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Adidas-Reebok merger lets rivals nip at Nike's heels By Laura Petrecca and Theresa Howard, USA TODAY Adidas wants Reebok to help it double-team the "big man" on the court in the $57 billion-a-year U.S. sports footwear and apparel market. Sports shoes by Adidas and Reebok. Germany's Adidas-Salomon launched a $3.8-billion bid to buy U.S. rival Reebok. By David Hecker, AFP/Getty Images The Germany-based global power announced on Wednesday a $3.8 billion deal to buy Canton, Mass.-based Reebok, uniting two of the world's top sports companies and creating a much stronger challenge to Nike, particularly on the global giant's home turf: the prime North American market that accounts for about half of the category's sales worldwide. (Chart: How Adidas and Reebok stack up against rival Nike) "We will expand our geographic reach, particularly in North America, and create a footwear, apparel and hardware offering that addresses a broader spectrum of consumers and demographics," Adidas CEO Herbert Hainer said in a statement. The union would mean that for the first time in more than a decade, industry leader Nike faces a near equal. Reebok and Adidas combined had 2004 global sales of $12 billion ($8 billion from Adidas, $4 billion from Reebok) vs. Nike's $14 billion in its latest fiscal year, ended May 31. About the deal Value: $3.8 billion

All-cash transaction: Adidas' $59 per Reebok share buyout plan, including Reebok founder Paul Fireman's 17% ownership, is a 34% premium.

Combined annual sales: $11.1 billion

Expected savings: $120 million within the first three years based on sales, marketing and distribution savings, layoffs and operations.

Pending approval by: Company shareholders, European and U.S. regulators.



