Adidas, Reebok teaming up to beat Nike at its own game

FRANKFURT, Germany — By combining Adidas' popularity in Europe among soccer and athletics 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.

Adidas-Salomon said yesterday it has agreed to buy Reebok International for $59 a share in a deal 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 Beaverton, Ore.-based Nike still has the clout to stay on top, it will face a fiercer challenge from a company with combined 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 their own brands.

Adidas Chairman and CEO 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, whose U.S. unit is based in Portland, 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," Hainer said.

"Two brands individually will add to the value," said Chairman and CEO Paul Fireman of Reebok, which is based in Canton, Mass.

But two brands won't guarantee first place, warned Patrick Gaughan, president of Economatrix Research Associates in New York.

"One factor which 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," Gaughan said.

Nike's annual sales are about $14 billion worldwide, while Adidas has about $8 billion and 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 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, Joachimsthaler said. "There is a fine line between fashion and sportswear."

Reebok has endorsement deals with NBA players Allen Iverson and Yao Ming, said Gaughan.

Adidas has strengths in more international sports like soccer, including David Beckham and the team Real Madrid.

While Nike has endorsement deals with basketball stars like Carmelo Anthony and LeBron James, 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 rose $13.19, or 30 percent, to close at $57.14 yesterday, while investors pushed Adidas up 7 percent in Frankfurt.

Nike shares rose $1.09 to close at $86.92.

Gavin Finlayson, an analyst with Commerzbank, said the teaming would give the combined company more muscle in the retail market.

"Adidas, in conjunction with Reebok, has the potential to say, 'We want better terms or conditions or we'll take our business elsewhere,' " Finlayson said.

Consolo said it would also give the companies more reach into different stores.

"Adidas and Reebok will absolutely be able to compete on both a specialty-store and department-store basis. This will increase not only their market share, but their allocated space within department stores," she said.

The deal is subject to regulatory approval in the United States and Europe as well as by shareholders. The companies said the transaction could close during the first half of 2006.

Adidas said it did not expect any significant reductions in the work forces of either company.

"Separately they had a very small niche, but together Adidas and Reebok will have a global presence to compete one-on-one with Nike."

Faith Hope Consolo

Prudential Douglas Elliman