Sporting goods company Adidas is looking to sell its subsidiary brand Reebok through an auction process. Adidas acquired Reebok in 2006 for $3.8 billion in order to compete with rival Nike, but Reebok’s performance has been disappointing in recent years, leading to calls from investors for Adidas to divest the brand. As a result, the expected sale price for Reebok has dropped to around 1 billion euros ($1.2 billion).

Adidas has set a deadline for first-round bids to be submitted by next week, and it is expected that Chinese companies Anta Sports and Li Ning will participate in the auction. Other potential bidders include Korea’s Fila and U.S.-based Wolverine. Financial investors, such as TPG, Sycamore, Cerberus, and Apollo, have also expressed interest in Reebok due to its potential for a turnaround. However, it is important to note that Reebok is projected to experience a loss in 2021 and only report slightly positive core earnings in the following year.

One potential challenge for Reebok’s auction is attracting Chinese buyers, as there have been widespread consumer boycotts targeting Western fashion brands that allegedly do not source cotton from China’s Xinjiang region. Xinjiang authorities have been accused by researchers and foreign lawmakers of using coerced labor programs to meet cotton picking demands, an allegation that China strongly denies. This controversy has resulted in the cancellation of plans to distribute Adidas-branded T-shirts at events like the Shanghai Half Marathon. While companies like Hugo Boss anticipate continued sales growth in mainland China despite the boycott calls, Puma has already admitted that the boycott has had a negative impact on its sales.

Adidas is promoting Reebok based on its projected earnings before interest, tax, depreciation, and amortization (EBITDA) of over 200 million euros by 2025, along with an expected annual revenue growth of 10%. Industry analysts believe that Reebok’s recent collaborations with celebrities like Cardi B and its renewed focus on women’s apparel have improved the brand’s standing in the market.

Useful links:
1. Financial Times: Adidas to Divest Reebok in Auction Process
2. BBC News: Xinjiang: Where China’s Simmering Conflict Could Boil Over