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Adidas and Reebok Merger

Introduction

Mergers and Acquisitions, shortly termed as M&A, generally refer to as the strategies that are followed in

purchasing, selling or merging different companies by means of finance, strategies or management of the

work force. The main theme of the mergers and acquisitions is to save the fainted companies and provide

them with the financial aid or to capture the new business areas with the merging of companies in a same

type of industry under the name of a single business entity. With the mergers and acquisitions, the

combined companies' operations, work force, financial dealings, research & development facilities and

the human resources will work as a single entity. In this document, I have taken the example of Adidas

and Reebok merger. Adidas was a German sports goods maker and was the world's second largest after its

nearest rival Nike. Reebok was the second biggest sports goods maker in the United States and was the

toughest competitors to Nike before the merger. Adidas had a merger with Reebok and the merger was

friendly and the deal was around US $ 3.8 billion.

Adidas and Reebok before merger

Adidas was a premium branded sports equipment maker in the world where as Reebok is a medium

segmented sports equipment maker. Adidas has its strong presence around the globe and its distinguished

premium branded products are sports shoes, footwear, sport equipment etc. Reebok has captured the

diversified products like women apparel, sports apparel and sports equipment at very cheaper prices when

compared to Adidas. Mostly, Reebok has captured the women sector with the making of the products

related to them. Both the companies want to merge and hence the presence of both the companies will bewidened across the earth.

Pre merger conditions

Nike was the biggest sports goods and apparel maker in the world and it was posing very stringent

competition to Adidas and Solomon group. The United States was the biggest market for the sports goods

and apparels. Nearly 47% of the sports market is in the United States and the annual sales are growing

year by year. Nike is the biggest player in the United States. In order to fight the competition with Nike,

Adidas with the strategy of expansion of the business in the United States, merged with Reebok which is

one of the biggest sports goods makers in the United States.

Advantages due to Adidas and Reebok Merger

The merger between Adidas and Reebok led to many advantages to both the companies. Though the

brand names are not changed and made into single entity, both the brands as separate had many

advantages due to the merger. Some of the important advantages which will change the face of the

company in the next few years of the merger are:

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a. Overlapping operations:The merger led to the overlapping operations in the areas of athletic goods like

sportswear, apparel, sports goods etc. Thus both the companies can manufacture the goods and apparel

with minimal fixed and variable costs. Also, the time for the manufacturing of the goods will be

decreased drastically with the combination of the streamlined operations. Each company is proficient in

the manufacturing techniques and hence it would be helpful for both the companies with different brands

to produce wide variety of sports goods, equipment and apparel. Patents will be shared among thecompanies so that the upper and middle level products can be manufactured with the same patents.

b. Technology sharing: Both the companies are proficient in their own ways of manufacturing. Both the

companies can exchange the technological expertise in the optimization of the manufacturing processes,

operations, human resources management and financial transaction management. Adidas is good at the

manufacturing of the sports apparel where as Reebok is proficient in the sports equipment making. Both

can share the expertise in the designing process for the betterment of the operational processes.

c. Cost cutting strategies: The merger had brought many cost cutting strategies to both the companies.

With the merger, the companies can share the common marketing strategies, manufacturing processes and

financial operations. The employee exchange will be the most advantageous program of the merger

through the companies can share the employee expertise and thus there will be lesser chance of hiring the

new work force and reducing the costs.

d. Emerging markets: The market analysts were doubtful about the merger being a strategy to withstand

the competition from the nearest rival, Nike. Nike is the world's largest sports goods, apparel and

equipment maker. Nike had strong market share in the United States and the European Union. With the

merger, Adidas with the support of Reebok can outstand in the performance and can reach the rival Nike

in the regions of the United States and the European nations. Reebok which has very little presence in the

Asian continent will gain power with the help of Adidas. The merger will lead to the capture of the

businesses in the emerging markets.

Finally, the customers of both the companies can be retained and make them think that the united

company will produce different products in terms of quality and diversity thus improving the brand image

and thus the business of the Adidas group.

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Obstacles and Disadvantages due to the Merger

The merger will always have some obstacles or disadvantages along with the advantages. Some of the

proposed disadvantages are:

a. Reebok is a discount sports goods brand where as Adidas is a premium brand. The customers will havea wrong perception in getting accustomed to the brands if and only if the management is able to establish

and clear off the doubts of the customers.

b. With the merger, the borrowings of the united company will be high. The borrowings will affect the

investors' confidence and thus there will be less funding options to the company which will affect the

company's plans to the expansion.

c. With the over dependence of the Reebok brand on Adidas will affect the sales of Reebok. Though

Adidas previously purchased Salomon and TaylorMade, the performance of Salomon and TaylorMade is

very poor in the year 2003. The overall revenues of both the companies for that year is around 21% where

as the revenues generated by the Adidas brand is around 79%. Hence, care must be taken in order to

promote the different brands of Adidas Group.

Adidas and Reebok Merger Process and performance of the stock

The merger between Adidas and Reebok took place in August, 2005. The merger deal was around US $

3.8 billion. At the time of merger, the Adidas group was the second largest sports goods maker in the

world with a market capitalization of nearly US $ 9 billion. Reebok was the third largest sports apparel

and equipment manufacturer in the world with a market capitalization of around US $ 4 billion.

