup, the Olympic Games and the European Champions League,” Hainer said.
“Two brands individually will add to the value,” said chief executive Paul Fireman of Reebok, which is based in Canton, Mass.
But two brands do not guarantee first place, warned Patrick Gaughan, president of the New York-based Economatrix Research Associates Inc.
“One factor (that) seems to play an important role in market success is being of a critical size and being in the No. 1 or No. 2 market share slots,” he said. “It is very tough to compete with a dominant firm when you have a market share much smaller than it.
“I think this is the case for both Reebok and Adidas – especially in the lucrative U.S. market.”
Nike’s annual sales are approximately $14 billion worldwide.
Adidas has about $8 billion in annual sales while Reebok has nearly $4 billion.
“This is really exciting; it is the first time that Adidas really has a shot to seriously challenge Nike, which is weak right now from management problems,” said Erich Joachimsthaler, chief executive of marketing strategy company Vivaldi Partners.
Adidas is pledging to keep the Reebok brand name strong as the German company acquires its American rival.
But maintaining brand independence without having Adidas shoes compete against Reebok sneakers will require a balancing act with each merger partner finding its own niches, industry watchers say.
So consumers may see few changes in shoe models, prices or availability in stores after the merger’s expected completion early next year.
“I think they should keep the brands as independent as possible,” said Paul Altman of The Sage Group, an investment bank that advises companies making consumer products deals. “Ideally, most consumers won’t even know this happened.”
Customers will continue to see Adidas and Reebok shoes sharing store shelf space. But Adidas must be prepared to handle the larger team of brands, said Joachimsthaler, who worked with Adidas in the early 1990s as a consultant.
