Adidas share price up, to sell Rockport brand to rival New Balance

Adidas AG announced on Friday the sale of its Rockport shoe business to a joint-venture of rival New Balance Athletic Shoe as the company shifts focus towards its core brands.

New Balance and private-equity firm Berkshire Partners have created a new entity with the intention to purchase Rockport and merge it with New Balances existing Drydock business, Adidas said.

The new joint-venture will distribute both Drydock and Rockport brands, including Aravon, Dunham and Cobb Hill.

“Rockport is a brand that has performed well over the last years. However, our focus is clearly on sport and operating a brand portfolio with a clear agenda to unleash the potential of athletes and inspire consumers to live active lives,” said Adidas Chief Executive Officer Herbert Hainer.

The sale of the Rockport brand, which makes dress and boat shoes, is valued at $280 million, with the majority of which will be paid in cash and the remainder with comprised notes. Adidas said it expected the agreement to be completed later this year and to hit its 2014 profits by a double-digit million euro amount.

Mr. Hainer also added that the brown shoe category is not a core brand for Adidas and its disposing would allow the company to focus on its adidas, Reebok and TaylorMade brands.

Adidas obtained Rockport in 2006 when the Germany-based company acquired Reebok. However, the sportswear maker has been exploring the option of a possible sale since last May, despite the good performance of the brand.

Rockport reported a 5% sales increase during the first nine months of 2014, excluding the impact of currency shifts.

The sales of the brown shoe brand also boosted speculations that Adidas is also considering the disposal of the Reebok brand as the company struggles to compete in the US market. Although Mr. Hainer has repeatedly stated that Reebok is a key factor for the companys future growth.

Adidas also announced that its net income for 2014 reached its €650 million target, excluding the impact of the sale and a €80 million write down in its Russian operations. Group sales edged up 6%, before the influence of the sales and currency shifts.

Previously Adidas had projected earnings to land between €830 million and €930 million, but reduced that guidance in July.

Adidas AG added 3.90% and closed at €60.54, marking a one-year decrease of 33.55%. The company is valued at €12.19 billion.

According to the Financial Times, the 33 analysts offering 12-month price targets for Adidas have a median target of €62.00, with a high estimate of €100.00 and a low estimate of €49.00. The median estimate represents a 6.40% increase from the last close price.