Acquisition of Reebok by Adidas, M&a Deal in the Sports Industry

This line presents a brief compend of the M&A have it off and the public presentation of the Adidas-Salmon congregation and the Reebok International which atomic number 18 the blow over players after Nike, in sportswear commercialize. Mergers and Acquisitions is an ut ab push by dint of(a) matter of c at oncern in the bodily human race since last few decades. M&A can in addition be considered as a chief(prenominal) vehicle which fetchs towards direct investments, either domestic or foreign. With motives of achieving great efficiency and effective strategies, well-nigh(prenominal) of the companies had gone by dint of and finished at least one M&A act at least once in a lifetime.This treat contains theories regarding Mergers and Acquisition and is center on the Cross-b straddle M&A (Adidas- A German come with and Reebok- an the Statesn association). It includes the erudition process and presents the motives behind the learnedness of Reebok by Adidas. The a uthorship besides includes the abstract to discern whether synergy (Value of (Adidas+ Reebok) > Value of Adidas+ Value of Reebok) has been fulfild or not. It can be place through operation bar and evaluation.The analysis of the companys yearbook draws and the reviews in miscellaneous websites contri buted to determine whether the company is qualified to accomplish its tar vanquish objectives. Table of Contents S. N. surname Page No. 1. Introduction1 2. Literature Review2 a. The motivation of Merger2 b. Due diligence3 2. 2. 1 Legal and modifyive issues3 2. 2. 2 Tender raise3 2. 2. 3 confirmable Evidence4 2. 2. 4 Strategies of Adidas & Reebok 4 3. Methodology5 4. Discussion5 a. Synergies achieved5 4. 2 pecuniary Analysis6 4. 3 Targets and proceedings Post merger evaluation7 . finis and Recommendations9 References10 1. Introduction Corporate Restructuring is the process of reconstructing the operational, pecuniary, effective and former(a) structures of an organ ization in order to achieve the organizational efficiency, technological advancement, grocery store expansion, profit maximization and arrest the militant advantage over others. Mergers and Acquisitions (M&A), which is one of the study corporate restructuring methods and started in US, has become a orbicular practice for over degree centigrade years.With the improver in world(prenominal)ization concept, to the highest degree of the companies around the world ingest chthoniangone through one among the following three types of M&A. Vertical merger which includes the combination of the forms operate in the diverse levels of the same constancy differs from the Horizontal merger where the two have firms operate in the same personal line of credit activity. Conglomerate, the trio type is rather ludicrous as it involves the combination of firms of different industry. For a detailight-emitting diode analysis of M&A activity, I have chosen an science ofReebok (an American s portswear company) by Adidas (a German sportswear company) and evaluating its performance and the dissimilar stages of the M&A activity. Adidas-Reebok encyclopedism is categorized dismantlestairs horizontal Cross-Border M&A whose main objective is to present the root as a market place leader in the field of sportswear. The rate of M&A activities seem to be increasing daytime by day. However, the winner rate of these mergers is real low. This is because of the lack of ability to achieve the synergy, which is obtained as a result of plusd competitory advantage.So, the base is based on evaluating the miscellaneous aspects of Adidas-Reebok performance to draw the conclusion whether the integration is victorious to meet the come in objectives or not. 2. Literature Review With an aim to drive rivalry and harvest-feast in the sports market, at that place was significant heading of the M&A activities since late 1990s. In 1997, Adidas acquired the Salomon Group for $1. 4 bi llion. In 2003, Nike acquired Converse for $305 million and in 2004 Reebok acquired The Hoc see Company for $330 million. In 2005, the Adidas-Salmon Group acquired Reebok for $3. billion and in 2008 Nike acquired Umbro Plc for 285 million.Many analysts have identified that the companies study objectives and targets of M&A activities have not advantage in full achieved in some of the cases. Timothy and Mark (2007) point out the major of failure as cultural aspects of mergers that are poorly dealt with and mention that successful mergers are based as often on emotional reactions and energized behavior. Bjorkman, Stahl, and Vaara (2007) to a fault discussed the quality of cultural differences on the capability transpose for cross-border acquirements. . 1 The need of Merger concord to the data obtained by Sporting Goods Manufacturers necktie International in 2004, Nike was the leader in American sportswear with market partake in of 36% leaving Reebok and Adidas the second an d third position with 12. 2% and 8. 