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CORPORATE GOVERNANCE

RESEARCH PAPER

MERGER OF ADIDAS AND REEBOK.

Submitted by: Gautam Chinnappa


Class: Vth Sem B.A.LL. B (Hons.)
Reg.no: 17BALB019
Submitted to: Ms. Shalini Ganguly
Designation: Assistant Professor

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INDEX

Sl.No. Content Pg. No.

1 Abstract 3

2 Introduction 4

3 5
A Look at Competitive
Advantage

4 Market shares, manufacturing, 5-6


brand identity
5 Corporate missions of adidas 6-7
and reebok
6 Financial aims of the merger 8-9
and was it a success?
7 Conclusion 10

8 Bibliography 11

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ABSTRACT
This case attempts to showcase the marketing war between the world's three greatest brand and company in
the sportswear retail industry and the key part of the greatest merger ever occurred in the retail advertise. The
case discusses the proposed merger of Reebok International Limited with Adidas-Salomon AG.

RESEARCH QUESTION
 Whether the deal was a success or a failure?
 What were the aims of the merger?
 What was the corporate mission of Adidas and Reebok?

RESEARCH METHODOLOGY

This Research paper is based on the doctrinal way. The primary sources used is the books. The secondary
sources as referred to is from various articles and journals published.

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INTRODUCTION
Mergers and acquisitions (M&A) are defined as the coming together of companies. Mergers is the
combination of two companies to form one, while acquisitions is one company taken over by the other.
This is a type of business alliance that is used by companies either to diversify or to grow their
businesses. An acquisition involves one firm buying only a portion of another firm. The acquisition
may happen to acquire assets or an altogether different segment of the other firm.
A merger involves the total absorption of a target firm by the acquirer. As a result, one firm ceases to
exist and only the new firm (acquirer) remains.

We want to grow both brands together faster than the individual brands and of course, grow faster than
our competitors.”1
- Herbert Hainer, Chief Executive Officer, Adidas, in 2005.

“With Adidas, we are able to offer an enabled portfolio of global brands that truly addresses the needs
of today’s and tomorrow’s consumers.”2
- Paul Fireman, Chief Executive Officer, Reebok, in 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 on August 03, 2005.Both the
companies saw an increase in their share price. The deal would finally bring two cutthroat competitors
together, through a “friendly takeover”.
Adidas and Reebok asserted that the merger was settled on account of the acknowledgment that their
individual (company) objectives would be best practiced by joining as opposed to contending. Nike
was the basic contender for both Reebok and Adidas. Adidas and Reebok asserted that the merger was
settled on account of the acknowledgment that their individual (company) objectives would be best
practiced by joining as opposed to contending. Nike International Inc. (Nike) was the basic contender
for both Reebok and Adidas. Analysts said that the merging companies were similar from numerous
points of view. Both the organizations had a notoriety of utilizing forefront advancements to create
inventive items and both had prominent brand ambassadors from the games and entertainment worlds.
In this manner, the merger would help spreading the worldwide appeal of the brands in spots where

1
Darren Rovell, “Reebok, Adidas Have Plenty of Issues to Solve,” www.ESPN.com, August 03 2005.
2
Press Release, www.adidas-salomon.com, August 04, 2005.

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they had not made an imprint as individual brands. Be that as it may, a few experts had questions about
the accomplishment of the merger of the organizations. They referred to that the merger would not
create a lot of collaboration on the grounds that the individual brand personalities would be kept up
even after the merger. Examiners additionally questioned the viability of the merger, as a procedure to
beat Nike. They felt that the consolidated entity would need to make a solid effort to further grow and
expand its market in the US and globally.

A Look at Competitive Advantage


As indicated by numerous studies, the primary reason behind why most mergers and acquisitions come up
short is the need of a social fit between organizations. In past mergers, organizations have frequently
overlooked social contrasts as opposed to executing them, which has frequently caused failure in their
blend. Many managers at top positions and more high-level labourers don't have intercultural learning; in
this manner, therefore they should be prepared and trained.

One downside for Adidas procuring an enormous organization like Reebok is that while the recently merged
organization manages the board and foundation changes and the trouble of learning another corporate
culture, its rivals are running at max throttle.

Be that as it may, it appears that over the long haul, the Adidas and Reebok Company will have the option
to overcome these difficulties and have the option to contend and compete with Nike. One explanation for
this is Adidas' ongoing past involvement in obtaining an enormous organization.

Only seven years prior, Adidas obtained Salomon and turned into the second biggest donning
merchandise maker on the planet, behind Nike and in front of Reebok. This ongoing knowledge of getting
an organization will facilitate the trouble of obtaining Reebok. The two acquisitions share a large number
of similar troubles. Adidas, a German based organization, must deal with acquiring Reebok, an
organization that is based outside of its own nation, in the United States. Similarly, Salomon is a French-
based organization, such a significant number of similar complexities emerged with this new acquisition.

