Emma Thomasson Berlin
SHARES in German sportswear firm Adidas jumped yesterday after the Wall Street Journal reported that an investor group that included Jynwel Capital and funds affiliated with the Abu Dhabi government planned a $2.2 billion (R24.3bn) bid to buy Reebok.
Adidas, the world’s largest sports apparel firm behind Nike, bought US-based Reebok in August 2005 for $3.8bn but the unit’s sales have shrunk by more than a third since 2006 to e1.6bn (R22.6bn) last year, 11 percent of group sales.
Adidas shares, which are down 41 percent this year after a series of profit warnings, traded up 4.4 percent by just before midday yesterday.
Jynwel Capital, a Hong Kong-based private equity investment and advisory firm run by Jho Low, and the Abu Dhabi government-affiliated funds planned to make the offer in a letter to Adidas directors, the Journal reported, citing unnamed officials. Adidas declined to comment.
Warburg Research analyst Joerg Philipp Frey said the reported offer represented a 30 percent premium to the company’s valuation, based on earnings multiples.
“From the Adidas perspective, that would be a great price. Whether management would accept it is another matter as it would be an admission of defeat,” he said.
Earlier this month, Adidas announced plans to return as much as e1.5bn to shareholders over the next three years. It is seen as an attempt to placate investors and fend off potential moves by activist funds.
Last month, Germany’s Manager Magazin said hedge funds including Knight Vinke, Third Point and TCI were considering buying stakes in Adidas to pressurise management to make sweeping changes, including the possible spin-off of Reebok.
Equinet analyst Ingbert Faust estimates that the value of the Adidas brand is e13bn, well above its current market capitalisation of e11.5bn.
The Reebok deal initially doubled Adidas’s US sales, and taking over Reebok’s basketball and baseball contracts gave the German company more exposure in the world’s biggest sportswear market.
But the brand then lost a contract to supply the US National Football League and was hit by a lockout at the National Hockey League, contributing to a steady loss of market share for Adidas in North America in recent years to 5.6 percent last year, while Nike has advanced to 19.9 percent, according to Euromonitor data.
Adidas has made some progress of late by repositioning Reebok as a fitness brand with a range of sponsorship deals and shoe launches, recording its fifth quarter of growth in the second three months of last year.
The investors planning a bid wanted to maintain Reebok’s current strategic path and keep its top executives, but spend more on marketing and store rollouts, the Journal reported.
“Reebok is one if the few brands enjoying some success for Adidas lately,” said Jon Copestake, analyst at The Economist Intelligence Unit.
“Despite the short-term gain, the sale will effectively be ending Adidas’s interest in a number of fitness and health markets.” – Reuters