Reebok Agrees to Buy Its Fast-Growing Rival Avia for $180 Million
Finding a good fit with a competing athletic-shoe maker, industry leader Reebok International said Tuesday that it has agreed to buy tiny, fast-growing Avia Group International for about $180 million.
The deal, which would combine two of the best-known names in aerobics and other fitness shoes, was announced as Avia, a 7-year-old company based in Portland, Ore., was on the verge of a long-awaited public offering in which it expected to sell shares at between $11 and $14. Reebok’s price for its archrival represents about $16.35 a share, according to a joint statement.
Reebok was the sixth-most active issue Tuesday in composite trading on the New York Stock Exchange, closing at $41.75, up $4.25.
Barely breaking stride since its recent acquisition of Rockport Co., a Massachusetts maker of walking and casual shoes, Reebok said the Avia purchase would position the company for further growth in the expanding athletic and casual shoe market, a $2.7-billion segment last year.
“We think they have done an outstanding job of growing their brand and developing product lines,” Paul Fireman, chairman and chief executive of Reebok, said in the statement.
In 1986, when Reebok bolted past Nike to become the U.S. leader in athletic footwear, the company had net income of $132 million on sales of $919.4 million, compared to profits of nearly $39 million on sales of $307 million the previous year.
Avia’s sales soared last year to $70.3 million from $21 million in 1985, and net income rose to $4.3 million from $674,000.
Some industry observers noted that Reebok, based in Canton, Mass., had recently lost sales to the more technically oriented Avia products, particularly in the aerobics category, and that Fireman, 43, might have been motivated by a desire to remove a competitor. Company representatives said Fireman approached Avia about four weeks ago through one of its underwriters, Merrill Lynch Capital Markets.
“It’s basically a good, defensive acquisition,” said John Horan, publisher of the Sports Ink newsletter in Yardley, Pa. “Rather than buy something outside of the athletic distribution channel, where Reebok has obviously been successful but has a lot of exposure, they bought something inside. Granted, it was the only legitimate thorn in their side.”
Horan added that Avia is controlled by half a dozen venture capitalist firms. “It was clearly attractive to those people to get taken out clean all cash up front,” he said.
At about 19 times Avia’s projected 1987 earnings of 85 cents a share, the purchase price “seems like a whole lot of money to pay for $70 million worth of sales,” said Jack A. Sullivan, senior vice president at the Van Kasper & Co. investment firm in San Francisco.
“My initial instinct is that it was a great sale for Avia,” Sullivan said. “They can turn right around and start worrying about design and marketing and penetration and all of the other things that it would be nice to concentrate on without having the hassle of running a public company.”
Scott A. Taylor, Avia’s vice president of finance, said the company has asked the Securities and Exchange Commission to defer the offering. “Our registration is still in effect,” he said. “Should this deal not go through, we would go through with the offering.”
Avia, which also owns the Donner Mountain line of hiking shoes, will operate autonomously as a wholly owned subsidiary, with Dean W. Croft, 40, continuing as president, chief executive and chairman, according to the companies’ release. The purchase is subject to shareholder approval and antitrust review. The companies said they expect the deal to be wrapped up by the end of April.
TOP-SELLING SNEAKERS Branded sneaker sales in the United States totaled $2.7 billion in 1986.
Company 1986 sales Reebok $850 million Nike 550 million Converse 200 million Adidas 150 million New Balance 95 million Pony 85 million Puma 75 million Avia 70 million
Source: Sports Ink newsletter