Market Shares and Manufacturing Market Shares

Adidas and Reebok asserted that the merger was settled on account of the acknowledgment that their
individual (company) objectives would be best practiced by joining as opposed to contending. Nike

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International Inc. (Nike) was the basic contender for both Reebok and Adidas. Analysts said that the
merging companies were similar from numerous points of view. Both the organizations had a notoriety of
utilizing forefront advancements to create inventive items and both had prominent brand ambassadors
from the games and entertainment worlds. In this manner, the merger would help spreading the
worldwide appeal of the brands in spots where they had not made an imprint as individual brands. Be that
as it may, a few experts had questions about the accomplishment of the merger of the organizations. They
referred to that the merger would not create a lot of collaboration on the grounds that the individual brand
personalities would be kept up even after the merger. Examiners additionally questioned the viability of
the merger, as a procedure to beat Nike. They felt that the consolidated entity would need to make a solid
effort to further grow and expand its market in the US and globally.

Manufacturing

Many shoe companies are constantly searching for new, minimal cost regions to put resources into labour
intensive manufacturing. Nike, Reebok and Adidas manufacture items in a few Asian ·

nations, for example, China, Vietnam, Indonesia, and Thailand, where a segment of the product is sold.
They likewise have manufacturing plants in Latin and South American nations. Another developing
commercial centre to think about when looking at the worldwide market is Africa. Nike at present has
concurrences with free industrial facilities in South Africa and Zimbabwe where they manufacture and
sell their products. Reebok has had industrial facilities in Africa, however in 1986 they pulled back from
Africa because of human rights issues. In 1992, they restored their factory investments in the area.

Brand Identities

Reebok and Adidas have complementary brand identities. Reebok has been centering quite a bit of its
brand identity towards an increasingly young and urban market and Adidas, then again, has centred its
image personality towards an expansive athletic and fitness market. They embrace competitors, Reebok
likewise keeps on underwriting top competitors, for. Reebok and Adidas will have the chance to utilize
hybrid advancements by their individual supported competitors. This will reinforce each organization's
market segments in view of their corresponding nature and will build each brand's overall differentiation.
In 2004, Nike spent twice as much on promoting as Reebok and Adidas did combined. Nike's enormous

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promoting spending will make it hard for Adidas and Reebok to surpass Nike’s number one position in
the athletic products industry.

Corporate Missions of Adidas


 They are consumer focussed, meaning they continuously want to increase the quality, look and
feel of the product to match and increase consumer satisfaction and giving them the highest
value.
 They wanted to help athletes of all levels by achieving maximum performance by each product
that they would introduce in the market.
 To improve their financial and competitive position, they are committed to strengthen their
brands and products.
 In the medium term, we will extend our leading market position in Europe, expand our share of
the US footwear market and be the fastest growing major sporting goods supplier in Asia and
Latin America. The resulting top-line growth, together with strict cost control and working
capital improvements, will drive over-proportionate earnings growth3.

Corporate Missions of Reebok


 Reebok is a genuine partner to its clients and is perseveringly dedicated to their success. Based
on an establishment of trust, listening and innovation, we are our customers‟ most esteemed
asset for quality items and information and the main expert in sports and fitness.
 They want to motivate everyone to ignite a passion for winning, to do the remarkable, and to
catch the customer’s heart and mind.
 Reebok has a fun, vivacious culture driven by the worth they place on individuals, their most
noteworthy resource. With bold administration, they remain concentrated on what is most
critical to their clients.
 They have a profound felt duty to work in a socially dependable manner and to represent
human rights all through the world. They are focused on greatness and advancement in all that
they do.

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 To their greatness by setting extraordinary execution measures.
 Development and supernatural thoughts drive our organization to make incredible leap forward
items and helpful promoting and publicizing.

Financial aims of the Merger

 They expected to earn a higher return than the amount that they were going to spend over three
years.
 Solid working income. Group expected to pay off its debt and improve its income from
operational cooperative energies.
 Group expected to diminish its yearly cost and needed to spare around € 125 million every
year with considerable operational synergies and, expected to expand income and benefit from
complete inclusion of all customer segments.

Was it A Success?
After the acquisition Adidas group's budgetary records show noteworthy enhancements. The Adidas
Group's 2006 half year result after the acquisition was phenomenal, because of the acquisition and
2006 FIFA world cup. Adidas revenue increased by 17 percent in euro terms for example, they had a
revenue of 3308 million in first half of 2006 as contrast with 2816 million in first half of 20054. While
the year 2006 complete yearly report demonstrates an astounding outcome for the Adidas group. Sales
revenue increases by 52 percent i.e. from 6.636 billion in 2005 to 10.084 billion in 2006 5. speaking to
the most noteworthy natural development of the Adidas group in the last eight years. It was the first
time in history that it crossed the benchmark of 10 billion6.

