Intersport paves the way for a new Central European conglomerate

The Austrian and German shareholders of Intersport have merged their respective cooperatives into a single organization that groups independent sports retailers in Austria, Poland, the Czech Republic, Slovakia and Hungary. The original plan was for Intersport Germany to take a majority stake of at least 70 percent in a financially weakened Intersport Austria, with an option on the balance of the shares, but in the end all the shareholders of Intersport Austria accepted the full takeover of the Austrian operation by the German one. Intersport Germany already has a 25 percent stake in the Polish Intersport and the Intersport license for Poland, while Intersport Austria controls retail operations in the three other eastern European countries. 

Technically, Intercontact Österreich GmbH is acquiring 100 percent of the shares of Intersport Österreich e.Gen., the cooperative of Austrian retailers that has been operating as Intersport Austria. Intercontact Österreich is a new company formed for this purpose by a subsidiary of Intersport Germany, Intercontact Beteiligungs GmbH. The retail members of Intersport Austria will no longer have shares in the former cooperative, which entitled them to cash in its dividends, but they will have a bonus and other incentives based on the company's performance, as is now the case at Intersport Germany.

The shutdown of the cooperative means that the affiliated retailers will be paid back for their equity in the group, but the financial terms of the deal were not disclosed. The supervisory board of the cooperative, which is currently led by an Austrian retailer, Harald Tscherne, will disappear. This body will be replaced by an advisory board whose members are yet to be elected. Klaus Jost, president of Intersport Germany, said the board will have between four and eight members representing the interests of German and Austrian retail members on a 50-50 basis.

The takeover or merger is conditional on the approval of the Austrian anti-trust authorities, BDW, which is expected to be mainly a formality as Intersport does not play a dominant role in the country. With an estimated market share of 21 percent based on the estimates of Regioplan, an Austrian market research firm, Intersport will be number three in the Austrian sporting goods market behind the newly created purchasing alliance between Sport 2000 and Gigasport (28 percent) and Sport Eybl & Sports Experts (25 percent). The alliance between Sport 2000 and Gigasport is very loose, however.

The Eybl family, which has sold a large stake in Sport Eybl & Sports Experts to Sports Direct International a few weeks ago (see related story in this issue), was a founding member of Intersport Austria. That company was its biggest member by far, but it gradually pulled out of the cooperative until the end of last year. Reportedly, its pullout created a cash squeeze that made it necessary for Intersport Austria to find a financial solution, although the company continued to be profitable on an operating basis. No financial details were given about the takeover, but the Jost said that the German Intersport has injected more than €10 million into the deal as equity and working capital.

The merger was announced a few days ago, after it received the unanimous consent of the general assemblies of Intersport Germany and Intersport Austria as well as the blessing of Intersport International Corporation at its annual meeting, held in Ljubliana, Slovenia, in early September. Jost explained that IIC's vote was a formal procedure, but was nevertheless essential because IIC wants to protect itself from the danger that any of its licensees would be taken over by parties that don't share Intersport's philosophy.  

In Germany and Austria, it is common practice that cooperatives do not acquire companies directly but rather through a subsidiary of a different legal nature such as a GmbH, or a limited liability company, to avoid legal complications. In this manner, the German Intersport had previously acquired one of its retail members in Germany, Sport Voswinkel, and later on a 25 percent stake in Intersport Polska.

As a result, Intersport Österreich will disappear as a legal entity and will become a limited liability company run by two joint managing directors, as is Intersport Germany: Gabriela Fenninger, former general manager of Intersport Austria, and Alois Grüblinger, another high-ranking Austrian Intersport executive. However, the new shareholders are recruiting a new general manager to replace Fenninger, who wishes to retire within two years.

A few technical questions remain to be answered after the resolution of the legal aspects of the merger. Kim Roether, joint managing director of Intersport Germany, made it clear that the full merger of the two operations may not be accomplished before 2016. The two existing headquarters in Heilbronn and Wels will remain in place at least until then, along with their respective distribution centers. Intersport Austria has a staff of about 300 persons.

On the other hand, the two entities will seek to avoid duplications in orders, especially from the Far East, and in their inventories. To give an example, the Austrian Intersport retailers sell more bicycles than the German ones, so the inventories of bikes will be centralized in Wels to service the Austrian market, and bikes ordered in Germany will be sent across the border directly to the affiliated German retailers. Similar processes will be implemented in other market segments. Other possible cost-saving synergies are being explored in purchasing, IT, logistics, marketing, customer service, and so on.

The new Central European Intersport group federates a total of 1,138 retailers with 1,843 stores and an annual turnover of more than €3.1 billion after VAT. Intersport Germany expects to reach relatively flat sales of just over €2.8 billion this year, with a slight increase in Poland to around €60 million. Including its affiliated stores in Eastern Europe, the Austrian operation's sales declined to €475.8 million in the year ended last Aug. 31 from €729.5 million the year before, largely because of the pullout of Sport Eybl & Sports Experts.

Meanwhile, Intersport Austria has finally come to terms with Sport Eybl & Sports Experts, making a clear cut between two companies whose operations have been intermingled for decades. The new agreements took effect on Aug. 31, coinciding with the end of Intersport Austria's fiscal year. On that date, the licensing agreement enabling the Eybl stores to bear the name “Intersport Eybl” expired. The name may still be found on some store fronts, but the company has some weeks to remove it.

While Eybl ceased to be a regular member of Intersport, it continued to run some purchases through Intersport. This came to a halt when Intersport banned Eybl from centralized invoicing and fulfillment after the big chain got into financial trouble before the intervention of Sports Direct last June. Intersport's need to make a clear cut with Sport Eybl & Sports Experts became even more pressing after SDI's move because the British retailer is a member and a shareholder of Sport 2000 International.

The remaining business ties between Intersport Austria and Eybl are basically related to the fact that the two entities will continue to share the building hosting their respective head offices. This concerns technical aspects such as a shared cafeteria, some real estate assets and other practical, secondary issues. Eybl currently rents its premises from Intersport Austria, but Mike Ashley may want to put an end to that, too.