(Bloomberg) -- Adidas-Salomon AG, whose U.S. sales have fallen for two years, agreed to buy Reebok International Ltd. for about 3.1 billion euros ($3.8 billion) to narrow the gap with Nike Inc.
Adidas, the maker of ClimaCool and T-Mac sneakers, is offering $59 for each share of Canton, Massachusetts-based Reebok, or 34 percent more than yesterday's closing price. The German company also will assume 69 million euros of cash, according to a statement released today.
The purchase, Adidas's biggest since its 1998 acquisition of Salomon, will more than double sales in the U.S., Nike's home market. Reebok, whose Freestyle aerobic shoe was one of the best- selling sneakers in history, is ``the perfect fit'' because of its strength in the U.S., Adidas Chief Executive Herbert Hainer said in an interview.
``This is a good deal for them in the long term,'' said Paras Anand of Deutsche Asset Management, who helps manage the equivalent of about $3.55 billion in European stocks. Adidas will be able to cut costs by combining distribution and manufacturing and merging the two companies' research and development, Anand said.
The acquisition will boost earnings in the first year and save 120 million to 125 million euros the first three years after the acquisition, Hainer, 51, said in the interview.
Second-quarter profit rose 34 percent to 94 million euros from 70 million euros a year earlier, Herzogenaurach, Germany-based Adidas said today in a statement. Analysts were expecting 82 million euros, according to the median of five estimates gathered by Bloomberg. Sales gained 8 percent to 1.52 billion euros.
Adidas shares rose 1.73 euros, or 1.2 percent, to 149.25 euros at 11:02 a.m. in Frankfurt. Reebok rose $14.65, or 33 percent, to $58.60 in Germany.
NBA, NFL
Adidas is betting Reebok's faster revenue growth will boost profitability as the company's European sales remain sluggish and its North American revenue has fallen an average 13 percent the past two years. The purchase will give Adidas 28 percent of the global $11.5 billion athletic-shoe market, rivaling Nike's 31 percent widening the lead over cross-town rival Puma AG.
The German company will also get Reebok's clothing business, which includes licenses to outfit the National Football League and the National Basketball Association. In addition, Adidas will gain better negotiating power and more shelf space at retailers such as Foot Locker Inc., according to John Horan, publisher of industry newsletter Sporting Goods Intelligence in Glen Mills, Pennsylvania, who's covered the industry for 27 years.
Adidas and Nike also are becoming fiercer rivals in soccer in the run-up 2006 World Cup, to be held in Germany. Adidas, which sold 6 million Roteiro soccer balls and 1 million pairs of PredatorPulse shoes last year, has formed a 100-member team to plan for the event. The company will unveil the tournament ball in September and roll out merchandise including World Cup jerseys later this year.
Transaction Value
Adidas had an 8.9 percent share of the $8.9 billion wholesale U.S. athletic-shoe market last year, according to Sporting Goods Intelligence. Reebok controlled 12 percent and Beaverton, Oregon-based Nike had 36 percent. A combined Adidas- Reebok would have about $11.7 billion in sales, compared with Nike's $13.7 billion.
Adidas expects to complete the acquisition in the first half of 2006. The total value of the transaction is about $3.59 billion, according to data compiled by Bloomberg. Adidas is paying about 10.7 times Reebok's earnings before interest, taxes, depreciation and amortization and about 0.9 times revenue, according to Bloomberg data. It paid about 8.92 Ebidta and 1.1 times revenue for Salomon when it bought the company for almost $800 million.
Reebok's Fireman
Reebok, whose shares had risen 30 percent the past year, said last month that second-quarter profit rose 71 percent, helped by gains in countries such as India and China and new Pump basketball shoes even as U.S. sales of its Classic footwear, the company's biggest business, declined.
The sale to Adidas may solve Reebok's succession problem as its 61-year-old founder and chief executive, Paul Fireman, may be ready to retire, according to Horan. Fireman took over day-to-day management at Reebok last year after then-President and Chief Operating Officer Jay Margolis resigned.
Merrill Lynch advised Adidas-Salomon and CSFB advised Reebok on the transaction, according to today's statement.
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