(Deal Reporter) Adidas activists may struggle to de-seat management – bankers
- Activists thought to be watching from a distance
- Management reluctant to sell Reebok at a loss
- Reebok sale could make Adidas vulnerable to takeover
Attempting to force Adidas’s [ETR:ADS] management out early may not be a straightforward task for activist investors pushing for restructuring, bankers following the situation said.
It would also take a large amount of persuading for management to agree to sell subsidiaries Reebok and Taylor Made, a minority shareholder added.
It is thought there are still activist funds circling Adidas and considering strategies to drive a re-rating of the shares. But they may have decided a fight to replace management will take longer than first thought, it was said.
Any turnaround will be a hard slog for incumbent CEO Herbert Hainer and CFO Robin Stalker, let alone for new faces if activists do succeed in removing them, bankers said. “It is arrogant to say you could do a better job,” the shareholder said. Hainer’s contract runs to 2017 and Stalker’s until 2018.
Languishing sales at footwear arm Reebok and golf brand Taylor Made represent the main bone of contention between shareholders and management. Reebok has struggled in the US against Nike [NYSE:NKE], and could be worth half the EUR 3bn Adidas paid for it in 2005, one banker suggested. Selling the subsidiary might also open Adidas up to being a takeover target itself, a second banker said.
It is thought Adidas has received several approaches for Reebok, the second banker said. Hong Kong-based Jynwel Capital and Abu Dhabi government-affiliated funds were set to offer EUR 1.7bn for Reebok, it was reported in October 2014.
“Senior management is in the way of a Reebok sale, as they would be selling at a loss,” a third banker said. The prices offered so far are unlikely to have justified Adidas engaging, said the second banker.
Taylor Made could once have been sold to private equity within a week, the first banker said. It has now become a lightning rod for critics of Hainer, due to slow clearing of inventories in the US. But the brand’s performance should be viewed through a longer-term lens rather than just the last two years, the shareholder argued.
An Adidas spokesperson noted that, following the recently announced sale of Rockport, Hainer clearly stated that management supports all brands in the Adidas portfolio, including Reebok and Taylor Made. The spokesperson declined to comment on speculation of approaches for Reebok.
The lingering Russian economic situation may also contribute to a longer recovery timeframe for Adidas, bankers said. “[Entering] Russia was an absolute must, as it did deliver huge margins,” the third banker said. In Adidas’s latest accounts, Hainer made a special mention of sales being hit by the ruble crisis.
News of potential activism in Adidas was muted following the announcement of a EUR 1.5bn share buyback in October, the bankers noted. The buyback followed September reports that Knight Vinke, TCI and Third Point were taking an interest in Adidas with a plan to remove management and force the disposals of Taylor Made and Reebok. Knight Vinke subsequently denied any interest.
Not a single hedge fund representative has visited Hainer personally to talk about his future, the CEO told the German press last week. Adidas management themselves also seem to be taking a ‘wait and see’ approach rather than going on the front foot with a public investor relations campaign against potential activists, the first banker said.
Management’s biggest mistake was laying out ambitious targets in 2010, predicting annual sales of EUR 17bn in 2015, the shareholder said. Adidas announced in January that 2014 sales were EUR 14.8bn. The gap has helped provide room for the string of criticism, the shareholder said.
But the bankers said the news media has been too harsh on management. “Adidas had to make the acquisition of Reebok to access the US market or they would have missed the boat,” the third banker said. “It’s a nice company that always paid a nice dividend, so shareholders should be happy,” said the second.