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» The recent trends and structure facing the sporting goods industry
» The reasons for the ongoing mergers and acquisitions in the industry and its future
» The rationale behind the Adidas and Reebok merger
» Whether the merger will be successful in the long-term

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Page No.

Introduction 1

Background Note 2

The Sporting Goods Industry 6

The Merger 8

The Synergies 8

Integration Issues 11

The Track Ahead 12

Exhibits 14




Adidas-Salomon AG, Reebok International Limited, Nike International Inc., Mergers and Acquisitions
(M&As), US, Germany Federal Trade Commission, Financial Performance, Bargaining Power,
Distribution Network, Integration Issues, Footwear and apparel market, Interbrand, Ries and Ries
Consulting, Merged entity, Market Capitalization, Synergies, Herbert Hainer and Paul Fireman.

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- Herbert Hainer, Chief Executive Officer, Adidas, in 2005.


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- Paul Fireman, Chief Executive Officer, Reebok, in 2005.

   

 n August 03, 2005, Adidas-Salomon AG (Adidas), Germany's largest sporting goods maker
announced acquisition of the US-based Reebok International Limited (Reebok) for $3.8 billion. The
share prices of both the companies recorded an increase on the day of the announcement of the
deal.

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Analysts said that the merging companies were alike in many ways. Both the companies had a
reputation of using cutting-edge technologies to produce innovative products and both had eminent
brand ambassadors from the sports and entertainment worlds.

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The story of Adidas dates back to the year 1920 when Adolf Dassler (Adi) produced a handmade
shoe fitted with black spikes.  n July 01, 1924, Adi and his brother Rudolf Dassler (Rudolf) started a
company under the name "Dassler Brothers  HG".

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In 1956, Adi's son Horst Dassler (Horst) promoted Adidas strongly during the  lympic Games at
Melbourne. He also signed a licensing agreement with the Norwegian Shoe factory, located in
Gjovik, Norway.

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According to the merger deal, Adidas would buy all the outstanding shares of Reebok at $59 per
share in cash. This price represented a premium of 34.2%, as per the closing share price of $43.95 on
August 02, 2005. Adidas proposed to fund the purchase through an arrangement of debt and equity.
The deal price was equal to the latest twelve month sales of Reebok and 11.7 times its EBITDA .
Some analysts felt that the deal was priced too high. As Uwe Weinrich, an analyst at HVB Group
remarked, "The price Adidas will pay for Reebok is ambitious." He added that acquisitions in the
sporting goods industry rarely brought in good returns...

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Both the companies claimed that their missions were complementary. As Fireman remarked,
"Adidas is a perfect partner for Reebok.

Reebok's mission is to enroll global youth inclining towards the music-and-lifestyle image that it
promotes through sports, music and technology.

This complements Adidas's mission to be the leading sports brand in the world, with a focus on
performance and international presence"...


 


Adidas said the companies would grow as a combined entity but would retain separate
management. The companies also ruled out any workforce reductions.

The new entity would continue to have separate headquarters and their individual sales forces. The
companies would also keep most of the distribution centers independent and would have separate
advertising programs for their brands. Hainer said, "The brands will be kept separate because each
brand has a lot of value and it would be stupid to bring them together.

The companies would continue selling products


under respective brand names and labels." Adidas
declared that the deal would involve investment in
both Adidas and Reebok. These investments would
guide the companies towards effective
consolidation.

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Analysts had varied opinions about the deal. Some analysts felt that Adidas could beat Nike to
become the industry leader. Al Ries said that, "The biggest benefit is that it removes a competitor.
Now, all they need to do is to focus all their efforts on competing with Nike." However, a few
analysts opined that it was impossible to dislodge Nike from its No. 1 position.

Nike was a preferred brand because of its fashion status, colors, and combinations. Although Adidas
was perceived to have good quality products that offered comfort and Reebok was perceived as a
'cool' brand, Nike was perceived as having both 'hipness' and quality...