Naming Anta Sports Products and VF Corp. as potential buyers for the brand, Germany’s usually well-informed Manager Magazin reports that the Adidas Group is planning to sell its Reebok division by next March. A spokesperson for the group said the company has a policy of not commenting on press rumors, but a report in Bloomberg indicates that an internal review of the operation is still in its early stages, with a decision due to follow in the next few months.
The German magazine points out that Adidas has already written down Reebok’s value to €842 million over the past two years. The group’s management has insisted, however, that it wanted to keep Adidas’ “little sister” as long as its profitability was going to improve, which it did to some extent before Covid-19 struck?
Reebok returned into the black and resumed its growth in 2019, with its sales rising by 7.4 percent on a currency-neutral basis to €463 million in the fourth quarter, after a major clean-up of the distribution in North America, but it posted declines in the rest of the world. In the second quarter of this year, its sales fell by 42 percent, while the Adidas brand’s decline was limited at 33 percent.
Adidas bought Reebok for $3.8 billion from Paul Fireman in 2006, mainly to improve the group’s position in the North American market, but the move raised some eyebrows in view of possible cannibalization between two rather similar athletic brands. The group has since repositioned the Reebok brand by pulling it out of team sports and focusing it on fitness and Classics. According to Manager Magazin, the group may be willing to lower its asking price for Reebok below a previous target of €2 billion.
Reebok generated sales of €1.75 billion in 2019. It was much less profitable than Adidas, whose sales reached €21.5 billion last year. The Adidas Group has been focusing a lot on the bottom line since Kasper Rorsted took over its reigns from Herbert Hainer at the end of 2016, and Reebok’s divestiture would boost the group’s operating margin sharply.
Both Anta and VF look like promising strategic investors, willing to dish out more than a private equity investment firm to buy Reebok. While it spent a lot of money to buy Amer Sports last year along with other investors, its focus remains on the athletic footwear and apparel sector, but it has hardly any business outside China. The acquisition of a major Western brand could also be appealing for Li Ning, which has made a lot of progress in its home market lately but has struggled to expand to Europe and other foreign markets.
VF has indicated lately that it has enough cash to jump on new acquisition opportunities, after cleaning up its brand portfolio. It seems to be ready now to make a big move outside the outdoor and action sports sectors. Its €2 billion acquisition of Timberland in 2016 has not yielded the expected results, at least in terms of sales. VF passed on opportunities offered to it in 2014 in the action sports arena for the takeover of Billabong and Quiksilver, which are not doing well now. With the home fitness market growing and likely to expand further in future years, VF would enter a more promising new category, leveraging the strength of its organization to make Reebok more profitable and avoiding any cannibalization with its other brands.
