On August 3, 2005, European sports shoe maker (based in Germany) Adidas-Saloman AG's acquisition of Reebok International Ltd. was announced. The market's reaction was cautiously positive to the news, with Adidas' share price appreciating by 7.5%. The CEOs of the two companies considered the merger a natural deal that would bring together the world's second and third-largest sporting shoe and sports accessory companies, positioning the merged entity to better compete with the industry leader, US-based Nike. This optimism stemmed from the complementary nature of the two brands in terms of brand positioning, global presence, market share, consumer segments, and distribution. The strong complementarities between the two business models provided a significant opportunity for increased value creation. The combination was expected to enable Adidas Group to generate substantial cost savings as well as incremental revenue and profits from more complete coverage of all consumer segments.
[...] The high debt ratio placed Adidas at risk of being unable to improve its operating efficiency enough to meet the burdens of the increase in debt; however, the company has been successful enough to meet its obligations. EPS Impact Taking an optimistic view, EPS growth was expected to grow by 16% above industry average) from 2006-2010; however, in 2006 it was estimated to have a impact on EPS. In a worst-case scenario without synergies on sales or costs, it would have a dilutive impact on EPS of in and in 2008. [...]
[...] According to CommerzBank's report, the company's profit margin was only expected to drop in 2007, while the actual profit margin dropped by (from to 44.6 Risks The risks in this acquisition were substantial, and included limited cost synergies, the loss of a strong brand identity for both brands, and potential lower combined growth than each firm could have realized independently. The largest risk was that without optimal integration, the cost savings synergies might not be properly realized. In the worst case scenario, the risks could even reduce or discredit the brand positioning of both companies in the distinct market segments they cater to. [...]
[...] Adidas also had to evaluate the importance of retaining Reebok's founder, Paul Fireman. Since Fireman was a crucial part of Reebok's identity, many believed that the acquisition was a bad decision if Fireman would leave the firm shortly after completing the deal. In a press conference Fireman confirmed that he did not plan to stay with the company, and in Janauary 2006 Paul Harrington was called as President and CEO of Reebok. Similarly, there were concerns that Adidas would essentially take over managing Reebok, which would reduce the value significantly and increase employee turnover. [...]
[...] The fashion segment of Reebok was also seen as a key element, because Adidas had previously focused mainly on athletic products. The merger was to allow Adidas and Reebok to become the worldwide leader in apparel by capturing 42% worldwide market. It was expected that the combination will benefit distribution, sourcing and purchasing, representing an expected pre-tax cost savings of $153 million from synergies. The merger was seen as an opportunity for Adidas to expand geographically and use the combined channel relationships to reach a broader spectrum of consumers. [...]
[...] Financing and Transaction Structure In order to acquire Reebok, Adidas used a mixture of 20% equity and 80% debt to pay Reebok's shareholders $59 a share in 100% cash. Adidas offered $59 in cash for the 65.9 m shares ( 59.8 m shares outstanding plus dilution from options, warrants and convertible bonds), thus valuing the offer at 3.1 bn, including in net cash and minorities. By paying Reebok's shareholders a fixed price per share in cash, the deal was more efficient and transparent. [...]
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