9% respectively. And America alone counts for almost 50% of the be global sportswear market. So, it was an chief(prenominal) prospect for Adidas and Reebok to have a unite matched strength over the leader Nike, a famous fault in its fashion, status, colours and combinations.Besides that, Adidas was facing a tough competition with the fourth largest sports brand painter, which compelled it to take the growth dodge through acquisition with Reebok. lynx had already disclosed expansion plans through acquisitions and entry into new sportswear categories So, for a successful merger, the challenge was to integrate Adidass German culture of control, engineering, and production and Reeboks U. S. marketing- driven culture. Also, the core conclave competencies of the unite companies seem a major strength than the psyche competencies. Adidas nerve centre Competencies Reebok Core Competencies Combined Core Competencies Technology panache Identi fication Adidas technology with Reebok design customer focus Ability to market to a niche segment Adidas sports with Reebok womens market Brand actualization Womens fit out design Adidas shoes with Reebok apparel contribute range Design expertise Adidas global strength & Reebok US strength Collaboratively warlike Celebrity relationships 2. Due diligence 2. 2. 1 Legal and restrictive issues Any M&A process should face through the regulatory bodies before they are minded(p) the permission. There are various antitrust authorities which will examine and restrict the merger activities that create the monopoly in a particular market. Some of these authorities are the federal Trade Commission (FTC) in USA, the Competition Commission in the UK, the europiuman Commission in EU and the Federal Cartel Office in Germany. Adidas, be the German company had successfully passed the regulatory check and was approved by some(prenominal) the Federal Cartel Office and th e European Commission to acquire Reebok on $3. 8 bn.As Reebok was targeting mainly in the American youths where as Adidas was targeting the European professionals and these brands had different set positions, EU concluded that this integration would not significantly affect the competition in the sports market. 2. 2. 2 Tender offer Tender offer in M&A is a general offer made by any acquirer company to a target company either in public or directly to the piece of landholders to grant their stocks in the price which is higher than the present market price. after analyzing the market respect of Reebok, Adidas has offered the buying of Reeboks section with 34. 2 share share premium. A written react between Adidas and Reebok was established mentioning all the well-grounded obligations. 2. 2. 3 Empirical Evidence The once in a lifetime prospect, as mentioned by Adidas-Salomon AG electric chair and CEO Herbert Hainer, came into reality after the deal was closed on Jan 31, 2006, which provided the new Adidas company with an gaind Capital of around 9. 5 billion ($11. 8 billion) in the global athletic footwear, apparel and hardware markets. Adidas-Salmon convention paid $ 3. 527 bn to Reebok as total value of the Reebok shares calculated at the rate of $59. 0 per share. They had paid 34. 2 % share premium. The share price of Reebok had rose by 30% after the acquisition.Hainer added, The brands will be kept separate because each brand has a lot of value and it would be dopy to bring them together. The companies would continue selling products under respective brand names and labels. This is considered as the major strategy to keep the subsisting brand values and customers safe, protecting their brand loyalty. 2. 2. 4 Strategies of Adidas & Reebok The two companies came to the M&A deal with some of the in truth important strategies that lead to the growth and expansion of the market and the product portfolio along with the shared technology. The acquisiti on dish outed the new group to double the gross revenue in America (U. S. $3. 9 billion) and in any case Reebok to increase its sales in Europe from the Adidass strong brand recognition and market expertise. Both the groups are creating the greater job opportunities with the well experienced and world class employees. They are selecting their top most employees into a new group for more than effective business operation.This will armed service them to establish themselves as top most global brand from their strength (improved R&D systems with award winning new wave technology, trend-setting street wear and classic design) with a strong presence as soft and childlike ranged sports products. The combined group showed stronger presence among various teams and athletes such as David Beckham, Allen Iverson, Yao Ming, Tracy McGrady and also the top sports events like FIFA World instill 2006 and Olympics 2008 to increase the global visibility of both(prenominal) the brands. 3. Me thodology The report is based on academic knowledge gained during the course and the moreover research done on various websites.This includes the companys website, various reviews and other academic sources available in the internet. After introducing about the M&A process, the belles-lettres review was done from the past document about Cross-border M&A and the focussing report on Adidas-Reebok M&A. The authoritative website of Adidas group was used as the major source of annual financial report and performance appreciatement report, which helped to analyze the success of the integration in terms of sales revenue and other performance measurement indicators. After the detailed study of the case, the report contains few recommendations which might help the company to increase its profit and ultimately achieve its target objectives. 4. DiscussionThe success and failure of the M&A can be accessed from the perspectives of shareholders, managers and employees as the interests of th ese groups do not coincide (Sudarsanam, 2003). The report below contains analysis from different perspectives. 4. 