Case Study 2 Presentation by Narinder Bhasin Reebok Adidas (Merger & Acquisition)
No-2 Global Brand
Deal with soccer and sports wear
Popular in European countries(A German company)
It want to enter American and Asian Market
Reebok and Adidas: A Good Fit
Their merger could put the combined outfit on the fast track. Then again, Nike may still prove to agile to catch
It makes too much sense not to happen. A combination of Reebok International (RBK ) and Adidas-Salomon AG (ADDYY ), announced Aug. 3 2005 by the two companies, is one of those mergers with which it's difficult to find fault.
No-3 Global Brand
Deal with Lifestyle fashion market and sports wear
Popular in USA
It want to enter European and Asian Market
In 2004 (According to the Sporting Goods Manufacturers Association International)
In the U.S., Nike reigns supreme. In 2004, it had about 36% market share in the athletic-footwear market
Adidas has 8.9% of the U.S. market and
The U.S. ranks as the world's biggest athletic-shoe market, accounting for half the $33 billion spent globally each year on athletic shoes.
Reebok and Adidas: A Good Fit
A combination of Reebok International ( RBK ) and Adidas-Salomon AG ( ADDYY ), announced Aug. 3 by the two companies, is one of those mergers with which it's difficult to find fault.
SURGING STOCK- After the merger announcement, Reebok closed up $13.19, or 30%, to $57.14. Adidas shares closed up 7%, to $192.96, in Frankfurt.
HIP-HOP NATION- The companies say they have already identified about $150 million in annual savings from their combined operations. But the real test of success for Adidas' acquisition is how well the company manages its new portfolio and executes new products and marketing plans that allow the two big brands to complement each other rather than duplicate efforts .
Germany's Adidas-Salomon agreed to buy Reebok International for 3.1 billion euros ($3.78 billion), or $59 a share -- a 34% premium over the $43.95 at which its shares closed the day before the announcement. Adidas has a market capitalization of about $8.4 billion, and reported net income of $423 million last year on sales of $8.1 billion. Reebok reported net income of $209 million on sales of about $4 billion.
Adidas concentrating on upper-end performance shoes, while Reebok covers the middle-priced market.
Reebok maintaining its focus on its apparel licensing with the National Football League and the NBA, for example, while Adidas concentrated on selling performance shoes in those sports where its brand value trumps Reebok's.
SINGING PRAISES:- These are two mega brands, each with great strengths, and they have to decide how to make the most of their strengths
While Reebok and Adidas build product lines and marketing campaigns around rappers, Nike reaches out to the hip-hop world with deals smaller in scope but just as effective. Nike partners with designers and record labels for special-edition sneakers in its Air Force 1 and Dunks lines.
Adidas has been feeling the heat not only from Nike in its core categories, like soccer, but also from No. 4 sporting-goods brand Puma ( PMMAY ).This makes it all the more logical for Adidas to concentrate on higher-margin, innovation-driven shoes as it leverages Reebok's distribution and product development resources to increase its presence into basketball, hockey, and fashion/athletic segments like bicycling and skateboarding where consumers have proved willing to pay top dollar for high-end shoes.
Adidas and Reebok looks terrific on paper, successful mergers need to work between real people who, in this case, will have to break down cultural differences between companies with "two hugely different cultures”
The German mentality of control, engineering, and production, vs. the U.S. marketing- driven culture...in reality, [the merged company] is going to dent the market, because Nike is already too far ahead
Problems …. contd
Each company has had past financial difficulties. Adidas nearly went bust in the early 1990s before French financier and advertising mogul Robert Louis-Dreyfus rescued it. He restructured the company, hired designers and marketers outside of Germany, and sharpened the company's marketing.
Reebok, meantime, was sagging in the late 1990s despite a robust U.S. economy. Its share price dropped below $10, its designs failed to catch on, and Nike ran away with brand cachet in the U.S. "performance-driven" culture.
More products for different customers
Increase in product line
Acclivity in market share
Now both upper and middle priced market are covered.
Shared R&D,Patents,technology & innovations
Differing values among management
Complexity of joining two corporate cultures
Both companies are belong to different countries
Reduction in costs
Cross-over promotion by sponsored athletes
Enter to new market/Segments
Nike’s possible acquisition of Puma.
Post merger performance
7 th mar ,2007 -Adidas Group's motto is "Impossible Is Nothing." But since the No. 2 sporting-goods maker announced in August, 2005, that it would snap up rival Reebok for $3.8 billion to gain a firmer footing in the U.S. and challenge market leader Nike ( NKE ), the company has yet to prove that the combo will work.
True to its mantra, however, Adidas says it's racing flat-out to make its tie-up with Reebok a winner. The company has closed factories in Indonesia and is repositioning the Reebok brand to widen its appeal. "Our focus this year will be on getting Reebok back onto a growth track," Adidas Chief Executive Herbert Hainer said in a statement. "It's going to take time, but we're moving in the right direction."
Post merger performance
As part of that move, the company is ramping up its sales and marketing efforts. It's reducing reliance on low-traffic, shopping-mall-based outlets and placing Reebok apparel and footwear in higher-end department stores and larger sporting-goods ventures. Adidas has also enlisted star NFL quarterback and Super Bowl MVP Peyton Manning, actress Scarlett Johansson, and other famous faces to help launch a series of new products planned in the second quarter.
The company says it expects these efforts to increase sales of the Reebok brand this year in the "low-single-digit" range. Adidas expects its gross margin in 2007 to be between 45% and 47%, thanks to "improvements in all three brand segments." For the group, the company expects sales in 2007 to grow in the "mid-single-digit" range