Adidas to buy Reebok for $3.8 bn

Adidas to buy Reebok for $3.8 bn

Author | Source: Business Standard | Thursday, Aug 04,2005 8:27 AM

Adidas to buy Reebok for $3.8 bn

Acquisition will add 47% to Adidas' share in Indian market.

As Germany's sporting goods maker Adidas-Salomon acquires US rival Reebok in a $3.8-billion deal announced today, India stands out as a unique market in the entire transaction.

Globally, the combination of the world's second and third largest sports goods companies will merely be able to close the gap on Nike, which will remain number one. In India, on the other hand, Adidas and Reebok together will leave Nike with a lot of catching-up to do.

That will be largely because of the overwhelming dominance of Reebok in India, the only market in the world where it is the leader. And it leads by a whopping margin, boasting of no less than 47 per cent of the premium sports shoes market, whose size is estimated at Rs 400-500 crore a year. Adidas and Nike have managed to corner no more than 12-15 per cent for themselves.

“Reebok India is three times bigger than any other market player. Even its apparel business has performed incredibly well,” said Anil Rajpal of retail research outfit KSA Technopak.

The outcome of the amalgamation in India — they are expected to continue as separate entities and brands —could well be greater than the sum of the parts. It will bring together Adidas' strong focus on sports and Reebok's on lifestyle.

Secondly, it will also create a formidable pool of brand ambassador. Among the most potent of such instances, Adidas' Sachin Tendulkar and Reebok's Rahul Dravid will join forces.

Then there is Reebok's fashion and apparel business that Adidas stands to gain from. In 2004, Reebok's India operations generated a turnover of Rs 250 crore, out of which Rs 100 crore came from apparel.

The company expects a 50 per cent growth in turnover to Rs 400 crore this year. On the cards are 50 more outlets, taking their total number to 190 by the end of 2005.

All Reebok stores are owned by franchisees. The company invests in marketing, and research and development.

Adidas India Marketing Pvt Ltd, on the other hand, has 80 exclusive outlets. The company has set a sales growth target of 400 per cent in the next three years. Once that is achieved, it will consider making India its South Asia hub. The company, in India since 1996, is still some way from making profits in the country and likely to break even this year.

Indian operations of Adidas became a separate entity from the Southeast Asia region in November last year. Pakistan, Bangladesh, Nepal, Bhutan and Maldives continue to report to the Southeast Asian headquarters in Hong Kong.

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