1 Synergies achieved The combined group had achieved the synergies based on each others competitive strength. Operating synergies affect the operations of the combined firm and include economies of scale, increased pricing power, and higher growth potential (Damodaran, 2006). As a geographical and demographical category, Reebok got chance to returns from its partner Adidas which has expertise in European market.Similarly, Adidas benefited from Reebok expertise in American and Asiatic markets especially the youths and women. The new group had the wide range of products with continuous brand growing by sharing R&D technologies. The synergy in statistical distribution rut can be obtained through distribution and operation efficiencies. They have obtained 40% synergies in marketing, sales and distribution through discriminating diversification of channels and the optim um utilisation of distribution capacity. Hadfield (2006), in his article quotes the avouchment of Steve Bonomo, the head of recruitment of Adidas, who says that the Adidas-Reebok acquisition has cut the global recruitment cost by 30-50 percent.This reduction in expenses will help to increase the profit to some extent. through and through global sourcing and using economies of scale, they have been able to achieve 20% operations synergies. 4. 2 Financial Analysis After the integration the management structure was reformed with the reduction of unnecessary branches and departments. They also agreed to share the cost incurred in production technology, distribution and back operations. The Reebok switching from pre-order in volume amount to pay as you go system results the instant cash and analogous production and distribution of goods. The Annual financial report of Adidas group shows the sharp increase of sales revenue after the acquisition process.As the official deal was signe d in Jan 2006, there is the dramatic rise in the sales from Dec 2005 to Dec 2006 resulting really high sales revenue of the combined group than it used to get during the individual sells. There is a continuous increase in sales even though the market was hit by the stinting crisis during past few years (shown in the graph). The fact that the Adidas group faced terrible decrease in sales of Reebok goods in Europe because the company decided to take out down some of the retail branches was very noticeable. precisely there was huge increase of the sales of Adidas products in America, which ultimately bring out the losses, incurred in the group and ultimately led the company towards profit. pic Source Adidas-group. com/ annual report 4.3 Targets and Achievements Post merger evaluation Targets Achievement Description environmental 75% The environmental targets and strategy for climate change and atomic number 6 emissions sustainability-Group achievement have been developed as a whole but the group-wide strategy covering the entire value chain has remained. Environmental sustainability- 50% The cross- brand group was formed to support all the Adidas brands but the full Product seeation of the vigilant guidelines is in callable. Environmental 100% Launched the internal Company Initiatives to promote environmental assessments Sustainability-Properties and awareness, reviewed the in-house hypothesise Green Guide, established the environmental management systems but still remained to get ISO 14001 certification by the end of 2010. put out Chain Systems 75% As a member of Fair Factories Clearinghouse Compliance, Adidas group fully review the integrity of the data. Also, launched new Environmental guidelines to provide health and safety guidelines to the employees.But remained due about 50% of the task to implement upgraded Key Performance Indicator to measure the companys performance and also the sustainable compliance monitoring methodology. globular Economic Crisis 100% Provided several updates on companys website about risk and supply chain consolidation. Also provided guidelines on managing employees redundancies and layoffs in appropriate manner. Stakeholder Engagements- 50% passing accepted the concept of marketing and sourcing strategy but couldnt Internal obtain better cotton materials for quality and performance testing. Stakeholder Engagements- 100% Broad engagement with the governments and key stakeholders which assist in External close making and also collaboration with different brands, suppliers and other industry actors. Source Adidas. com, annual report, 2009 5. Conclusion and Recommendations The M&A itself is a complex and risky process both in terms of making a deal and in achieving the target objectives. It is also difficult to identify the exact determinants of the success or failure of the M&A.So, the conclusions are met on the basis of the grounds that a research er considers, but this might be insufficient to other researchers who consider the broader areas. The analysis carried out under the case of Reebok acquisition by Adidas group shows that the new group is able to increase its sells through the restructuring process. But even performance measurement report of the company highlights some of the issues where the company was ineffective to achieve the target objectives. The major target to lead the market ruler, Nike has not heretofore been achieved. The market positions of these two brands have remained constant. In contrast, it has a biggest threat of its following competitor, Puma to have integration with Nike and drop down the market share of Adidas group.