- The Washington Times - Wednesday, August 3, 2005

FRANKFURT, Germany (AP) — The architects of a $3.8 billion sportswear and athletic gear deal hope to create a more muscular rival to world leader Nike by combining Adidas’ popularity in Europe among soccer and athletics fans with Reebok’s appeal to U.S. fans of basketball and football.

Adidas-Salomon AG said yesterday it has agreed to buy Reebok International Ltd. for $59 a share that combines two major brands with links to both athletics and lifestyle. That was a healthy 34 percent premium over Reebok’s closing price Tuesday.

While Nike Inc. still has the clout to stay on top, it will face a fiercer challenge from a company that will combine its 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 of Prudential Douglas Elliman. “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,” she said.

At the same time, neither company is forfeiting its own brand. Adidas Chairman and Chief Executive Officer 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 like 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,” Mr. Hainer said.

“Two brands individually will add to the value,” said Paul Fireman, chairman and chief executive officer of Reebok.

But two brands do not guarantee first place, warned Patrick A. Gaughan, president of the New York-based Economatrix Research Associates Inc.

“One factor which seems to play an important role in market success is being of a critical size and being in the number-one or number-two 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 in that Adidas really has a shot to seriously challenge Nike, which is weak right now from management problems,” said Erich Joachimsthaler, CEO of marketing strategy company Vivaldi Partners.

But Adidas must be prepared to handle the larger team of brands, said Mr. Joachimsthaler, who worked with Adidas in the early 1990s as a consultant.

“Adidas’ focus is technology and performance development, where Reebok is purely sales driven,” he said. “They will also have to deal with uniting two companies with almost polar opposite business cultures.”

Adidas, turning from a sports shoe company into a lifestyle/entertainment company, must also be careful not to lose its loyal athletes, he said. “There is a fine line between fashion and sportswear.”

Reebok has endorsement deals with NBA players Allan Iverson and Yao Ming, said Mr. Gaughan, and Adidas has strengths in more international sports like soccer — including David Beckham and the team Real Madrid.

While Nike, based in Beaverton, Ore., has endorsement deals with young basketball stars like Carmelo Anthony and LeBron James, Mr. Gaughan said. “Neither is a Michael Jordan, and the NBA is not what it once was when it had Jordan, [Larry] Bird and Magic Johnson.”

Investors cheered the deal. Reebok shares closed at $57.14, up $13.19, or 30 percent, on the New York Stock Exchange, while investors pushed Adidas up 7 percent to 158.20 euros ($192.96) in Frankfurt. Nike shares gained $1.09 to $86.92 on the NYSE.



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