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Adidas-Reebok Merger Case Solution & Answer

Adidas-Reebok Merger Case Solution

Background

Between 2001 and 2002, the athletic goods industry in the United States grew by roughly 1.4 percent, i.e. from $7.29 billion to $7.4 billion, respectively. The expansion of the sporting goods business was ascribed to be 3.7 percent and there was 2.8 percent increase in the market size of men and children, which are the key market segments of the industry. In 2006, the sporting goods industry in the United States grew at a rate of roughly 2.7 percent, which was slightly lower than the previous year. To put it another way; the sporting goods industry in the United States is currently experiencing a slowing growth rate, owing to the seasonal nature of the US market, which has been triggered by changes in American consumers’ buying patterns. Another reason for the slowed growth of the sporting goods industry in the United States is market saturation, which is currently occurring in the American domestic market and forcing many footwear manufacturers to shift their operations to the international market as a result of an intense market competition.

Due to intense market competition posed by Nike and other market players in the sporting goods industry, Adidas and Reebok were forced to merge in order to capitalize on each other’s competitive advantages and to have a reasonable chance of competing with Nike – the market’s leading manufacturer of sporting goods. One of the primary motivations for Adidas’ merger with Reebok was to strengthen its market position in the United States, in addition to leveraging each other’s unique competitive advantages. Adidas is a German-based company that is often regarded as the largest sports products producer in Europe, whereas Nike leads the American market. Given Reebok’s position as one of the leading sports goods manufacturers in the United States, second only to Nike, it was a wise decision for Adidas to leverage Reebok’s market position to effectively infiltrate the American domestic market. Nike has a 40 percent market share in the United States, while Adidas and Reebok have 9 percent and 9.2 percent, respectively. Though Adidas and Reebok’s combined market share is still smaller than Nike’s, it is sufficient to disrupt the market’s supremacy and pose a challenge to Nike.

Conditions that led to Merger

  • In 2005, Economy likely to decelerate globally:Regional disparities characterized economic activity in 2005, which slowed from 2004 levels. The European Union’s GDP was projected to rise by approximately 2%. GDP growth in the United States is expected to be approximately 3%. As a result of diminishing fiscal and monetary stimulus and rising pressure on long-standing trade deficits with other areas, this reflects a deceleration from 2004 levels. In 2005, Latin America is anticipated to expand at a rate of 4% on average. Asia’s economic prospects are the brightest, with China expected to outperform the rest of the continent (8%, the projected GDP growth). Nonetheless, most nations’ growth rates are anticipated to decrease slightly, reflecting a worldwide slowdown in export demand.
  • Challenges of Reebok:The sports footwear and clothing business is fiercely competitive, and Reebok may lose market share if it fails to compete successfully. With a variety of low-cost niches emerging, the sports footwear and clothing business is fiercely competitive. Product design, performance, quality, brand image, pricing, marketing and promotion, customer support and service, and potential to meet delivery obligations to retailers are the primary ways in which the companies compete in this industry.
  • In 2005, New Product as Important Growth Driver: In 2005, developing new goods will be a key growth driver.

Adidas-Rebook Merger

On January 31, 2006, Adidas finalized the acquisition of Reebok International Ltd. The Adidas Group gained market share in the sports footwear and clothing sectors internationally and in the United States as a result of this combination. After the acquisition, Adidas’ global footprint grew to â9.5 billion ($11.8 billion). The merger of Adidas and Reebok ushered in a new era in the Adidas Group’s history…………………………

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