Adidas Shares Jump on Report of Bid for Reebok

Adidas shares jump on report of bid for Reebok unit
Guenter Schiffmann/Bloomberg via Getty Images

By Emma Thomasson

BERLIN -- Shares in German sportswear-firm Adidas jumped Monday after The Wall Street Journal reported that an investor group that includes Jynwel Capital and funds affiliated with the Abu Dhabi government planned a $2.2 billion bid to buy Reebok.

Jynwel Capital, a Hong Kong-based private equity investment and advisory firm run by Jho Low, and the Abu Dhabi government-affiliated funds planned to make the offer imminently in a letter to Adidas directors, the Journal reported, citing unnamed sources close to the matter.

Adidas declined to comment.

Adidas, the world's second largest sports apparel firm behind Nike (NKE), bought the U.S.-headquartered Reebok in August 2005 for $3.8 billion but the unit's sales have shrunk by more than a third since 2006 to 1.6 billion euros ($2 billion) in 2013, 11 percent of group sales.

%VIRTUAL-WSSCourseInline-865%Adidas shares, which are down 41 percent this year after a series of profit warnings, traded up 4.4 percent by 6.37 a.m. Eastern time.

Warburg Research analyst Joerg Philipp Frey said the reported offer represents a 30 percent premium to the company's valuation, based on earnings multiples.

"From the Adidas perspective, that would be a great price. Whether management would accept it is another matter as it would be an admission of defeat," he said.

Earlier this month, Adidas announced plans to return as much as 1.5 billion euros to shareholders over the next three years, seen as an attempt to placate investors and fend off potential moves by activist funds.

Last month, Germany's Manager Magazin said hedge funds including Knight Vinke, Third Point and TCI were considering buying stakes in Adidas to pressurize management to make sweeping changes including the possible spin off of Reebok.

Equinet analyst Ingbert Faust estimates that the value of the Adidas brand is around 13 billion euros, well above its current market capitalization of 11.5 billion euros.

North America Problems

The Reebok deal initially doubled Adidas' U.S. sales, and taking over Reebok's basketball and baseball contracts gave the German company more exposure in the world's biggest sportswear market.

But the brand then lost a contract to supply the U.S. National Football League and was hit by a lockout at the National Hockey League, contributing to a steady loss of market share for Adidas in North America in recent years to 5.6 percent in 2013, while Nike has advanced to 19.9 percent, according to Euromonitor data.

Adidas has made some progress of late by repositioning Reebok as a fitness brand with a range of sponsorship deals and shoe launches, recording its fifth quarter of growth in the second three months of 2013.

The investors planning a bid want to maintain Reebok's current strategic path and keep its top executives, but spend more on marketing and store rollouts, the Journal reported.

"Reebok is also one if the few brands enjoying some success for Adidas lately," said Jon Copestake, Retail Analyst at The Economist Intelligence Unit.

"Despite the short term gain, the sale will effectively be ending Adidas's interest in a number of fitness and health markets that have been growing quickly in North America. This could have longer-term implications for the German firm."

Adidas said in May it was considering offers for its Rockport shoe brand, which it acquired when it bought Reebok and which saw sales rise 6 percent to 289 million euros in 2013.

-With Additional reporting by Joern Poltz in Munich.