Adidas selling its Reebok unit, even at a loss, is the best first step the sporting-goods maker can take toward recouping the $10 billion that shareholders have lost this year.
A group led by a Hong Kong-based private-equity investor is preparing an offer for Reebok, people familiar with the matter said on Monday. They are potentially going to bid about $2.2 billion, according to the Wall Street Journal.
Adidas bought Reebok in 2006 for $3.8 billion in cash. An innovator in fitness shoes 30 years ago, Reebok has since lost popularity and Adidas may be better off selling it than trying to revive the brand.
After turning in the worst performance in Germany's benchmark DAX Index this year, breakup estimates show that Adidas could recover at least 15 per cent by selling off Reebok and other businesses.
At its current price, Adidas is getting no credit for Reebok, the TaylorMade golf line, Rockport comfort shoes and CCM Hockey skates, according to Andreas Inderst, an analyst at Exane BNP Paribas.
Inderst has the most bullish breakup value estimate at 82.50 euros a share, implying Adidas could restore more than two-thirds of its lost value by slimming down to become a more focused business.
"The real upside to this whole thing is to get Adidas and Reebok positioned as their own brands," Paul Swinand, a Chicago-based analyst at Morningstar, said in a phone interview. "They've got to focus. The parts should be worth more than the current sum."
The Herzogenaurach, Germany-based company is valued at 8.4 times trailing 12-month earnings before interest, taxes, depreciation and amortisation. That's half of Nike's multiple and less than a quarter of Under Armour's. Even Puma fetches 11 times Ebitda, as does Asics.
"Given the depressed multiples of the Adidas group, we believe the market is not attributing much or even any value to Reebok," Inderst wrote in a report on Monday. However, a bid "would prove there is indeed value."
By the time Adidas acquired Reebok, the brand was already long past its heyday, when women in aerobics studios sported the ubiquitous white high-tops. Reebok shares fell to a low in 2000. The former CEO had been trying to revamp the company's image and lure teens by signing basketball stars Allen Iverson and Yao Ming and rappers such as 50 Cent and Jay Z to marketing agreements.
Reebok has continued to struggle as part of Adidas and in 2012 was replaced as the National Football League's apparel supplier.