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Adidas (ADDYY) Inks Agreement to Divest Reebok for $2.5B
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Renowned athletic apparel products company, Adidas AG (ADDYY - Free Report) , has finally decided to part ways with Reebok, after years of struggling with the sneaker brands’ growth. Adidas entered into a definitive agreement to sell Reebok to Authentic Brands Group Inc. for a total consideration of up to 2.1 billion Euros (approximately $2.5 billion). Majority of the price will be paid in cash at the closing of the transaction, while the rest will comprise deferred and contingent consideration.
Adidas expects the transaction to be completed in first-quarter 2022, subject to customary closing norms. The company intends to share the cash proceeds received from the sale with its shareholders. That said, let’s delve into the dynamics of this latest move.
Sale of Reebok Looks Prudent
Reebok was a much acclaimed brand back in the 1980’s, propelled by the boom in aerobics, and its sale exceeded some of the leading sneaker brands of the era. However, the brand wasn’t able to keep up the momentum and quickly began losing gleam.
The Germany-based sports company, Adidas, acquired Reebok in 2006 with hopes that the brand holds potential for a turnaround. This deal also included brands like Rockport, CCM Hockey and Greg Norman brands, which Adidas later divested for nearly of 0.4 billion Euros. The buyout of Reebok was mainly backed by Adidas’ intention to take on Nike, Inc. (NKE - Free Report) in the U.S. market. Despite strategic efforts like closing underperforming stores and slashing expenses, Adidas could not fully realize its aspirations of reviving the brand to its former glory.
Prolonged struggle with the Reebok brand led Adidas to consider its sale. The company began assessing the strategic alternatives for the brand since earlier this year, as part of its “Own the Game” Strategy. The sale of Reebok is likely to have no impact on Adidas’ financial outlook or its long-term targets. The company believes that the Reebok brand, with a change of ownership, is likely to be able to attain greater success.
Authentic Brands Group, which will be scooping up Reebok, holds a strong position in the world of athletic apparels, footwear and entertainment. It has acquired more than 30 brands, including well-known names such as Forever 21, Eddie Bauer, Brook Brothers, Sports Illustrated and Barneys New York. It also bought a few brands from PVH Corp. including Izod and Van Heusen. In July, 2021, Authentic Brands Group filed for an initial public offering in the United States.
Strategic Efforts Bode Well
Adidas has been successful at maintaining a strong footing in the U.S. sports apparel space, thanks to its strong brand image, strategic growth efforts as well as prudent marketing endeavors and celebrity collaborations. The company is benefiting from stronger-than-expected product demand in categories like football and outdoor, as pandemic-led restrictions have been easing across several markets. During second-quarter 2021, the company witnessed strong growth across the EMEA, North America, Asia Pacific and Latin America regions. Driven by favorable market trends, the company’s wholesale as well as retail businesses have been doing well.
The company continues to focus on its Own The Game strategic endeavor, aimed at expanding its market share as well as boosting sales and profitability by 2025. The company continues to strive toward attracting more customers to its core product categories, including soccer, running, training, outdoors and lifestyle. Backed by such strategic efforts and continued growth of sports and activities across the globe, Adidas expects year-on-year top-line growth of 20% in 2021.
Image: Bigstock
Adidas (ADDYY) Inks Agreement to Divest Reebok for $2.5B
Renowned athletic apparel products company, Adidas AG (ADDYY - Free Report) , has finally decided to part ways with Reebok, after years of struggling with the sneaker brands’ growth. Adidas entered into a definitive agreement to sell Reebok to Authentic Brands Group Inc. for a total consideration of up to 2.1 billion Euros (approximately $2.5 billion). Majority of the price will be paid in cash at the closing of the transaction, while the rest will comprise deferred and contingent consideration.
Adidas expects the transaction to be completed in first-quarter 2022, subject to customary closing norms. The company intends to share the cash proceeds received from the sale with its shareholders. That said, let’s delve into the dynamics of this latest move.
Sale of Reebok Looks Prudent
Reebok was a much acclaimed brand back in the 1980’s, propelled by the boom in aerobics, and its sale exceeded some of the leading sneaker brands of the era. However, the brand wasn’t able to keep up the momentum and quickly began losing gleam.
The Germany-based sports company, Adidas, acquired Reebok in 2006 with hopes that the brand holds potential for a turnaround. This deal also included brands like Rockport, CCM Hockey and Greg Norman brands, which Adidas later divested for nearly of 0.4 billion Euros. The buyout of Reebok was mainly backed by Adidas’ intention to take on Nike, Inc. (NKE - Free Report) in the U.S. market. Despite strategic efforts like closing underperforming stores and slashing expenses, Adidas could not fully realize its aspirations of reviving the brand to its former glory.
Prolonged struggle with the Reebok brand led Adidas to consider its sale. The company began assessing the strategic alternatives for the brand since earlier this year, as part of its “Own the Game” Strategy. The sale of Reebok is likely to have no impact on Adidas’ financial outlook or its long-term targets. The company believes that the Reebok brand, with a change of ownership, is likely to be able to attain greater success.
Authentic Brands Group, which will be scooping up Reebok, holds a strong position in the world of athletic apparels, footwear and entertainment. It has acquired more than 30 brands, including well-known names such as Forever 21, Eddie Bauer, Brook Brothers, Sports Illustrated and Barneys New York. It also bought a few brands from PVH Corp. including Izod and Van Heusen. In July, 2021, Authentic Brands Group filed for an initial public offering in the United States.
Strategic Efforts Bode Well
Adidas has been successful at maintaining a strong footing in the U.S. sports apparel space, thanks to its strong brand image, strategic growth efforts as well as prudent marketing endeavors and celebrity collaborations. The company is benefiting from stronger-than-expected product demand in categories like football and outdoor, as pandemic-led restrictions have been easing across several markets. During second-quarter 2021, the company witnessed strong growth across the EMEA, North America, Asia Pacific and Latin America regions. Driven by favorable market trends, the company’s wholesale as well as retail businesses have been doing well.
The company continues to focus on its Own The Game strategic endeavor, aimed at expanding its market share as well as boosting sales and profitability by 2025. The company continues to strive toward attracting more customers to its core product categories, including soccer, running, training, outdoors and lifestyle. Backed by such strategic efforts and continued growth of sports and activities across the globe, Adidas expects year-on-year top-line growth of 20% in 2021.
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Steven Madden, Ltd. (SHOO - Free Report) , sporting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 15%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs, Inc. (CROX - Free Report) has a long-term earnings growth rate of 15% and a Zacks Rank #2 (Buy).