Adidas sells ailing Salomon, shares jump

FRANKFURT - The Adidas group unveiled a surprise sale of its winter sports brand Salomon to focus on its classic sportswear range after quarterly profit surged, driving its stock to a seven-year high on Monday.

Despite recent denials, Adidas said it would sell the ski maker to Finland's Amer Sports in a deal worth 485 million euro ($867 million), following repeated calls from analysts who questioned Salomon's profitability.

Salomon has been hit hard by sluggish ski sales over several mild winters without much snow. Adidas had been trying to strengthen the loss-making brand, which it bought in 1997 with golf brand Taylormade-Adidas Golf for 1.2 billion euros.

"We decided that now is the time to focus even more on our core strength in the athletic footwear and apparel market as well as the growing golf category," chief executive Herbert Hainer said, adding that Adidas-Salomon will be renamed Adidas.

"It's the right decision from a strategic point of view because Salomon never fitted into Adidas' product portfolio," said HVB analyst Uwe Weinreich.

Sal.Oppenheim's Joerg Frey agreed: "The price looks good. I am wondering what they are going to do with the money because Adidas does not need it."

Hainer said the Bavarian firm would use the cash from the deal for its current share buyback programme instead of spending the funds on an acquisition.

Amer said the purchase would blend Salomon's winter sports and Freedom Action Sports brands with its own Atomic winter sports business. The deal, pending antitrust approval, will boost both firms' profitability.

Adidas shares closed up 7.6 per cent at 129.30 euros, making them the top gainers on the blue-chip DAX index, while Amer stock was up 7.6 per cent at 13.79 euros.

In December Adidas launched a restructuring for Salomon, bought to supplement its classic three-striped sports shoes, apparel and Golf equipment, in an effort to give the struggling business one last push toward profitability.

But while Adidas' lifestyle fashion continued to boom, Salomon widened its losses to 25 million euros in 2004 and took the backstage as the only unit with a sales decline in the first quarter.

Hainer said the Salomon deal will improve profits and lift 2005 earnings together with the newly introduced IFRS accounting standards.

"We will boost net profit by at least 20 per cent," he said during a conference call, topping the earlier forecast of a rise at the upper end of a 10-15 per cent range. A spokeswoman later added that the guidance included benefits from the IFRS.

The purchase, due to be closed at the end of September, will also boost Amer's earnings per share in both 2005 and 2006, the firm said.

- REUTERS