The Adidas-Reeobok Merger
The Adidas-Reebok Merger
The segment of sportswear is no longer just practically seen. Today, the trade in sporting goods is a vast and dynamic operation involving huge economies of scale. The sporting goods market (especially footwear and clothes like T-Shirts) is highly competitive with majorplayers like Nike, Adidas, Reebok, Puma and others.
Until the 1970s, Adidas was the market leader in the US due to its product innovation. In the 1970s and 1980s, Nike and Reebok gained substantial market shares because of a redefined product offering as well as an aggressive marketing strategy. At that point, Adidas didn’t manage to follow its competitors. Adidas faced several crises due to achange in its leadership. It is true that it was revived by a specialist, but it had then lost its leadership position in the US which it was not able to win back until before the merger.
On 3 August 2005, Adidas-Salomon AG (Adidas), which is nowadays Europe’s largest sporting goods maker and the second-largest in the world after Nike, announced the acquisition of the US-based and world’s thirdlargest sports goods producer Reebok International Limited (Reebok) for $3.1 billion. At that time, the share prices of both companies recorded an increase on the day of the announcement of the deal.
Adidas and Reebok claimed that this merger was decided upon because the realization of their company goals would be best accomplished by working together instead of competing against the biggestcompetitor Nike, so the deal between both companies ended in a friendly takeover of Reebok by Adidas.
The merger of the two sporting-goods companies seemed like a reasonable one, although it is not very technologies in order to produce innovative products and could consequently reach synergies as for example economies of scale. Furthermore, both of them were known in almost every country. Apartfrom the US market, the merger with Reebok was seen as a very important factor for growing in the emerging markets (China, Korea, and Malaysia). The reason is that Reebok was able to already install marketing tie-ups in China.
However, there were doubts concerning the possible synergies because analysts feared that both brands would maintain their individual brand entities too much andtherefore not being able to really profit from economies of scale. Moreover, the strategy of a merger as a tool to compete against Nike was questioned. The new formed entity would have to work hard to expand its market share, especially in the US.
The sporting goods Industry
Mergers and Acquisitions have become very common in the sporting goods industry in the late 1990s and early 2000s.
TheUS market is the biggest market for sporting goods, accounting for almost half of the world market. It is estimated that in general around 1/3 of the athletic footwear bought in the US is used for sports and fitness activities. Leading buying-decisions are price, comfortability as well as fashion.
In 2004, the retail sales in sports were worth $38.8 billion, an increase of 1.7 billion in 2003.Athletic footwear retail sales (footwear is one of the top-selling categories of Adidas and Nike) were $16.4 billion in 2003, an increase from $15.9 billion in 2003.
In 1997, Adidas acquired the Salomon Group for $1.4 billion. Adidas’ biggest competitor, Nike, acquired Converse in 2003 for $305, while Reebok acquired The Hockey Company in 2004 for $330 million.
Pre-Merger Situation(Strengths and Weaknesses)
A merger of this size is a very complex action because it has to focus on issuing the positioning of the companies, corporate cultures as well as the allocation of resources. Adidas and Reebok both had core competencies with which it could become possible to gain a competitive advantage over Nike.
Adidas with its acquired brands Salomon and...