Adidas outlook up, reaffirms Reebok deal

FRANKFURT - German sporting goods maker Adidas-Salomon has raised its 2005 outlook following a jump in quarterly profit, while it pushed ahead with its planned US$3.8 billion ($5.54 billion) takeover of US rival Reebok by conducting a capital hike.

Adidas, which wants to buy Reebok to close the gap with market leader Nike, said it plans to sell around 4.5 million shares to institutional investors to raise about 640 million euros ($1.1 billion) to fund the acquisition.

The issue will be priced and allotted on Friday and will exclude subscription rights for existing shareholders, it added. The stock makes up 10 per cent of its outstanding share capital, an amount that has been authorised by shareholders.

Chief executive Herbert Hainer also told the Sueddeutsche Zeitung that most of the Reebok deal will be financed by debt.

Adidas' forecast-beating results and upbeat outlook boosted its shares up as much as 3.8 per cent before finishing up 1.7 per cent at 144.47 euros on concerns over the impact of the capital hike.

Adidas' gain reversed some of the stock's losses during the last three months, when investors became increasingly worried that the Reebok acquisition would be too much to tackle as it also readies a major sales campaign for the World Cup in its German home market.

Adidas said it now expected 2005 net income to rise at least 20 per cent from 314 million euros in 2004. Until now it had forecast just 20 per cent growth.

The company known for its three-striped shoes also raised its sales outlook and forecast currency-neutral sales would grow at a high single-digit percentage rate this year after previously forecasting mid-to-high single-digit sales growth.

In the third quarter, net income rose 28 per cent from a year ago to 209 million euros, when adjusted for the sale of its ailing Salomon unit. This was well ahead of an average estimate of 190 million euros in a Reuters poll of 15 analysts.

"The order backlog is very strong, particularly in North America and Europe," said LRP analyst Christian Schindler.

For 2006, Adidas forecast a double-digit percentage leap in earnings and a high single-digit increase in sales thanks to demand for soccer goods. The company's order backlog for its Adidas brand was up 14 per cent at the end of September.

"The countdown for the soccer World Cup has already started, and we are on track to achieve extraordinary results in 2006 and later," CEO Hainer said.

Adidas and its competitors have spent millions of euros to sponsor the top teams and to market shirts and footwear worn by star players.

Analysts see great branding potential for the firms but warn against spending too much on marketing.

Hainer said the combined Adidas-Reebok group would deliver on its promised double-digit earnings growth in the medium term, despite Reebok's slumping sales in the third quarter.

"Clearly there are challenges that Reebok will solve, but these were not unknown when we made our offer in August, and we remain fully confident in the synergies," he said.

Hainer said he expected Reebok shareholders to approve the deal in January. Following European antitrust approval, the deal is expected to be concluded in the first half of 2006.

To focus on key units such as soccer and running sportswear, Adidas sold its ailing winter-sports brand Salomon to Finland's Amer Sports for 485 million euros earlier this year.

Adidas shares have been trading at 16.7 times 2005 earnings, while Nike has a price-earnings ratio of 16.2, according to Reuters data. Smaller rival Puma's shares trade at 12.4 times 2005 earnings.

The strong Adidas results set the bar high for Puma, which is due to report its third-quarter numbers on Friday. Puma is expected to report a 6 per cent rise in net income, according to an average of analysts polled by Reuters.

- REUTERS