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|  | AUGUST 4, 2005
By David Kiley Reebok and Adidas: A Good Fit[Page 2 of 2]DIFFERENT CULTURES. "I would watch the execution of the integration very carefully, because it won't be easy to integrate the businesses -- Adidas' focus is on sport, but Reebok's is on lifestyle," says Volker Riehm, fund manager at Activest. While the combination of Adidas and Reebok looks terrific on paper, successful mergers need to work between real people who, in this case, will have to break down cultural differences between companies with "two hugely different cultures,'' says Jeffrey Bliss, president of Javelin Group, a sports marketing firm and a former New Balance executive. "The German mentality of control, engineering, and production, vs. the U.S. marketing- driven culture...in reality, I don't think [the merged company] is going to dent the market, because Nike is already too far ahead." Nike, Adidas, and Reebok have been gaining sales and profits from a favorable market in the U.S. and abroad for fashion with strong brands. In the annual Interbrand/Business Week ranking of the Top 100 Global Brands, Nike placed 30th overall in the world, with a value of $10.1 billion, up 9% from last year, while No. 71 Adidas was up 8%, to $4 billion. The ranking, which measures the value of brands over the next five years based on sales and profit outlook, did not include Reebok. SECONDARY BRANDS. Acquiring Reebok also gives Adidas an important asset in growing its brand in developing markets, especially in the fashion-oriented markets of Asia like China, Korea, and Malaysia. Having Reebok means that Adidas doesn't have to spread the Adidas brand far and wide to cover all China segments, in which Reebok has made great strides with its Yao Ming marketing tieup. Both companies have struggled trying to acquire and develop flanker brands. Adidas sold its Salomon winter sports brand last May for less than half what it paid for it eight years earlier. But Adidas still owns golf brand Taylor Made. Reebok has had unsuccessful diversifications with brands Avia and Frye boots, though it's done well with Rockport and Greg Norman brands. "Adidas is the perfect partner for Reebok," says Paul Fireman, Reebok's chairman-CEO. Fireman, who holds 17% of the sports-shoe maker along with his wife, Phyllis, has already signaled he'll sell his shares. PAST MONEY WOES. Fireman says Hainer first broached the idea of a merger when they met at the Athens Olympics last summer. It marked the beginning of a long process. "This wasn't something I was going to hand over to just anyone," says Fireman, Reebok's founder, who says he wanted to take a long time to get to know Hainer better. Hainer and Fireman had "more than one meeting" over a period of months, including one around Christmas. Then, about three months ago, "when the idea became more real, we started to accelerate the meetings." Fireman says he will stay on as CEO until the deal closes. Then he plans to look for a successor, but not to do too much "heavy lifting." Each company has had past financial difficulties. Adidas nearly went bust in the early 1990s before French financier and advertising mogul Robert Louis-Dreyfus rescued it. He restructured the company, hired designers and marketers outside of Germany, and sharpened the company's marketing. NO SHOE-IN. Reebok, meantime, was sagging in the late 1990s despite a robust U.S. economy. Its share price dropped below $10, its designs failed to catch on, and Nike ran away with brand cachet in the U.S. "performance-driven" culture. Nike will remain a formidable rival. Jim Davis, CEO of New Balance, says that it will be tough for retailers dealing with a new pumped-up Nike competitor. Adidas will have more leverage, he says, but it won't make Nike any easier to compete against. "You can try to take on Nike, but...Nike is Nike and will continue to be Nike," says Davis. Adds Goldman Sachs analyst Margaret Mager: "We fail to see how this combo will erode Nike's franchise as the global brand leader."
 Kiley is Marketing editor for BusinessWeek in New York with William Symonds in Boston and Stanley Holmes in Seattle
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