Adidas: If the Shoe Fits...

CEO Herbert Hainer explains the logic behind the Reebok deal, and why he sees the combined outfit making great strides

Adidas-Salomon CEO Herbert Hainer may be one of the fittest CEOs in Europe -- testimony to how much time he spends using one of his company's signature products: running shoes. The slender, former semi-pro soccer player needed plenty of stamina in recent weeks as he feverishly put the final touches on Adidas' $3.8 billion acquisition of Canton (Mass.) -based sports apparel maker Reebok International (see BW Online, 8/4/05, "Reebok and Adidas: A Good Fit").

Before announcing the deal Aug. 3, Hainer and his staff and advisers worked through the night at Adidas' headquarters in the Bavarian town of Herzogenaurach. Then Hainer immediately set out on a worldwide tour to sell the investment community on the merits of the deal. He took time to speak with BusinessWeek European Regional Editor Jack Ewing in Frankfurt. Edited excerpts of their conversation follow:

Q: You've just done road shows in London and Frankfurt, and next week you'll be doing the same in New York and Boston. What kind of reaction are you getting from investors and analysts?


Good, I guess. The best measurement is always the share price, and the share price reacted quite positively. I believe the majority of people are reacting positively.

Q: On the conference call after the deal was announced you mentioned that the acquisition will improve your product development. Are you going to be combining Adidas and Reebok research and development?


We definitely will keep the two brands separated but they definitely will share much more information on the R&D side, such as patents or new technology.

Our R&D department is developing more innovations and technologies than we can launch within the Adidas group. You need the money, you need the people, you need the energy and [all] this you can definitely share on a much broader base. A certain technology could start with the Adidas brand and be introduced to Reebok a year later.

Q: There is a perception that Adidas represents the German engineers, the BMW of running shoes, while Reebok (RBK ) is more the style of the street. Is that true? After all, you come from Procter & Gamble (PG ), not BMW.


But we have just announced a cooperation with Porsche! I would say for the Germans [the perception] is a cliché that was right in the past. I'm not sure it's correct now. We are definitely the more dedicated sports- performance brand which wants to be the leader in innovation and bringing new technological performance products to the market. Whereas Reebok is much more the American sports and lifestyle- and music-inspired brand.

Q: You said the brand identities are going to remain separate. Do you see the brand identities changing at all?


No, I don't think so. We will definitely be the sports-performance brand rooted in more European sports like football. Reebok is much more linked with American sports such as baseball, American football.

Q: How do you make sure you get the synergies and, at the same time, keep each brand's identity?


I believe the brands are very complementary. Start with the geographical areas. Reebok is stronger in the U.S. than we, but we are much stronger in Europe and Asia. When you look at sports categories...they are very strong in women's business, [especially] women's aerobic fitness. We have the individual sports, running or tennis.

The consumer base is different. We go to the real athletes and sports performance people, where Reebok is more linked to fashion and music. Reebok is definitely much [stronger] with the black urban market, where we don't have a consumer base at all.

Q: Which departments do you put together and which do you keep separate?


The front end, marketing and sales, we will keep separate. All the back office, administration, we definitely will combine. We definitely can do a lot. It starts with our buying power in the media, and sourcing. We are sourcing close to 5 billion euros ($6.15 billion) in products. There must be synergies you can take out.

Q: For instance, you would have joint media buying, but the creative side of your advertising will stay separate?


Exactly. When it comes to media buying, of course we will use that to get some economies of scale.

Q: Let's go back to how this got started. You and Reebok CEO Paul Fireman first met at the Athens Olympics last year?


I've known Paul for several years and we had met before on several occasions. We were for business reasons both in Athens. We had a cup of coffee. We talked about the business, about the market, and of course about the U.S. because we both are not happy about our position in the U.S. vis-a-vis our main competitor [Nike (NKE )]. This I would call the starting point.

[Afterward] we stayed in contact via telephone. Then, I think it was in November, I was over in the U.S. and I called Paul and said, "Do you have time for lunch?" We were sitting together -- and then the idea really became reality. And the intense discussions started.

Q: What was the most difficult part of the Reebok negotiations?


I do believe for Paul it was an emotional decision as well because this is his baby, he founded the company, he built it up -- to sell it is not so easy. But he is a very professional business guy. You can see he felt, "If I want to see my company growing in the future and staying healthy then it is better I go together with somebody." It was clear the obvious partner for him was Adidas.

Q: Why will this work better than your acquisition of Salomon [the ski and sports equipment maker which Adidas is in the process of selling to Finland's Amer Sports Corp.]?


I hope we have learned out of the Salomon acquisition what went well and what went wrong. It's fair to say within Salomon that the Taylor Made [golf products] part went extremely well. The Salomon part didn't run so well. The winter [sports] and hardware business is a different animal than the sneaker and apparel business.

The Reebok business -- this is what we've been doing for 75 years, marketing sport shoes and apparel. We know all the players in the industry, we know how to produce, we know how to market, we know the retail partners. We know the strengths and weaknesses of Reebok because our job was to analyze our competitors. This is definitely a different thing than eight years ago.

Q: Do you expect the move you have made to prompt other moves in the industry?


I personally believe consolidation will continue.

Q: Any ideas about what kind of deals we might see?


I don't know. Everybody was speculating yesterday whether Nike is buying Puma.

Edited by Patricia O'Connell

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