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

This embrace presents a brief summary of the M& axerophtholA deal and the execution of the Adidas-Salmon Group and the Reebok world-wide which argon the top players aft(prenominal) Nike, in acrobatic wear grocery store. Mergers and Acquisitions is an extreme matter of fill in the corporate world since last few decades. M&A canister to a fault be considered as a briny(prenominal) vehicle which drives towards direct investments, either domestic or foreign. With motives of achieving greater ability and legal strategies, close to of the companies had g superstar with at least one M&A activity at least once in a lifetime.This deal contains theories regarding Mergers and Acquisition and is focused on the Cross-border M&A (Adidas- A German troupe and Reebok- an American companionship). It includes the erudition transition and presents the motives behind the attainment of Reebok by Adidas. The report in addition includes the abstract to identify whether synerg y (Value of (Adidas+ Reebok) &gt Value of Adidas+ Value of Reebok) has been attaind or not. It can be determine through performance measurement and evaluation.The abridgment of the companys annual reports and the reviews in various websites contributed to determine whether the company is qualified to achieve its intention objectives. T suitable of Contents S. N. Title Page no 1. Introduction1 2. literary productions Review2 a. The claim of Merger2 b. Due diligence3 2. 2. 1 Legal and regulatory issues3 2. 2. 2 Tender convolution3 2. 2. 3 Empirical Evidence4 2. 2. 4 Strategies of Adidas & Reebok 4 3. Methodology5 4. Discussion5 a. Synergies achieved5 4. 2 Financial Analysis6 4. 3 Tar digests and Achievements Post spinal fusion evaluation7 . outcome and Recommendations9 References10 1. Introduction incarnate Restructuring is the process of reconstructing the achievemental, financial, legal and some former(a) structures of an organization in order to achieve the org anizational efficiency, technological advancement, market expansion, profit maximization and become the competitory advantage over others. Mergers and Acquisitions (M&A), which is one of the study corporate restructuring methods and started in US, has become a global practice for over 100 years.With the sum up in globalization concept, most of the companies around the world capture pigstairsgone through one among the following three types of M&A. Vertical merger which includes the combination of the forms operating in the contrary levels of the same industry differs from the naiant merger where the two feature firms operate in the same lineage activity. Conglomerate, the third type is rather unique as it involves the combination of firms of varied industry. For a detailed analysis of M&A activity, I have chosen an acquisition ofReebok (an American sportswear company) by Adidas (a German sportswear company) and evaluating its performance and the various stages of the M&A activity. Adidas-Reebok acquisition is categorized under horizontal Cross-Border M&A whose main objective is to present the meeting as a market loss leader in the field of sportswear. The rate of M&A activities await to be increasing day 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 amplify competitive advantage.So, the report is based on evaluating the various aspects of Adidas-Reebok performance to bugger off the conclusion whether the integration is fortunate to meet the target objectives or not. 2. Literature Review With an aim to drive competition and growth in the sports market, at that place was significant aim of the M&A activities since late 1990s. In 1997, Adidas acquired the Salomon Group for $1. 4 billion. In 2003, Nike acquired Converse for $305 million and in 2004 Reebok acquired The ice hockey 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 major objectives and targets of M&A activities have not flourishingly achieved in most of the cases. Timothy and Mark (2007) point out the major of failure as cultural aspects of mergers that atomic number 18 poorly dealt with and mention that successful mergers atomic number 18 based as much on emotional reactions and energized behavior. Bjorkman, Stahl, and Vaara (2007) similarly discussed the role of cultural differences on the capability transfer for cross-border acquisitions. . 1 The need of Merger According to the data obtained by Sporting Goods Manufacturers Association International in 2004, Nike was the leader in American sportswear with market contribution of 36% leaving Reebok and Adidas the second and third position with 12. 2% and 8. 9% respectively. And America alone counts for almost 50% of the total globa l sportswear market. So, it was an important probability for Adidas and Reebok to have a combined competitive vividness over the leader Nike, a famous brand in its fashion, status, color and combinations.Besides that, Adidas was facing a tough competition with the fourth largest sports brand Puma, which compelled it to event the growth strategy through acquisition with Reebok. Puma had already give away 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 outcome competencies of the combined companies seem a major strength than the individual competencies. Adidas spunk Competencies Reebok Core Competencies Combined Core Competencies Technology Trend Identification Adidas engineering with Reebok design Customer focus Ability to market to a quoin segment Adidas sports wi th Reebok womens market Brand recognition Womens raiment design Adidas shoes with Reebok apparel put out bowed stringed instrument Design expertness Adidas global strength & Reebok US strength Collaboratively competitive reputation relationships 2. Due diligence 2. 2. 1 Legal and regulatory issues Any M&A process should face through the regulatory bodies before they are granted the permission. There are various antitrust governance which lead examine and restrict the merger activities that create the monopoly in a particular market. Some of these authorities are the Federal Trade representation (FTC) in USA, the Competition Commission in the UK, the atomic number 63an Commission in EU and the Federal Cartel Office in Germany. Adidas, being the German company had successfully passed the regulatory check and was approved by twain the Federal Cartel Office and the European Commission to acquire Reebok on $3. 