Adidas’ talks with ABG, led by Jamie Salter (inset, bottom), in New York, recently came to a halt due to Adidas’ demands that ABG run Reebok as a separate entity. SOPA Images/LightRocket via Getty Images; David McGlynn via Getty Images; Bloomberg via Getty Images
According to The Washington Post, a key bidder has dropped out of the Reebok auction, increasing the likelihood that German-based Adidas will suffer even more losses as a result of its disastrous 15-year ownership of the struggling sneaker brand.
In the first round of the auction, Authentic Brands Group, a fast-growing licensing firm whose brands include Forever 21, Brooks Brothers, and Nine West, teamed up with Wolverine Worldwide, the footwear company behind Merrell shoes, Hush Puppies, and Stride Rite, to offer about $1 billion for Reebok.
However, talks with ABG, based in New York, have recently stalled due to Adidas’ demands that ABG run Reebok as a separate business, according to sources. According to insiders, Adidas was asking ABG to avoid layoffs of Reebok employees while continuing to feed Adidas’ sneaker distribution networks, in addition to paying fees to Adidas for at least several years through a transition services agreement.
Instead, ABG’s CEO, Jamie Salter, wanted to buy the Reebok trademark and merge the company’s US operations with Sparc Group, a joint venture with mall giant Simon Property that owns Aeropostale, Brooks Brothers, Forever 21, Lucky Brand, and Nautica. Meanwhile, Wolverine Worldwide was planning to assist with sourcing manufacturing from other countries.
“Adidas wants to sell Reebok with everything and wipe their hands clean,” a source close to the situation said. But ABG’s Salter “just buys brands and licenses them. There would be job losses in Europe.”
The highest bid for Reebok had been from Authentic Brands, which filed plans to go public with the Securities and Exchange Commission on Wednesday. According to sources, buyout firms Advent International, Cerberus Capital Management, CVC Capital Partners, and Sycamore Partners have made bids for the money-losing label, which has recently made a run to revive its business in a tie-up with rapper Cardi B.
Despite this, the 126-year-old shoe icon’s auction, which began in February, is expected to only bring in a fraction of the $3.8 billion Adidas paid for it in 2006.
According to a source, the company’s steep losses — more than $100 million in a year before interest, taxes, and amortization — mean that potential buyers will be unable to borrow money to fund the purchase. Under a new owner, it is expected to turn a profit in five years, but according to a source, Reebok’s revenue fell to $1.5 billion last year from $1.8 billion in 2019.
Surprisingly, ABG’s partnership with Sparc would have allowed it to pay a higher price for Reebok than rival bidders, owing to the layoffs it would entail, according to sources. Wolverine, on the other hand, is not interested in bidding without Authentic Brands, according to sources.
The deadline for binding second-round bids has been set for Aug. 2. While ABG has withdrawn from the process, some insiders believe it is possible that it will reach a last-minute agreement with Adidas. In any case, sources expect Adidas to sell Reebok, as a low price tag shouldn’t have a significant impact on the company’s stock price.
Reebok was founded in 1895 in England and rose to prominence in the 1980s when it introduced the first athletic shoe designed specifically for women. Since then, Reebok has struggled to compete with a growing number of women’s fitness brands, such as Saucony and Puma.
“Going forward, the company intends to focus its efforts on further streamlining the leading position of the Adidas brand,” the company said in a February press release.