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Adidas sale could bring changes to former Reebok facility: German sports giant has a history of using overseas manufacturing sites

August 15, 2005

Adidas' plan to buy Massachusettsbased Reebok International Inc. for $3.8 billion has put the future of Reebok's eastside manufacturing plant in doubt again.

Though Reebok officials insist the immediate future is secure for the 600,000-square-foot operation off Post Road, industry experts say changes are on the way.

Reebok took ownership of the facility in 2001 when it bought Indianapolis-based licensed apparel maker Logo Athletic out of bankruptcy court. Since then, Reebok has invested heavily and expanded local staff from 400 to 1,000.

Reebok's local division, Group Athletica, designs, screens and stitches Reebok's private-label apparel line and replica jerseys for the National Football League, National Basketball Association and National Hockey League. Sporting Goods Intelligence, a West Chester, Pa.-based trade publication, estimated Reebok derives $550 million of its $4 billion in annual sales from its licensed apparel division.

"We touched base with Reebok officials shortly after the sale was announced, and we don't have any information that leads us to believe there will be any immediate changes," said Gordon Hendry, the city's director of economic development. "We're looking forward to a good relationship with the new owners."

The new owner, Germany-based Adidas, has a history of using overseas suppliers and manufacturers, where labor is cheaper. In addition, the company wants to expand sales to the Asian market, giving it an additional reason to put manufacturing there.

Another potential threat to the Indianapolis facility is the Central American Free Trade Agreement, which President Bush signed this month. The measure removes trade barriers between the United States and six nations in the region.

"CAFTA makes places like Honduras and the Dominican Republic look very attractive, especially to apparel manufacturers," said Bob McGee, editor of Sporting Goods Intelligence. "Russell and other sports apparel companies are already locating plants there, and its hard to imagine Adidas wouldn't follow suit."

"For now, it's business as usual," Reebok spokeswoman Denise Kaigler said. "The [Indianapolis facility] is an asset and will continue to be a Reebok asset, and it's an asset Adidas recognizes."

Kaigler said one of the strengths of the Indianapolis facility is it sits in the middle of the enormous North American market, which allows the company to respond quickly with the right merchandise as athletes gain popularity or fall out of favor.

Industry observers say the plant could even benefit if Adidas uses the Reebok purchase as a springboard to challenge Nike's supremacy in the apparel market.

"There's been talk that Adidas will have three lines of apparel, with Adidas as the premiere brand, Reebok as a midlevel line and Logo Athletic re-cast as a lower line for sale in stores such as Sears and Wal-Mart.," McGee said.

Kaigler declined to speculate if there would be management changes at the local plant or how big a presence-if any-Adidas will want here.

Adidas has annual revenue of $8 billion and a strong presence in European sports, including soccer. Experts say Reebok was an attractive acquisition target in part because of its high profile in the United States and its long-term deal with U.S. leagues and players.

Combined, Adidas will remain the world's No. 2 sporting goods maker but will shrink the gap with No. 1 Nike.

"Adidas wants this acquisition to take on Nike," said David Carter, principal of Los Angeles-based Sports Business Group. "Whether their interest is principally about tennis shoes or apparel is unknown."

If Adidas is not interested in developing apparel, industry observers said, the German company could spin off the local operation, potentially selling to an investment group or another sporting goods company.

"Given the strength of its licensing deals with the major North American leagues, this division could stand on its own," McGee said.

But Carter thinks the branding benefits of associating with the NBA and NFL will keep the local facility in the Adidas family.

NBA and NFL officials said they expect no changes with their agreement with Reebok for the coming season, but added they have entered talks with Adidas officials for 2007.

Reebok has exclusive 10-year deals to supply all NBA teams with uniforms and to supply all NFL teams with uniforms and sideline apparel. It also has deals with several high-profile athletes, notably NBA stars Allen Iverson and Yao Ming.

Adidas officials have pledged initially to save $150 million a year combining the two companies. Adidas plans to keep its Oregon-based North American headquarters, while operating Reebok's East Coast corporate headquarters for the immediate future. Other plans, Kaigler said, will be disclosed in the next six months. Adidas officials expect the purchase to close in the first quarter of 2006.
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