Jho Low family’s Jynwel Capital among investors launching bid for Reebok (Update 2)


KUALA LUMPUR: The investment arm of the billionaire Low family of Asia, Jynwel Capital is teaming up with investors from Hong Kong and Abu Dhabi to buy Reebok from Adidas.

Jynwel Capital and funds affiliated with the government of Abu Dhabi planned to send a letter to Adidas directors imminently, offering to buy its Reebok business for about €1.7bil (US$2.5bil), The Wall Street Journal (WSJ) reported insiders as saying.

WSJ said the architect of the bid for Reebok is Jho Low, the 32-year-old chief executive of Jynwel Capital. 

It cited Low, as the grandson of a mining and liquor entrepreneur, was no stranger to big merger deals.

Low is best known for his role in setting up Terengganu Investment Authority in 2009 which has been renamed 1MDB now. He was an advisor to TIA. 

However Low has in the past one year  distanced himself from 1MDB a government investment fund that has drawn a lot of attention.

WSJ said the deal, if successful, would unwind an eight-year-old marriage of sneaker makers that has shown disappointing results.

The newspaper said investors were expected to argue that Reebok would have a brighter future if it were managed independently.

Adidas bought Reebok in 2006 for roughly €3bil to create a footwear and sporting-apparel company that would rival Nike and have more clout with retailers.

The corporate exercise was to give Adidas more heft in the US, where it trailed Nike. Instead, Nike has gained much ground against both brands since the deal.

According to WSJ, the group led by Low believes Reebok would benefit from management and ownership that would be better able to focus on reviving the brand’s fortunes in the US outside the glare of public shareholders.

It reported that Jynwel, which invests his family’s roughly US$1.75bil fortune, was among groups that purchased New York’s Park Lane Hotel for US$660mil in 2013 and EMI’s music-publishing business for US$2.2bil in 2012. 

WSJ said there were no details which Abu Dhabi fund would partner with Jynwel should the Reebok bid succeed.

Reuters reported Adidas, the world's second largest sports apparel firm behind Nike, bought the US-headquartered Reebok in August 2005 for US$3.8bil but the unit's sales have shrunk by more than a third since 2006 to €1.6bil euros (US$2bil) in 2013, 11% of group sales. 

Adidas shares, which are down 41% this year after a series of profit warnings, traded up 4.4% by 6.37am EDT on Monday.

Warburg Research analyst Joerg Philipp Frey said the reported offer represents a 30% premium to the company's valuation, based on earnings multiples.

"From the Adidas perspective, that would be a great price. Whether management would accept it is another matter as it would be an admission of defeat," he was quoted saying by Reuters.

Earlier this month, Adidas announced plans to return as much as 1.5 billion euros to shareholders over the next three years, seen as an attempt to placate investors and fend off potential moves by activist funds. 

Last month, Germany's Manager Magazin said hedge funds including Knight Vinke, Third Point and TCI were considering buying stakes in Adidas to pressurize management to make sweeping changes including the possible spin off of Reebok.

Equinet analyst Ingbert Faust estimates that the value of the Adidas brand is around €13bil, well above its current market capitalization of €11.5bil.

The Reebok deal initially doubled Adidas' US sales, and taking over Reebok's basketball and baseball contracts gave the German company more exposure in the world's biggest sportswear market. 

But the brand then lost a contract to supply the US National Football League and was hit by a lockout at the National Hockey League, contributing to a steady loss of market share for Adidas in North America in recent years to 5.6% in 2013, while Nike has advanced to 19.9%, according to Euromonitor data. 

Adidas has made some progress of late by repositioning Reebok as a fitness brand with a range of sponsorship deals and shoe launches, recording its fifth quarter of growth in the second three months of 2013.

The investors planning a bid want to maintain Reebok's current strategic path and keep its top executives, but spend more on marketing and store rollouts, WSJ reported.

"Reebok is also one if the few brands enjoying some success for Adidas lately," said Jon Copestake, retail analyst at The Economist Intelligence Unit.

"Despite the short term gain, the sale will effectively be ending Adidas's interest in a number of fitness and health markets that have been growing quickly in North America. This could have longer-term implications for the German firm."

Adidas said in May it was considering offers for its Rockport shoe brand, which it acquired when it bought Reebok and which saw sales rise 6 percent to €289mil in 2013.

Bloomberg reported on Tuesday that even if Adidas AG is selling its Reebok unit at a loss, this would be the best first step the sporting-goods maker can take toward recouping the US$10bil that shareholders have lost this year.

After turning in the worst performance in Germany’s benchmark DAX Index this year, breakup estimates show that Adidas could recover at least 15% 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 a share, implying Adidas could restore more than two-thirds of its lost value by slimming down to become a more focused business. 

At the lower end of the range is Morningstar Inc. at €65, still higher than the €56.61 price it closed at yesterday. The stock was little changed at €56.64 as of 9.16am. in Frankfurt on Tuesday. - WSJ, Reuters, Bloomberg



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