Investors Seek to Buy Adidas’s Reebok Unit
Group From Hong Kong, Abu Dhabi Aim to Break Up 8-Year Marriage
A consortium of investors from Hong Kong and Abu Dhabi is launching a bid to buy Reebok from Adidas AG in a move that, if successful, would unwind an eight-year-old marriage of sneaker makers that has shown disappointing results.
Jynwel Capital, the investment arm of the billionaire Low family of Asia, and funds affiliated with the government of Abu Dhabi planned to send a letter to Adidas directors imminently, offering to buy its Reebok business for about €1.7 billion ($2.2 billion), people close to the matter said. They are expected to argue that Reebok would have a brighter future if it were managed independently, echoing a sentiment that has underpinned a recent wave of corporate breakups.
It isn’t clear how receptive Adidas might be to the bid and there is no assurance it would be successful.
Adidas bought Reebok in 2006 for roughly €3 billion ($3.8 billion) with the intention of creating a footwear and sporting-apparel company that would rival Nike Inc. and have more clout with retailers.
Another aim of the deal was to give Adidas more heft in the U.S., where it trailed Nike. Instead, Nike has gained significant ground against both brands since the deal was struck.
In 2005, the year the deal was announced, Adidas and Reebok ranked second and third in U.S. footwear retail-market share, with 10% and 8% respectively, according to industry researcher SportsOneSource.
Adidas’s share of that market has fallen to 6% this year, while Reebok’s is down to 1.8%. Meanwhile, Nike’s market share, including its proprietary Jordan brand, has climbed to nearly 60% from 35% in 2005.
“There’s always been this complaint around Adidas that it didn’t make products that were appropriate for the U.S. market, and instead tried to impose a world-wide product line on the U.S.,” SportsOneSource analyst Matt Powell said. The U.S. accounts for roughly 40% of the global sneaker market.
Adidas has shrunk Reebok through asset sales and other deals. In 2006, it sold the Greg Norman Collection, a brand of golf apparel. It’s also seeking to sell Rockport, a maker of boat and dress shoes. Adidas also took over Reebok’s sponsorship contract with the National Basketball Association, and Reebok didn’t renew its sponsorship deal with the National Football League.
Recently Adidas has worked to reposition Reebok as a fitness brand, and it has struck partnership deals with CrossFit and others. The Reebok brand is showing signs of a turnaround, Ingbert Faust, an analyst at Equinet Bank in Germany, said in a research note.
Reebok generated €712 million in sales, mostly from sneakers and apparel, in the first half of 2014.
The architect of the bid for Reebok is Jho Low, the 32-year-old chief executive of Jynwel Capital. Mr. Low, the grandson of a mining and liquor entrepreneur, is no stranger to big merger deals.
Jynwel, which invests his family’s roughly $1.75 billion fortune, was among groups that purchased New York’s Park Lane Hotel for $660 million in 2013 and EMI’s music-publishing business for $2.2 billion in 2012. It’s unclear which Abu Dhabi fund would partner with Jynwel should the Reebok bid succeed.
People close to the bidders say the group believes Reebok would benefit from management and ownership that would be better able to focus on reviving the brand’s fortunes in the U.S. outside the glare of public shareholders. The group wants to continue down Reebok’s current strategic path and give the business more financing for marketing and store rollouts, the people said. The investors would seek to keep Reebok’s top executives, who work out of the business’s headquarters in Canton, Mass., the people said.
The bidding consortium first approached Reebok’s management late last year about putting together a joint venture to roll out high-end fitness brands and build dozens of additional stores in the U.S and internationally.
As those discussions progressed, the consortium’s ambitions for the deal grew, the people said. By the summer, the group had decided to make a bid for the entire business.
Adidas, the world’s second-largest sportswear maker after Nike, has struggled this year, which has led some shareholders to push for change at the company.
Adidas in late July cut its profit forecast for this year and next–the second time it has done this in a little over a year. The company blamed declining demand for its golf products in the U.S., currency pressure in Russia and marketing costs for the World Cup, which it sponsored.
Adidas stock is down more than 40% this year, compared with a gain of nearly 11% for Nike. It’s still up more than 60% since the company announced its acquisition of Reebok.
In a bid to revive its shares, Adidas this month announced a stock buyback of up to €1.5 billion ($1.9 billion). On its most recent earnings call in August, Adidas noted that the Reebok brand has notched five consecutive quarters of sales growth. Mark King, the newly appointed Adidas North America president, said in an interview in September that he is working to improve the speed with which the company responds to trends in the sportswear industry.
But some investors say the company isn’t doing enough, and they have called on Adidas to accelerate its turnaround or push out its chief executive, Herbert Hainer, who has been at the helm since 2001. Earlier this year, the company announced it had extended Mr. Hainer’s contract through 2017 as it develops a succession plan.