FRANKFURT**, Germany (Reuters) - German sports goods manufacturer Adidas-Salomon is buying U.S. rival Reebok in a 3.1 billion ($3.8 billion) deal to expand its reach in Nike’s home market. **
Adidas, the No. 2 in the sporting goods industry behind Nike, said Wednesday it is buying the outstanding shares of No. 3 player Reebok (Research) for $59 per share in cash, a 34 percent premium to Reebok’s closing share price Tuesday.
The deal will more than double Adidas’ sales in North America and boost its basketball and sports lifestyle fashion business. The deal complements Adidas’ strengths in Europe and Asia and its focus on sports such as soccer, which are popular there.
Shares in Adidas initially dropped 4 percent in Frankfurt as Adidas said it would help fund the takeover with equity and as some analysts questioned the benefits of the takeover.
“The price Adidas will pay for Reebok is ambitious,” Uwe Weinrich at HVB Group told Dow Jones Newswires, adding that his “opinion that an acquisition in the sporting goods sector never pays off is still valid.”
He was not the only analyst to criticize the deal. “We are skeptical because the deal is driven by U.S. expansion plans and offers few synergies,” said Sal. Oppenheim analyst Joerg Frey.
One analyst said Adidas doesn’t have a good track record with bigger acquisitions. Hans-Peter Wodniok at Fairesearch told Dow Jones Newswires, “Salomon was a flop … I’d like more details on what’s going to happen after the deal (with Reebok) is closed.” He told Dow Jones that “radical change” would be needed to make the acquisition a success.
But some analysts cheered the deal. John-Paul O’Meara at Dresdner Kleinwort Wasserstein told Dow Jones the move is good for the long term and should enable Adidas to attain “critical mass” in the U.S. market.
The acquisition still needs approval of Reebok shareholders and antitrust authorities. Adidas expects to close the deal in the first half of 2006.
With combined 2004 sales of roughly 9 billion, the new group will close in on Nike’s $13.7 billion in revenue in its fiscal year ended in May.
“Together, we will expand our geographic reach, particularly in North America, and create a footwear, hardware offering that addresses a broader spectrum of consumers and demographics,” Adidas Chief Executive Herbert Hainer said in statement. Better-than-expected income
Separately, Adidas said its net income in the second quarter rose 33 percent to 94 million, when adjusted for the sale of its ailing winter-sports brand Salomon to Finland’s Amer Sports – beating the average analyst estimate.
Sales rose 8.2 percent to 1.52 billion, which was also slightly above the average estimate of 1.486 billion, driven by growth in all regions except Europe.
For 2005, the Bavarian firm reiterated net income from continuing and discontinued operations would rise 20 percent.
The Reebok takeover will boost earnings per share by an unspecified amount in the first year after closing the deal, Adidas said.
It also expects annual cost savings to the tune of 125 million by the third year after closing the deal.
The news comes one week after Adidas’ smaller rival Puma unveiled plans to close the gap on Adidas and Nike by making acquisitions and entering new markets.