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    Adidas Reebok Merger LBO

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    tiko bakashvili
    Adidas acquired Reebok in an all-cash transaction financed with 20% equity and 80% debt. A discounted cash flow model was used to value the merger and estimate synergies of over €125 million annually. While analysts had mixed views, the recommendation was that the merger positioned the companies to better compete against Nike through offsetting strengths and in growing markets. The total acquisition price was €3.8 billion, with Reebok shareholders receiving a 34.2% premium per share.

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    Adidas Reebok Merger LBO

    Uploaded by

    tiko bakashvili
    239 views2 pages
    Adidas acquired Reebok in an all-cash transaction financed with 20% equity and 80% debt. A discounted cash flow model was used to value the merger and estimate synergies of over €125 million annually. While analysts had mixed views, the recommendation was that the merger positioned the companies to better compete against Nike through offsetting strengths and in growing markets. The total acquisition price was €3.8 billion, with Reebok shareholders receiving a 34.2% premium per share.

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    Adidas acquired Reebok in an all-cash transaction financed with 20% equity and 80% debt. A discounted cash flow model was used to value the merger and estimate synergies of over €125 million annually. While analysts had mixed views, the recommendation was that the merger positioned the companies to better compete against Nike through offsetting strengths and in growing markets. The total acquisition price was €3.8 billion, with Reebok shareholders receiving a 34.2% premium per share.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    239 views2 pages

    Adidas Reebok Merger LBO

    Uploaded by

    tiko bakashvili
    Adidas acquired Reebok in an all-cash transaction financed with 20% equity and 80% debt. A discounted cash flow model was used to value the merger and estimate synergies of over €125 million annually. While analysts had mixed views, the recommendation was that the merger positioned the companies to better compete against Nike through offsetting strengths and in growing markets. The total acquisition price was €3.8 billion, with Reebok shareholders receiving a 34.2% premium per share.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
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     Adidas Reebok Merger LBO- chapter 8/Adidas Reebok Merger Valuation Model-

    chapter 15- Tiko

    We made our own assumptions toward this Merger& Acquistion. The primary valuation
    strategy that we used to determine a fair transaction price is the discounted cash flow
    model. Based on our assumptions the proposed merger would have substantial cash flow
    implications over the next several years. Annual cash flows were estimated for several
    years before the company would enter an assumed steady state of growth. As we think
    the merger would have an impact on the firm’s WACC as the capital structure was
    altered by the increase in leverage. The terminal value used in the model was a key driver
    that accounted for a substantial portion of the valuation. Comparable transaction analysis
    assumes the new entity would perform similarly to its peers and we deem that a DCF
    would better account for merger costs, synergies and future growth rates. LBO analysis
    was most likely conducted internally, as this model is similar to a DCF with the added
    component of accounting for what the firm does with the free cash flow generated from
    the combined entity. This type of analysis is more difficult externally as the debt
    covenants and firm’s capital budgeting strategy are not public. Most likely, excess cash
    will be used to pay down the debt used to finance the acquisition.

    Adidas used 20% equity and 80% debt to finance the all cash transaction. When this
    transaction was made, Reebok was suffering as a business, which resulted in their stock
    being less valuable than Adidas stock. Because of this, the consideration used was all cash.
    The upside of using all cash was that Adidas was able to avoid any more dilution of their
    shares than what was already caused by the 20% use of equity. The downside from an all
    cash consideration was that it allowed Reebok shareholders to reallocate the gain they
    made from the transaction, rather than reinvesting into the merged company. Other
    considerations we think are important in the transaction: The analysts on the acquisition
    had varied opinions on the deal. Adidas and Reebok are two branded sport equipment,
    apparel, and sporting goods companies. Both the companies have their own strengths in
    the manufacturing of goods and global market share. Because of those factors, the
    acquisition was a natural occurrence. However, there were a few negative aspects that are
    important considerations in the transaction. First, Adidas and Reebok maintaining
    separate headquarters may avoid the risks of an integration conflict and help employees
    feel safer during the takeover time period;

    Our recommendation for Adidas’s and Reebok’s board : We recommend the transaction
    to both Adidas and Reebok’s boards. The transaction is mutually beneficial and better
    positions both firms to succeed in the future. The firm’s are natural merger candidates
    with offsetting financial strengths and strongholds in growing markets where the other is
    weak. The deal is forecasted to be accretive by 2008 and is expected to result in annual
    synergies in excess of €125m. Cross Asset Research conducted worst-case scenario
    analysis on the proposed deal by estimating transaction costs and assuming no synergies
    would be captured by the transaction. Even under these assumptions, EPS dilution would
    only be 3%. The deal’s likely synergies and improved market positioning lead the analysts
    to forecast an EPS CAGR of 16% compared to the industry forecast of 4%. Reebok’s
    shareholders are paid a fair but substantial premium on their stock price. This merger
    offers material synergies, has manageable downside risk, and strategically positions the
    combined entity to eventually compete with Nike as the industry's dominant market
    share leader.
    Adidas acquired Reebok for $59.00 per share for a 34.2% premium. The total acquisition price ended up
    being €3.8b. Adidas used 20% equity and 80% debt to finance the all cash transaction. When this
    transaction was made, Reebok was suffering as a business, which resulted in their stock being less
    valuable than Adidas stock. Because of this, the consideration used was all cash. The upside of using all
    cash was that Adidas was able to avoid any more dilution of their shares than what was already caused
    by the 20% use of equity. The downside from an all cash consideration was that it allowed Reebok
    shareholders to reallocate the gain they made from the transaction, rather than reinvesting into the
    merged company.

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