Pentland pays 215m pounds for rest of Adidas

PENTLAND, the leisure investment group, is acquiring Adidas, the world's second-biggest sportswear company, owned by Bernard Tapie, the controversial French politician and entrepreneur.

The company yesterday said that it had reached agreement to buy Mr Tapie's 80 per cent stake in the German sportswear company for pounds 215m in cash.

The move is the boldest taken by Pentland since it made a pounds 400m fortune from an initial dollars 40,000 punt in Reebok more than a decade ago. At the time Reebok was a small, struggling sports shoe maker but it has since become one of the world's leading brands.

Last January Pentland cashed in its remaining 13 per cent stake in Reebok to concentrate on other opportunities. It bought a 20 per cent stake in Adidas for pounds 46.2m last August in a deal that also gave it rights to match any rival offers for the remaining shares.

Yesterday's move follows rumours that Mr Tapie had received an estimated pounds 350m offer from Adidas's management. But Pentland said the rumours were unfounded and it had been approached by the vendors.

Stephen Rubin, Pentland's chairman and 55 per cent owner, said: 'With over pounds 250m of net cash in the bank we believe it is now the right time in the (business) cycle to make a major investment. Adidas is one of the best- known brand names in the world.'

Adidas, which has been struggling against fierce worldwide competition, made taxable profits of pounds 7.6m on total sales, including royalty income, of pounds 1.6bn last year. Its borrowings amounted to around pounds 200m while net assets totalled pounds 13.8m in 1991.

Pentland believes it can improve Adidas's profit margins by using its expertise in sourcing its sportswear from Far East manufacturers. Pentland's know-how as a sourcing intermediary was key to Reebok's success in the past decade. But the two parted company in 1990 after the expiry of a 10-year contract.

In April, Pentland entered into a similar agreement with LA Gear, another big US shoe concern, to supply its products from the Far East.

The deal was accompanied by Pentland's purchase of a 6 per cent stake in the loss-making concern for pounds 8m.

In the past two years Pentland has also emerged as an equity investor and sourcing agent for several other companies, including Speedo, the swimwear firm.

Despite fierce competition, Pentland says it can improve Adidas's pre-tax profit margins from about 1 per cent to about 10 per cent in three years. Analysts estimate that every 1 percentage point improvement could boost Pentland's profits by about pounds 10m a year.

A key part of its strategy is also likely to improve the brand's penetration in the US, where it currently holds a 3 per cent market share, against Nike's 29 per cent and Reebok's 23 per cent. Worldwide it is number two.

Adidas's expected push for a bigger US share is likely to involve stronger marketing, aimed at generating a closer identification of the brand with specific sports.

This was a strategy that helped its rivals to overtake Adidas over the last decade. But Adidas has been signing up leading sports stars, including the Wimbledon champion Steffi Graf, to help bolster its image.

Mr Tapie is selling his shareholding amid growing worries about his business empire. His business reputation has been based on turning around failing companies. The best-known of the 40 companies he acquired between 1977 and 1989 was the Wonder battery concern, bought in 1984 and sold four years later to Ucar at a profit of Fr470m ( pounds 48.5m).

(Photograph omitted)