Source: USA TODAY research "For the first time, Nike, which is actually leading the charge, has to look back over their shoulder at someone who is nipping at their heels," said Marshal Cohen, chief industry analyst at researcher NPD Group. The Adidas-Reebok combination would have bulked-up clout with suppliers, in securing shelf space at retail outlets, in bidding for sponsorships and endorsements, and in demanding discounts on its mass-media advertising buys. The deal also would fill holes in each company's shoe portfolio, said Neil Stern, a senior partner at McMillan/Doolittle Retail Consultants. Reebok is strong in tennis, fitness and basketball, he said, while Adidas has a grip on soccer and team sports. The company is expected to continue its separate brand names. Nike: Just do it A Nike spokesman, however, shrugged off the prospect of a competitor closer to its own size. "Our focus is on growing our own business," said Alan Marks. "Of course we're in a competitive business, but we win by staying focused on our strategies and our consumers. And from that perspective nothing has changed." Nike, which has 33.2% of the global athletic shoe share, is known for a vast array of high-performance sports shoes, apparel and equipment offerings; a huge stable of elite athlete endorsers, from LeBron James to Tiger Woods to Michael Jordan; and its "Just do it" ad theme. Adidas, which has 15.4% of the global market, has carved out a significant segment in high-tech sports shoes. It also dominates soccer, having endorsement deals with superstars such as David Beckham and sponsorship of top events including the FIFA World Cup. In an industry known for motivational advertising, Adidas' current theme is "Impossible is nothing." Reebok, which will get more access to worldwide distribution, has a 9.6% share of the global shoe market. The company has made a larger marketing splash in the international arena of late with global basketball star Yao Ming. Reebok may be able to use China's Ming to aid Adidas in Asian markets. "Yao is with Reebok at the moment, but there may be a time when he will be helpful for both brands," Hainer said. Reebok has also embraced the melding of sports and entertainment cultures, with endorsement deals and products by Nelly, Jay-Z and 50 Cent. Its ad theme: "I am what I am." Industry experts say that using urban-focused marketing, such as Reebok's hip-hop spokespeople and Nike's grass-roots efforts to build buzz in cities, is essential for U.S. sales success in sporting goods. "A significant trend is the impact of urban sports fans," said Dean Bonham of sports and entertainment consultants The Bonham Group. "Finding that magical combination of sports and urban fashion has really been a significant change in the industry, and both Nike and Reebok have responded to it really well." Some industry observers, however, warn that, while Reebok and Adidas strengths are complementary, there is product overlap. It will take careful marketing, they say, to walk the line between avoiding cannibalization of each other's sales and hurting successful products by overreacting to that danger. "The real challenge may be in marketing brands ... which are indeed competitors," said John Barker, president of DZP Marketing Communications. He said that often when former rivals join forces there is a tendency to try to change product lines so they don't go head-to-head. "The real danger may be in trying to reposition one brand or another to not compete. ... Both brands could be diluted in the process." The deal is the priority now Though challenges may lie ahead, Hainer said in a conference call that the first hurdle is to get the deal done. "It is important to know that our first and foremost goal is to do this in a very professional way and to integrate and get all the opportunities ahead of us," he said. "We need to grow both brands together, then we can grow faster than our competitor." Pending shareholder and U.S. and European regulatory approval of the deal, the companies estimate savings form the merger of $120 million within the first three years from marketing, distribution and operations savings, and layoffs. The all-cash transaction will buy out Reebok's existing stock for $59 a share, a 34% premium over Reebok's closing price Tuesday of $43.95. Reebok founder and CEO Paul Fireman will sell his 17% stake. Deal impact is widespread Here's how other industries and consumers will feel the impact: •Retailing. Experts say that by combining, Adidas and Reebok would have much more clout with major retailers. "There's an advantage to a retailer to do business with a combined company such as Adidas-Reebok, because of the other businesses the company is in," says George Whalin, president at Retail Management Consultants. "For example, Reebok isn't just running shoes; it also owns Rockport, which are walking shoes." Whalin notes that the deal would give Reebok greater distribution around the world and Adidas a bigger operation in North America. When companies consider a merger like this, he said, they look at big sporting goods retailers — Sports Authority, Foot Locker, Dick's — and try to determine the amount of space and prominence of displays they can get. "Owning Reebok greatly enhances the in-store position" and leverage for combined promotions, said Whalin. "It's a big deal." •Pro league sponsorships. Adidas would be buying a major player in U.S. pro sponsorships. Reebok has a deal with the NFL to exclusively design, market and sell all on-field uniforms and licensed consumer apparel. The NHL will add the Reebok logo to its uniforms this season, and the company is working to help craft a new, sleeker NHL uniform to roll out for 2006-07. Reebok in 2001 signed a 10-year deal to outfit the NBA, WNBA and NBA Development League. "Reebok has done a masterful job of doing sponsorships of major sports leagues to expose their brands," said Jon Hickey, head of sports and entertainment marketing at ad agency Mullen. Reebok spokeswoman Denise Kaigler said the purchase "is not expected" to alter the deals. And NFL spokesman Brian McCarthy says that it's "premature to speculate" on whether Adidas will seek to replace the Reebok logo on licensed NFL gear. He says the league expects to sit down with the companies in the next month to discuss 2006 and beyond. •Ad spending. In the USA, Nike spent $85 million on advertising last year, according to TNS Media Intelligence. Adidas spent $47 million; Reebok $26 million. The deal may increase those totals. "We will invest in what's necessary to drive the brands forward," Hainer said. "We will be able to get more for the dollar out of marketing, because we can combine our strengths in media buying." But others in the industry said they would not be surprised by some cuts overall as top executives seek to show cost benefits from the merger. "There's usually a little trimming and efficiency play on the overall budget," said Bill Cella, CEO of media-buying agency Magna Global Worldwide. •Consumers. NPD's Cohen says consumers may not see savings at the cash register. "A lot of people are talking about lower prices," he said, but suggested the combined company won't want to cut its own bottom line by launching a price war. Others, however, think consumers may see more products and aggressive marketing from smaller players in the industry as they work to protect their shares. "The Adidas-Reebok combination creates a global competitor to Nike, but that doesn't change the consumers' ability to get a lot of choices in the marketplace," said Neil Stern, senior partner at McMillan/Doolittle Retail Consultants. Contributing: Michael McCarthy in New York and Lorrie Grant in McLean, Va.