Wednesday, August 03, 2005

Adidas Buys out Reebok

Well before I could relax for a while digesting as to what happened yesterday there is yet another path breaking news involving perhaps the most established names in the sporting gear industry. Yes you guessed them right. In the arena are now the two major sporting brands whose accessories we wear day in and day out.Adidas and Reebok.
At about 9:15 CDT Adidas announced that its going to buy Reebok for about $ 3.8 billion giving the company about 20 % of the US market and the potential to become a very strong competitor to Nike, which is the current market leader with a little over 30 % market share in this market.
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, as disclosed by the Adidas Chairman and CEO Herbert Hainer. Shares of Reebok rose $12.79, or 29 percent, to $56.74 in early New York Stock Exchange trading after the news. Adidas shares rose 6 percent to 156.93 euros ($193.11) in Frankfurt trading.
As the CEO puts it "Its a once in a while opportunity of combinining two mega companies and make them still stronger." I do not remember such mergers in the past and last mega merger which I remember was one of AOL and Time Warner which was over valued at over $ 360 billion. Even in IT industry we have not seen such big time mergers except for the take over of PwC global consulting by IBM.
Reebok's board has approved the offer price and shareholders are also expected to follow the same.
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.
One of the analyst said this "Adidas, in conjunction with Reebok, has the potential to say, 'We want better terms or conditions or we'll take our business elsewhere',"
The best part is the Reebok will continue to operate in its own name. We know this is extremely crucial for such companies since its their brand which sells the most.
Let's hope this brings in more better products and services for the customers and ofcourse stiffer competition for Nike too.

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