Barron's: Adidas' Reebok Acquisition Should Eventually Provide Big Growth

by: Mick Weinstein

Excerpt from our One Page Barron's Summary (receive it by email every week by signing up here):

Ready to Score: Adidas' Smart New Playbook By Christopher C. Williams

Highlighted companies: Adidas (OTCQX:ADDYY), Nike (NYSE:NKE), Puma (OTC:PMMAY),
adidas logoSummary: Adidas, the number two sporting-goods maker behind Nike, got a big boost from World Cup promotion as 2Q revenues jumped 60%. Its stock price in Frankfurt rose over 12% in the past month in response. One big challenge facing the company: integrating the recent $3.8 billion purchase of Reebok International, which currently provides the bulk of Adidas' North American revenue. Adidas hopes to realize up to €175m in cost savings from the Reebok acquisition, but will need to overcome some market share loss at Reebok. Adidas hopes to leverage its global leadership in soccer footware and is making a big push into basketball shoes in an effort to narrow the gap in the athletic shoe market share -- Nike currently has 37% of that market with combined Adidas/Reebok at 22%. The company is currently valued at 18.4 times 2006 earnings, slightly below its competitors. Barron's bottom line: 'Adidas shares, which trade for €39 in Frankfurt, could top €50 as the Reebok brand lifts revenue by 50%.'
Quick comment: Note that Adidas is traded in the U.S. only on the pink sheets, and is therefore relatively illiquid • For more insight on the athletic footware market, see comments from Nike CEO Mark Parker excerpted from Nike's most recent conference call • Phil Davis thinks Nike's new sneaks should give it some lift • Warren Buffett's Berkshire Hathaway remains invested in Nike