Adidas, "facing investor discontent after a series of profit warnings," plans to return as much as €1.5B ($1.9B) to shareholders over the next three years, according to Emma Thomasson of REUTERS. The shareholder return program "would be financed mainly from the group's free cash flow, with buybacks to start in the current quarter and be completed by the end of 2017." An adidas spokesperson said that the buybacks "would not come at the expense of a planned hike in investment in marketing." Ingo Speich, a fund manager at Union Investment, which is the ninth-biggest investor in adidas with a 1.2% stake, said, "This is just a sop for beleaguered shareholders, but does not solve the operational problems at adidas. Top management seems to be under enormous pressure" (REUTERS, 10/1). BLOOMBERG's Corinne Gretler wrote adidas’s slumping share price "led to a report this month that activist investors are considering buying stakes, adding to pressure" on CEO Herbert Hainer. Equita SIM SpA analyst Fabio Fazzari said, "Adidas shareholders are facing a very tough year and if the investment prospects of the company are not as compelling as at the beginning, then I think could be reasonable to improve their dividend policy and to use the cash they have for a buyback." The company said that the buyback program will be in addition to adidas’s policy "to pay an annual dividend" of 20-40% of net income. S&P Capital IQ equity analyst Carl Short said, "What they’re doing now is classic corporate finance. They don’t have any net debt at the moment, and are looking to add some leverage to the business" (BLOOMBERG, 10/1).
PLAN COULD 'BACKFIRE': In N.Y., Monica Houston-Waesch wrote adidas "will buy shares on the stock exchange at no more than 10% above or below the exchange price at the launch." Some traders "cautioned that the buyback program could backfire by depleting the company's cash reserves." At the end of June, adidas' cash and equivalents stood at €1.19B ($1.5B). A trader said, "That would mean adidas is completely dissolving its free cash holdings." Some investors "had hoped for what they consider a more productive use of the cash." In a research note, Volker Bosse of Baader Helvea Equity said the news is likely to be well-received, but conceded, "It also has to be seen as a defensive move of adidas management ... to support the share price and to calm down shareholders" (WALL STREET JOURNAL, 10/1).
POOR TIMING?: In London, Alice Ross reported a boost to adidas shares after the company announced plans to buy back €1.5B in its own stock "proved shortlived after investors said they still had serious concerns over the health of the German sportswear group." Adidas stock rose nearly 5% after the company said that "it would return the funds to its investors over the next three years." Adidas CFO Robin J. Stalker said that the company believed its shares were "significantly undervalued." However, "the boost to the share price proved shortlived," with shares later up less than 1.5% on the day. One top 10 shareholder "complained about the timing of the buy-back plans." The shareholder said, "I have problems with the timing. They could have done it with the profit warning or they should have waited until November. That might have been a better point as everyone is now struggling to try to gauge how things will work out for them." Referring to recent shareholder grumbles, Commerzbank analyst Andreas Riemann said, "It seems like this decision was taken from a position of weakness. One could argue that they are implementing a defense measure against activists" (FINANCIAL TIMES, 10/1).