In year 2007 and 2008 companies gross net revenue and overall revenue expanded because of cost
sparing which was because of the combination of Adidas and Reebok sourcing activities as well as
fundamental improvement in all fragments. Subsequently gross net revenue expanded by 2.8 percent in

4
http://www.Adidas-group.com/en/pressroom/archive/default.aspx
5
http://www.adidas-group.com/en/investorrelations/assets/pdf/annual_reports/2006/GB2006_en.pdf
6
http://www.Adidas-group.com/en/pressroom/archive/default.aspx

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2007 arriving at 47.4 percent when contrasted with 44.6 percent in 2006 7, and in 2008 it expanded by
1.3 percent for example from 47.4 percent in 2007 to 48.7 percent in 2008, this is the most noteworthy
annual gross margin from the group since the IPO in 1995. . Group gross profit also increased by 9
percent in 2007 and 8 percent in 2008 reaching a level of 4.882 billion in 2007 and 5.256 billion in
2008. The groups operating profit margin increased by 0.5 percent in 2007 reaching 9.2 percent as
compare to 8.7 percent in 2006 8, and in 2008 by 0.7 percent i.e. from 9.2 percent in 2007 to 9.9
percent in 2008. Groups operating profit has increased by 8 percent in 2007 i.e. from 881 million in
2006 to 949 million in 2007 and by 13 percent in 2008 reaching a level of 1.070 billion.

Adidas aimed to extend their global reach. Merger’s aim to expand in Asia market and to generate
more revenue from Asia market seemed to succeed as the sales revenue from Asia market improved.
In 2005 sales from Asia contributed 22.95 percent of the group total revenue which increased to 24.65
percent in 2008 And sale has increased significantly in Latin America which had contributed only 4.88
percent of total revenue in 2005, increased to 8.26 percent in 2008.

Company’s main aim to compete with Nike in North America market didn’t hit the target, as the
revenue generated from North America went down. Although in 2006 group revenue from North
America increased significantly from 1561 million in 2005 to 3234 million in 2006 i.e. 107 percent
growth, but this was mainly due to 2006 FIFA world cup and group revenue from North America
declined thereafter. In 2007 it decreased by 9 percent reaching 2929 million by 14% in 2008 touching
2520 million in addition, after acquisition both Adidas and Reebok lost US market share of athletic
shoes. Adidas held 10.62 percent market share in 2006 which went down to 6.93 percent in 2007 and
5.86 percent in 2008. And Reebok held 4.68 percent market share in 2006 which went down to 4.43
percent in 2007 and 2.66 percent in 2008. On the contrary Nike’s market share has increased from
29.73 percent in 2006 to 31.52 percent in 2007 and 34.61 percent in 2008.

7
http://adidas-group.corporate-publications.com/2007/gb/en/consolidated-financial-statements/consolidated-income-
statement.html

8
http://adidas-group.corporate-publications.com/2007/gb/en/consolidated-financial-statements/consolidated-income-
statement.html

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Other shortfall of the acquisition can be seen from the declined sales revenue of Reebok. Reebok sales
went down by 9 percent in 2006 i.e. from 2718 million in 2005 to 2473 million in 2006 it decreased
by 6 percent in 2007 reaching 2333 million and declined by 8 percent in 2008 reaching a level of 2148
million .As compared to 2005 Reebok sales declined by about 21 percent after the merger till 2008 and
showed very poor performance by Reebok and Adidas group’s inability to maintain Reebok
efficiently.

Conclusion
Analysts had varied opinions about the deal between Adidas and Reebok. Nike was the industry leader
and many of the analysts felt that it would be a difficult task for Adidas to beat Nike. Here one benefit
that Adidas had was that it had removed a competitor from the market for itself. Nike has been able to
maintain a competitive advantage over its competitors through aggressive advertising, endorsements
by the leading professional athletes in nearly every major sport, and due to the high quality of
products. The acquisition of Reebok by Adidas puts it in a better position to compete with Nike,
though they have many hurdles in front of them. Nike having better fashion status, colors and
combinations was the preferred brand among people. 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. Nike having both the qualities of looks and comforts too was
preferred more among the consumers. simultaneously merger was fruitful in its different prospects of
increasing sales, cost decrease and venture into new market, creating another incentive to the merger.

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BIBLIOGRAPHY
 Rajinder Arora, Mergers and Acquisitions
 https://efinancemanagement.com/mergers-and-acquisitions
 https://www.edupristine.com/blog/mergers-acquisitions
 http://www.casestudyinc.com/adidas-reebok-merger-case-study
 https://shodhganga.inflibnet.ac.in/bitstream/10603/63949/14/14_chapter%208.pdf
 https://www.xxlmag.com/lifestyle/2014/12/10-notable-athletes-celebrities-partnered-reebok/

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