Page 37 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes (c) To capture the market.
(d) None of these.

Task Discuss the difference between merger and purchase of companies.



Case Study adidas-reebok merger
he sporting goods industry has seen many Mergers and Acquisitions (M&A) driven
by rising competition and industrial growth. In 1997, Adidas acquired the Salomon
TGroup for $1.4 billion. In 2003, Nike acquired Converse for $305 million and in 2004
Reebok acquired The Hockey Company for $330 million.
adidas and reebok – two mega Brands with great strengths
In August 2005, German Adidas-Salomon AG announced plans to acquire Reebok at an
estimated value of $3.1 billion ($3.78 billion). At the time, Adidas had a market capitalisation
of about $8.4 billion, and reported net income of $423 million a year earlier on sales of $8.1
billion. Reebok reported net income of $209 million on sales of about $4 billion. While
analysts opined that the merger made sense, the purpose of the merger was very clear.
Both companies competed for No. 2 and No. 3 positions following Nike (NKE).
competition with nike and puma
Nike was the leader in U.S. and had made giant strides in Europe even surpassing Adidas
in the soccer shoe segment for the first time. According to 2004 figures by the Sporting
Goods Manufacturers Association International, Nike had about 36%, Adidas 8.9% and
Reebok 12.2% market share in the athletic-footwear market in the U.S. Adidas was the
No. 2 sporting goods manufacturer globally, but it struggled in the U.S. – the world’s
biggest athletic-shoe market with half the $33 billion spent globally each year on athletic
shoes. Adidas was perceived to have good quality products that offered comfort whereas
Reebok was seen as a stylish or hip brand. Nike had both and was a favourite brand because
of its fashion status, colours, and combinations. Adidas focused on sport and Reebok on
lifestyle. Clearly the chances of competing against Nike were far better together than
separately. Besides Adidas was facing stiff competition from Puma, the No. 4 sporting-
goods brand. Puma had then recently disclosed expansion plans through acquisitions
and entry into new sportswear categories. For a successful merger, the challenge was to
integrate Adidas’s German culture of control, engineering, and production and Reebok’s
U.S. marketing- driven culture.

the aDDyy and rBk merger – impossible is nothing
On January 31, 2006, Adidas closed its acquisition of Reebok International Ltd. The
combination provided the new Adidas Group with a footprint of around €9.5 billion ($11.8
billion) in the global athletic footwear, apparel and hardware markets.
Adidas-Salomon AG Chairman and CEO Herbert Hainer said, “We are delighted with
the closing of the Reebok transaction, which marks a new chapter in the history of our
Group. By combining two of the most respected and well-known brands in the worldwide
sporting goods industry, the new Group will benefit from a more competitive worldwide
platform, well-defined and complementary brand identities, a wider range of products,
and a stronger presence across teams, athletes, events and leagues.”
Contd...

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