Adidas sold Reebok: why it was inevitable

German holding company adidas AG (adidas Group) has signed an agreement to sell Reebok International Limited to American organization Authentic Brands Group (ABG) for more than $ 2 billion. The fate of the deal has been in doubt since October 2020, but the parties plan to implement it soon. The deal is scheduled to close in the first quarter of 2022.

Official statement and outlook

After signing all the necessary documents guaranteeing the deal, a press release appeared on the official adidas website where the executives addressed the public. Here’s how Casper Rorsted, CEO of adidas AG, commented on the deal:

Reebok is an important part of adidas and we are grateful for the contribution the brand and the team behind it have made to our company. We believe that the Reebok brand will be well positioned for long-term success after the change of ownership. As for adidas, we will continue to focus our efforts on executing our “Own the Game” strategy, which will enable us to grow in an attractive industry, increase market share and create sustainable value for all of our stakeholders.

In addition to Authentic Brands Group, ANTA Sports, Permira and Triton were mentioned among the prospective buyers, but negotiations with these brands have come to nothing.

Authentic Brands Group is an American company that owns a portfolio of over 30 retail brands, including Forever 21, Juicy Couture, Prince tennis equipment and Sports Illustrated. The group has annual sales of more than $14 billion and filed for an IPO in July. ABG also owns exclusive rights to use images of many celebrities, including Muhammad Ali, Elvis Presley, Shaquille O’Neal and Marilyn Monroe.

Jamie Salter, founder and CEO of ABG, also commented on the deal in an official press release:

I am honored to be entrusted to continue the Reebok legacy. This is an important milestone for ABG, and we are committed to preserving Reebok’s integrity, innovation and values, including its presence in the brick and mortar industry. We look forward to working closely with the Reebok team to build on the brand’s success.

It is known that Authentic Brands Group will be working alongside adidas, Reebok President Matt O’Toole and the brand team in the transition, and will leave Reebok’s headquarters in Boston.

Why was this deal an inevitability?

Adidas acquired Reebok in 2006 for $3.8 billion. In 15 years of “symbiosis,” Reebok’s revenue has dropped from $3 billion to ~$2 billion. Beyond the dry numbers, we see brand identity issues. Despite claiming “separate identities, marketing campaigns, distribution channels and sales”, the companies have failed to build a mutually beneficial existence and grow their assets.

Obviously, in this “relationship” there was a significant bias in favor of adidas: in the development of the subsidiary company invested much less money and effort. In 2016, adidas began collaborations with Kanye West and Pharrell Williams, while the brightest Reebok star signed in 2014 was rapper Kendrick Lamar, who switched to a contract with Nike in 2017.

Reebok’s top sports star is UFC fighter Conor McGregor. There were high hopes for this partnership, which, by the way, were justified. However, the UFC sector is not the most popular among mass sports and is significantly inferior to soccer, basketball and hockey.

The decision to sell was made as the company was developing a new five-year brand strategy in February 2021. Managers said the company intends to focus on further strengthening the adidas brand’s position in the global sporting goods market:

‘After careful analysis, we have concluded that Reebok and adidas can significantly better realize their growth potential independently of each other. We will work hard in the coming months to ensure a successful future for the Reebok brand and the team behind it.

But there are some good examples: in 2003, Nike bought out the bankrupt Converse Chuck Taylor for $300 million. By 2020, Converse had revenues of about $1.8 billion.

Why was Nike’s case successful, and adidas failed with its “daughter”? Today the difference seems obvious: Nike and Converse occupy fundamentally different niches in the market of sports shoes – the former specializes in innovative technologies and technological shoes, while the latter creates ultra-trendy models of sailcloth for young people.