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Shoemakers to make run at Nike

Reebok-Adidas merger creates first serious challenge to giant rival in years

At the Summer Olympics last year in Athens, one of the biggest events took place on the sidelines: The chief executives of Reebok International Ltd. and rival Adidas-Salomon AG met for the first time to talk about a deal that would shake up the sneaker industry.

Over coffee, Reebok's Paul Fireman and Adidas's Herbert Hainer began discussing a merger to create the first serious challenge in years to athletic shoe king Nike Inc. The executives stayed in touch at first by phone, and then, after a series of meetings in New York and Boston, Fireman agreed yesterday to sell the Canton company he started in 1979 for $3.8 billion. He and his wife, Phyllis, stand to make nearly $800 million cashing in their shares of Reebok.

''Obviously there's a lot of emotion. It's sad," Fireman, 61, said in an interview. ''I spent a lot of years building this company. But I see this as an opportunity of a lifetime."

Under the terms of the deal, Adidas, which is located in Herzogenaurach, Germany, will pay $59 per share in cash for Reebok's outstanding shares, a premium of 34.2 percent over the closing price of Reebok's stock on Aug. 2.

The transaction gives the number two Adidas and number three Reebok a fighting chance against Nike, which has nearly 40 percent of the worldwide market, including its Converse line, according to Sporting Goods Intelligence, a Pennsylvania newsletter that covers the sporting goods industry.

The new combined company will have about a 25 percent share of the world sneaker market with annual sales of $11.1 billion, just behind Nike's $13.7 billion.

The marriage will also give Adidas a bigger North American presence, which represents 50 percent of the global sporting goods market, and a star-studded list of endorsers -- from Adidas's British soccer player David Beckham to Reebok's hip-hop artist 50 Cent.

The Reebok takeover is the latest in a string of acquisitions of Bay State companies by bigger outside firms. But under the proposed deal, Reebok will continue to operate under its name and keep its headquarters in Canton, where Fireman says he will stay as chief executive for at least a year.

The companies said there will be job cuts but declined to say how many. The reductions will not be significant, the companies said, because Reebok will continue as a separate operation. Reebok has 9,000 employees worldwide, including 1,200 in Canton.

''This is an opportunity for both brands to grow," Hainer said. ''We will keep the brands separate because they have their own brand identity and own brand image."

Reebok shares jumped 30 percent to close at $57.14 on the New York Stock Exchange. Adidas stock rose about 7 percent. The transaction, which is expected to close in the first half of next year, still requires approval from both shareholders and regulators in the United States and Europe.

No other Reebok executive has stock ownership anywhere near the Firemans. The next biggest stockholder is chief financial officer Kenneth I. Watchmaker, who could receive more than $4 million for selling his shares, according to a May securities filing.

''This is not something we were rushing out to do," Paul Fireman said. ''But when the opportunity came to reality, my board of directors and myself felt this was a powerful combination."

For Adidas, which has struggled to score a big US presence, the acquisition of Reebok would more than double the North American sales to $3.9 billion as it gains access to Reebok's popular basketball, football, hockey, and women's apparel lines.

The proposed transaction will allow the companies to compete better, especially in the United States and China, for customers, endorsements, and licensing deals. The combined group will have licensing relationships with five sporting leagues, including Major League Baseball and the National Basketball Association, and global events, such as the Beijing 2008 Olympics. Analysts say the sneaker firms are a good match -- bringing together performance-based Adidas, which has its roots in soccer and track and field, and Reebok's lifestyle-focused brand of sneakers and athletic apparel.

''Adidas is at a point where it needs to grow in the US and to make a substantial impact, Reebok is a great fit for them," said Kevin O'Mara, a partner in the corporate merger and acquisition department of Cadwalader, Wickersham & Taft LLP in New York City. ''The deal creates a more formidable competitor for Nike and it brings Adidas the ability to have a second brand line that has a somewhat different identity."

Alan Marks, a spokesman for Nike, said the Beaverton, Ore., sneaker giant isn't fazed by the deal. ''It doesn't change our growth strategies at all."

Outside of the Reebok and Adidas lines, the two companies have a large portfolio of brands, including Reebok's Greg Norman Collection and Rockport, and Adidas's TaylorMade.

''I'm not a big fan of footwear brand acquisitions because you're generally competing against yourself," said John Schneider, a retail analyst at MFS Investment Management. ''But this makes sense. There isn't a lot of product overlap. Both are cash-rich companies that have some room to cut costs."

The Reebok deal comes a week after Puma, the world's fourth-largest sporting goods company, disclosed plans to aggressively expand through acquisitions. And in June, Stride Rite Corp. of Lexington, known for children's shoes and Keds, agreed to buy running shoe Saucony Inc. of Peabody.

For now, Reebok and Adidas have their eyes set on beating Nike.

In an employee memo sent yesterday, Reebok said, ''We certainly plan to give them a run for their money."

Globe staff writers Steven Syre and Sasha Talcott contributed to this report.

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