With Adidas And Reebok Combined,

With adidas and Reebok Combined,

Will Nike Still Crush the Competition?

September 21, 2005

Letter of Transmittal

September 21, 2005

"Will adidas' forthcoming takeover of Reebok help the new company achieve sustainable competitive advantage over industry leader Nike?" After researching the many aspects of this question, we were able to come to a conclusion. In order to address the full scope of the question our team evaluated the following areas:

* Background Information

* Corporate Culture

* Market Shares and Manufacturing

* SWOT Analyses

The combination of adidas and Reebok appears to be a step in the right direction. However, it is important to analyze the strategies behind the acquisition and to consider possible obstacles the company will face. Overall, each issue will need to be addressed so that adidas and Reebok can compete to the best of their advantage against Nike, but we don't foresee them taking Nike's spot as the industry's leader.

Executive Summary

The purpose of this report is to evaluate the impact of adidas' pending acquisition of Reebok on the sporting goods industry in relationship to Nike's position. Evaluation of background information and corporate culture combined with SWOT analyses have helped form the arguments presented in this report and have assisted in answering the question, "Will adidas' forthcoming takeover of Reebok help the new company achieve sustainable competitive advantage over industry leader Nike?" Nike's current position in the industry along with the strengths, weaknesses, opportunities, and threats concerning adidas' acquisition of Reebok help convey the following arguments.

Arguments

* Nike's Current Position

o Strong brand recognition

o Top endorsers

o Global leader in athletic shoe market

* adidas-Reebok Strengths

o Complementary global strengths

o Complementary brand identities and market segments

o Shared R&D, patents, and technology

* adidas-Reebok Weaknesses

o Complexity of joining two corporate cultures

o Differing values among management

* adidas-Reebok Opportunities

o Reduced costs

o Decreased competition

o Cross-over promotion

* adidas-Reebok Threats

o Nike's possible acquisition of Puma

It has been concluded that adidas-Reebok will have a greater ability to compete aggressively with industry leader Nike. However, while they are working out the finalities of the acquisition, Nike will be running at full speed. Therefore, Nike will remain in the top spot for the athletic shoe market, but adidas-Reebok should be a very close second.

Table of Contents

Letter of Transmittal i

Executive Summary ii

Introduction 1

A Look at Competitive Advantage 1

The Big Three and Their Competitors 1

adidas-Salomon AG 1

Reebok International Inc 2

Nike 2

Competitors 2

Legal Issues 3

Corporate Culture 3

Market Shares and Manufacturing 4

Market Shares 4

Manufacturing 5

Brand Identities 5

Opportunities and Strengths of the Acquisition 5

Conclusion 6

Appendices:

Appendix A : Legal Information 7

Appendix B : Corporate Culture 11

Appendix C : Nike SWOT Analysis 14

Appendix D : adidas SWOT Analysis 17

Appendix E : Reebok SWOT Analysis 20

Appendix F : adidas-Reebok SWOT Analysis 23

References 25

Endnotes 30

Introduction

On August 3, 2005, adidas-Salomon AG announced its plans to buy all outstanding shares of Reebok International Ltd.'s stock at $59.00 per share, for a total of $3.8 billion. Upon announcement, Reebok stock rose 30 percent while adidas climbed 7 percent. The negotiations are expected to close before the end of the first quarter of 2006. As stated by Herbert Hainer, CEO of adidas, "This is a once-in-a-lifetime opportunity to combine two of the most respected and well-known companies in the worldwide sporting goods industry. Together, we will expand our geographic reach, particularly in North America, and create a footwear, apparel and hardware offering that addresses a broader spectrum of consumers and demographics" (adidas.com). A primary goal of the acquisition has been to challenge industry leader Nike for a higher share of the