8 bn.As Reebok was targeting mainly in the America n youths where as Adidas was targeting the European professionals and these brands had different pricing positions, EU concluded that this integration would not significantly involve the competition in the sports market. 2. 2. 2 Tender declare Tender offer in M&A is a general offer made by any acquirer company to a target company either publicly or directly to the shareholders to grant their stocks in the price which is higher than the present market price. by and by analyzing the market repute of Reebok, Adidas has offered the buying of Reeboks share with 34. 2 percent share premium. A written consent between Adidas and Reebok was established mentioning all the legal obligations. 2. 2. 3 Empirical Evidence The once in a lifetime opportunity, as mentioned by Adidas-Salomon AG Chairman and CEO Herbert Hainer, came into reality after the deal was closed on Jan 31, 2006, which provided the new Adidas separate with an increased gravid of around 9. 5 billion ($11. 8 billion) in the global athletic footwear, apparel and hardware markets. Adidas-Salmon group paid $ 3. 527 bn to Reebok as total look upon 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 for each one brand has a jackpot of value and it would be stupid to bring them together. The companies would continue selling products under respective brand names and labels. This is considered as the major strategy to elapse the existing 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 actually important strategies that lead to the growth and expansion of the market and the product portfolio along with the shared technology. The acquisition helped the new group to double the sales in America (U. S. $3. 9 billion) and besides Reebok to increase its sales in Europe from the Adidass severe brand recognition and market expertness. 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 effective business operation.This will help them to establish themselves as top most global brand from their strength (improved R&D systems with submit winning cutting-edge technology, trend-setting street wear and classic design) with a strong presence as qualitative and wide 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 introduction Cup 2006 and Olympics 2008 to increase the global visibility of both the brands. 3. Methodology The report is based on academic knowledge gained during the course and the further enquiry done on various websites.This includes the companys website, various reviews and other academic bloodlines available in the internet. After introducing more or less the M&A process, the literature review was done from the ult papers about Cross-border M&A and the prudence report on Adidas-Reebok M&A. The official website of Adidas group was used as the major source of annual financial report and performance measurement 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 cleverness 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 these groups do not coincide (Sudarsanam, 2003). The report below contains analysis from different perspectiv es. 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 authorization (Damodaran, 2006). As a geographical and demographical category, Reebok got chance to benefit from its partner Adidas which has expertise in European market.Similarly, Adidas benefited from Reebok expertise in American and Asian markets in particular the youths and women. The new group had the wide range of products with continuous brand victimization by sharing R&D technologies. The synergy in distribution channel 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 optimum utilization of distribution capacity. Hadfield (2006), in his member quotes the statement of Steve Bonomo, the head of enlisting of Adidas, who says that the Adidas-Reebok acquisition has reduced the global recruitment cost by 30-50 percent.This reduction in expenses will help to increase the profit to some extent. 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 screen operations. The Reebok switching from pre-order in bulk amount to pay as you go system results the instant cash and uniform production and distribution of goods. The yearly financial report of Adidas group shows the sharp increase of sales revenue after the acquisition process.As the official deal was signed in Jan 2006, in that respect is the dramatic rise in the sales from Dec 2005 to Dec 2006 resulting very high sales rev enue 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 economic crisis during past few years (shown in the graph). The fact that the Adidas group faced beneficial decrease in sales of Reebok goods in Europe because the company decided to shut down some of the retail branches was very noticeable. just now there was huge increase of the sales of Adidas products in America, which ultimately offset 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 carbon emissions sustainability-Group achievement have been developed as a whole but the group-wide strategy cover song the entire value chain has remained. Environmental sustainability- 50% The cros s- brand group was formed to support all the Adidas brands but the full Product writ of execution of the prepared guidelines is in due. Environmental 100% Launched the internal Company Initiatives to set up environmental assessments Sustainability-Properties and awareness, reviewed the in-house Think Green Guide, established the environmental management systems but still remained to get ISO 14001 certification by the end of 2010. Supply 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 wellness and safety guidelines to the employees.But remained due about 50% of the task to implement upgraded backbone Performance Indicator to measure the companys performance and also the sustainable compliance monitoring methodology. Global Economic Crisis 100% Provided some(prenominal) updates on companys website about risk and supply chai n consolidation. Also provided guidelines on managing employees redundancies and layoffs in appropriate manner. Stakeholder Engagements- 50% Highly true the concept of marketing and sourcing strategy but couldnt Internal obtain better cotton materials for quality and performance testing. Stakeholder Engagements- 100% Broad liaison with the governments and key stakeholders which assist in External decision 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 reasonableness that a researcher 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 unable to achieve the target objectives. The major target to lead the market ruler, Nike has not yet 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.