- Adidas bought Boston-based Reebok for $3.8 billion in 2006, but its sluggish performance led to repeated calls from investors to dispose of the brand;
- In the meantime, Adidas managed to eat into Nike’s dominance in the United States with its core brand;
- After Rorsted took over as CEO in 2016, he launched a turnaround plan for Reebok, which helped it return to profitability, but its performance continued to lag that of the core Adidas brand.
German sportswear maker Adidas plans to sell or spin-off its underperforming Reebok brand, 15 years after it bought the U.S. fitness label to help compete with arch-rival Nike.
Adidas said on Tuesday it had decided to begin a formal process to divest Reebok as part of a five-year strategy it plans to present on March 10, when the company will also publish 2020 results. It will report Reebok as a discontinued operation from the first quarter of 2021.
A banking source said the business could be worth around 1 billion euros ($1.2 billion).
“Reebok and Adidas will be able to significantly better realize their growth potential independently of each other,” Chief Executive Kasper Rorsted said in a statement.
The company bought Boston-based Reebok for $3.8 billion in 2006, but its sluggish performance led to repeated calls from investors to dispose of the brand.
In the meantime, Adidas managed to eat into Nike’s dominance in the United States with its core brand, helped by partnerships with celebrities like Kanye West, Beyonce, and Pharrell Williams.
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After Rorsted took over as CEO in 2016, he launched a turnaround plan for Reebok, which helped it return to profitability, but its performance continued to lag that of the core Adidas brand and it was then hit by the COVID-19 pandemic.
Reebok’s net sales fell 7% in the third quarter of 2020 to 403 million euros ($488 million), after falling as much as 44% the preceding quarter. In 2019, Adidas wrote down Reebok’s book value by nearly half, compared with 2018, to 842 million euros.
Latin America is the third-largest market of both brands, behind Europe, North America, Asia-Pacific, and ahead of Russia. The coronavirus pandemic particularly hit the company’s emerging markets; in the first half of 2020, sales in the region dropped 42% compared to the same period of 2019.
Options for Adidas include spinning Reebok off as a stand-alone public company, or selling the brand to private equity, another major sports retailer, or a multi-brand player like VF Corp.
Reebok’s recent collaborations with celebrities like Cardi B and a refreshed focus on women’s apparel have put the brand in a better place, analysts say.
In November, Adidas was expecting a drop in overall sales for the end of 2020 as the reimposition of lockdowns in Europe offset a return to growth in China and strong demand for running gear and products designed by Beyonce.
