Amer Sports surprises everyone with Salomon purchase announcement

Amer Sports Corporation uncorked a surprise announcement at 12:30 PM Finnish time on May 2 with an announcement that the company had just signed an agreement to acquire Salomon from adidas-Salomon AG. With the acquisition, Amer Sports snaps up Salomon, Mavic, Bonfire, Arc'Teryx, and Cliché. The deal is worth approximately euro 485 million (approximately USD $685 million USD) and includes euro 144 million of goodwill (goodwill meaning the difference between the purchase price and what is considered the fair market value of the acquired company's assets).
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Amer Sports Corporation uncorked a surprise announcement at 12:30 PM Finnish time on May 2 with an announcement that the company had just signed an agreement to acquire Salomon from adidas-Salomon AG. With the acquisition, Amer Sports snaps up Salomon, Mavic, Bonfire, Arc'Teryx, and Cliché. The deal is worth approximately euro 485 million (approximately USD $685 million USD) and includes euro 144 million of goodwill (goodwill meaning the difference between the purchase price and what is considered the fair market value of the acquired company's assets).

The deal certainly fits well within the parameters of an acquisition that Roger Talermo, CEO and President, Amer Sports, laid out for SNEWS® during a one-on-one chat in February at ispo this year. While he told us the company was looking at opportunities, he also stated very firmly that, "We don't make acquisitions just to make acquisitions. Equipment is our priority."

Talermo in the talk with us went on to state that the company did not have a lot of interest in apparel and footwear since it can be so trendy and what's in can move with the wind; however, he did state that the company would not exclude softgoods totally if they were technical and offered a very good technical story.

"With technology, you can add value for the user. A brand is not enough," said Talermo. "Yes, a brand is important, but it's just an added value through technology."

With this purchase, Amer Sports adds bicycle components, a leading ski and snowboard equipment brand, and some very technical apparel brands in Arc'Teryx, Bonfire and Cliché.

Assuming the deal is approved by the necessary regulatory folks, Amer will become a euro 1.7 billion company with approximately 6,800 employees worldwide -- fulfilling the company's pledge to become the No. 1 one sports equipment company in the world. As of revenues reported by end of day yesterday, Adidas Salomon's value falls to just under euro 800 million, Shimano just over euro 1.2 billion, K2, Brunswick and Nike at just around euro 800 million, Acushnet at just under euro 1 billion euro, Icon Health & Fitness at about euro 900 million, and Head, Nautilus, Rossignol, and Mizuno dancing between the euro 400 billion to 500 billion mark.

Amer Sports is financing the transaction with debt and stated that the company expects that the acquisition will have a slightly positive impact on earnings per share in the current fiscal year as well as in 2006. It is expected that the transaction will be completed by the end of September 2005.

Headquartered in Annecy, France, Salomon reported total sales of euro 653 million and an operating profit of euro 9 million in 2004 which included a restructuring provision of euro 19 million.

Amer expects to leverage synergies in industrial operations, production, and logistics to achieve an annualized cost-savings of euro 40 million by the end of 2008.

"Salomon fits perfectly with our own portfolio. The leading freedom action sport brands open up great new potential for Amer Sports. In winter sports, Salomon and Amer Sports' Atomic complement each other very well. Furthermore, the two companies and their brands complement each other well in geographical terms, making our geographical coverage more balanced,” stated during a press conference to announce the sale.

News of the sale was positively received by investment analysts for both camps and by the stock market itself. Adidas (ADSG.DE) saw its stock jump to a seven-year high on news of the impending sale and Amer Sports realized a jump of just over 7 percent in stock value.

adidas purchased Salomon and Taylormade (now called Taylormade-adidas Golf) for $1.4 billion (approximately euro 1.2 billion) in 1997. While Taylormade has been a success story for Adidas and continues to show significant growth, Salomon sales and profits have struggled, often bringing down the overall value of adidas stock.

Earlier in the day on May 2, adidas had reported that Salomon revenues for the 1Q of 2005 were down 8 percent, citing a drop in demand for inline skates, cycling components and winter sports products.

In December, 2004, adidas announced it was beginning a restructuring of the company and that it would cut its Salomon workforce in France by 160, and that some ski, snowboard and inline-skate production would be moved to Romania and China.

European financial analysts have often stated, and were certainly doing so today following the announcement of the sale, that Salomon and its related brands never fit within the Adidas portfolio, which is why the brands have struggled. Many of the same analysts also feel that the fit with Amer Sports is much better and that the purchase price was reasonable given smaller margins and lower profits.

“Salomon has been a great member of our Group. However, we decided that now is the time to focus even more on our core strengths in the athletic footwear and apparel market as well as our growing golf category," Herbert Hainer, chairman of the executive board and CEO of adidas-Salomon AG, said. He added that adidas would likely be renamed.

Jean-Luc Diard, the president of Salomon since 1998, will continue to lead the Salomon organization, reporting directly to Talermo. The management of Mavic, Bonfire, Arc'Teryx and Cliché will also remain unchanged, reporting to Jean-Luc Diard. Amer Sports and Salomon will continue to serve their customers around the world as before with their own separate sales forces. The restructuring program in France, initiated by Salomon, will continue.

In addition, the sale agreement calls for Adidas to cooperate and assist with the transition for a period of three years.

During the press conference and video presentation by Amer Sports, Talermo revealed that in 2004, geographical distribution of combined net sales for the company (Amer and Salomon) consisted of 45 percent Europe, Middle East and Africa, 45 percent in North America, and 10 percent in Asia.

By business area, Salomon represents 39 percent of the total business; with fitness (Precor and its brands) making up 12 percent; golf, 9 percent; racquet sports (Wilson), 12 percent; team sports (Wilson), 11 percent; winter sports (Atomic), 12 percent; and sports instruments (Suunto), 5 percent.

Combined, Salomon and Atomic currently represent about a 36-percent global market share in the winter sports category. Talermo stated during the conference that he believed Atomic, which recently began its own Nordic boot program, could benefit tremendously from Salomon know-how, and that Salomon, which just launched its own line of Nordic skis, could benefit greatly from Atomic's design and production experience.

When asked about Salomon's apparent inefficiencies in ski production, Talermo stated only that Amer would be evaluating production processes closely in the next year, and that they remained convinced they could help Salomon's ski factories become more efficient.

"We know we can produce skis more efficiently without sacrificing performance," said Talermo.

He also stated that there "was no danger of outsourcing ski production from Atomic, as the factory in Austria is very efficient and the most profitable ski factory in the world."

Several times during the press conference, Talermo stated that the company was "very intrigued" with the market possibilities that Mavic presented. He also pointed out that there was certainly an opportunity to leverage technological synergies with Suunto and Mavic, giving Suunto an entree perhaps to the bike computer world.

And now with Bonfire snowboard apparel and Arc'Teryx technical outerwear, as well as Salomon hiking and trail running shoes, Amer Sports is fully engaged in the apparel and footwear business and likes what it sees. Toward the end of the press conference, when asked what the company's intentions were regarding apparel, he stated that while Arc'Teryx and Salomon were small players currently on the world market, it was not Amer Sports' intention to leave it at that.

"Arc'Teryx is a very high end brand with many patents and with Salomon on the footwear side we clearly have a category that has a lot of opportunity to decide what we want to do," said Talermo.

(Conversion of Euros into U.S. dollars is for information only, is not necessarily relative to earning, and is based on the currency rate as of May 2, 2005.)

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