The merger process was completed in the January month of 2006. The overall net value of the merger

entity was nearly US $ 12 billion. The share prices of both the companies have increased since the merger

process started till the completion of the merger. Adidas took over all the stocks of Reebok which are

issued by Reebok and even the stocks from the open market. Adidas paid US $ 59 for each share of

Reebok. On the day of decision of the merger, the Adidas stock in the Frankfurt stock exchange has raised

by 7% which is from 147 on the 2nd of August, 2005 to 158 on the 3rd of August, 2005. The

Reebok stock in the New York Stock Exchange has risen by nearly 30% on a single day. The share value

increased from US $ 44 to US $ 57 from 2nd of August 2005 to 3rd of August 2005 respectively.

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SWOT Analysis of the Adidas & Reebok Merger Strengths

The merger of the Adidas and Reebok gave rise to many strong aspects of the business operations and the

market capture. The merger now will concentrate on making diversified products to the differentsegmented customers. The product line of the existing products of both the companies will be increaseddue to the constant up gradation and research. The merged company will have large markets around theglobe and the share of the customers will be increased making Adidas the second biggest sportsequipment maker and Reebok the third largest in the world. Adidas is a premium brand and Reebok is awholesaler brand and hence the merger entity can acquire the upper, middle and lower level marketsaround the globe. The company will have the sharing in terms of research and development, employeeexpertise, skill sets, operation methodology and human resources management.

Weaknesses

The primary problem of the merger is the complexity of the merger process. Both the companies are huge

in terms of global markets and production and hence it will be very tough to bring both the companiesunder the same management. The products of both the companies will be stock piled due to the merger.The products cannot be categorized in the initial stages of the merger and there may be a chance ofwastage of the goods till the company comes up with appropriate strategy to clear off the left out goods ofthe pre merger entity. At the merger time, the management profiles of both the companies will bedifferent and hence it will be a very tough job to manage the required work force to make the companystreamlined in the operations.

Opportunities

The merger will reduce the common costs like the patents' costs, research and development costs and

common manufacturing units operations' costs. These costs will be the same for both the companies andhence there will be reduction of the costs involved. The company under the brand of a single entity will

have lesser threats from the next nearest competitors. Puma though is the next competitor to the company

Adidas group is the strongest in terms of business markets and the operations after the merger. The

promotion of both the brands can be flexible with the star athletes under the same group. This cross

promotion will help the company to get into the hearts of more number of customers. The company will

have different marketing strategies with fewer costs involved and can share the global markets and

promote the brands under the same merged entity name.

Threats

Adidas and Reebok served as two different brands till the merger. Due to the sharing of the globalmarkets, both the companies would face a problem of cannibalization and thus this may reduce the market

share. Both the products are of different segments and one company concentrating on the second

company's market share may spoil the reputation of both the companies. The substitute products of the

premium branded Adidas will risk the brand value of the same. This merger may force the competitors to

look for self-defense options and hence the competition may grow thus making many mergers to take

place. The most feared merger that may take place in the near future is the Nike and the Puma merger.

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Post Merger performance of Adidas and Reebok

Merger was always not a smoother process. The same is the situation for the Adidas and Reebok merger.

Both the companies are diversified in terms of products, management and financials, the management had

designed a separate strategic marketing methodology to improve the performance of both the companies.

Adidas group mainly concentrated on the premium soccer tournaments in European region. The group

had sponsored many soccer clubs like Real Madrid, Chelsea, Milan etc to increase the share of the market

in the European region. Adidas had little presence in Asian countries and was far behind Nike in the

United States and the European markets. After the merger, Adidas with the help of Reebok was able to

expand the markets in the Asian countries. Though the companies faced stringent problems in

streamlining the operations in those countries immediately after the merger, in the due course of time both

the companies had performed well. The company had increased the sales as well as the market

capitalization due to the merger. The company's revenue in the year 2008 was nearly US $ 15.7 billion

and the employee strength had increased to around 40000 by the end of 2008. The company had

strategically opened outlets in the shopping malls, hired spaces in high traffic departmental stores andintroduced discount based marketing strategies to improve the performance of both the companies. The

company had diversified its products into sports, entertainment, audio, music and technology sectors. The

main motto of diversification is to capture the segment of the youth around the earth to the music and

entertainment life style.

Also, the managements of the both the companies were different and both the companies will sell their

products with their own brand images. Even the investments will be encouraged in both the companies

thus wiping out the chances of any discrimination. The share of the Adidas group had been increased

twice in the United States market and thus the company had different segmented customers. Adidas and

Reebok had tie ups with different clubs of the United States likeNational Basketball Association, National

Hockey League and National Football League in order to promote their products in the Untied States. The

main advantage is that Adidas group will have no nearest competitor apart from Nike and hence there will

be fair chance to concentrate on the development of the company and improvement of the operational and

managerial processes.

Conclusions

Adidas and Reebok are two branded sport equipment, apparel and sports goods companies. Both the

companies have their own strengths in the manufacturing of the goods and global market share. Adidas

had acquired Reebok in a friendly merger and Reebok will server under the Adidas Group. The merger

value is nearly US $ 3.8 billion and Adidas will buy all the stocks of Reebok International Inc. Adidasand Reebok will operate as separate entities after the merger and will share the existing global markets

and the technology. Adidas and Reebok will become the second and the third largest sports equipment

manufacturers in the world respectively. The main theme of the merger is to withstand the competition of

Nike in the United States and the European Union markets. Due to the merger, the companies will

implement the cost reduction techniques, sharing of the patents, technology and human resources. The

management will continue as the same as before the merger and both the companies will work as separate

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entities in the manufacturing of the goods under the same brands as before the merger. This will be an

advantage for the Adidas group to capture the upper and medium level sectors of the customers thus

making the merger is a mutual beneficiary for both the companies.