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Essay: Nike-Converse Acquisition

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Individual Case Study Report: Nike-Converse Acquisition

On July 9, 2003 Nike, the world's No. 1 athletic-shoe maker, entered into an agreement to purchase all of the equity shares of closely held rival Converse Inc., a widely recognized footwear company based in Massachusetts, for $305 million cash.

In the 1970s, as the official footwear of the NBA, Converse was flying high, but Nike and Reebok snapped up much of the market in the '80s by adding gel and air-soles to their shoes and signing up star endorsers like Michael Jordan. Converse's annual revenue peaked in the late '90s at $450 million but then sank fast, a 95-year-old company that became famous for its Chuck Taylor had to file for bankruptcy after being surpassed by Nike and other companies. A group of private equity investors bought Converse for $117.5 million in April 2001. New leadership jump-started the company by shedding retail operations and outsourcing labor to Asia (Jelveh). In December the company filed to raise as much as $86.3 million by selling shares. Converse had a profit of $17.5 million on sales of $142.9 million during the first nine months of 2002. ''Converse is one of the strongest footwear brands in the world, with a great heritage and a long history of success,'' Tom Clarke, Nike's president for new business ventures, said in a statement. ''Converse management has done an excellent job of re-establishing this beloved brand with consumers and we look forward to supporting them as they continue to implement their growth strategy.'' The chief executive of Converse, Jack Boys, alluded to the company's troubles and turnaround: ''Over the past two years, we have rebuilt and reinvigorated the Converse brand,'' ''But our job is not done.'' Under Nike ownership, Mr. Boys said, Converse hoped to expand further internationally (Wayne).

“Converse designs and distributes athletic and casual footwear, apparel, and accessories under the Converse ®, Chuck Taylor ®, All Star ®, One Star ®, and Jack Purcell ® brand names” (Nike 10K Report 2004). At the time of the acquisition Nike had a revenue of $10.7 billion in the year ended May 31. Nike shares fell 71 cents to $53, to bounce back at the end of


the year by 19%. While known more for its namesake products and campaigns, Nike also owned other “swooshless” brands like Cole Haan and surfwear retailer Hurley International at the time of the acquisition. In 2002 non-Nike lines generated $911 million for the company. By adding low-priced Converse canvases to the mix, Nike was hoping to further diversify its product line (Schlosser).

This transaction was subject to regulatory review, including U.S. government review under the Hart-Scott-Rodino Premerger Notification Act. Nike themselves stated: “If the acquisition is completed, we do not expect it will have a significant effect on our liquidity, results of operations or financial position in the short term. While we do expect a positive impact on our long-term profitability from this acquisition, we cannot reasonably estimate this impact at this time.” (Nike 10K Report 2003). The deal brought together one of the oldest names in athletic footwear with perhaps the world's best-known sports shoe brand. It also opened a new chapter for the financially troubled Converse, which dominated the athletic footwear business for decades before stumbling into bankruptcy in the early 1990's. Converse's athletic shoe was the first shoe marketed by Nike without bearing the Nike name. Oregon-based Nike didn’t change Converse's management and operations, instead it was operated as a separate unit. The acquisition allowed Nike to imply the ''buy rather than build'' strategy and it helped them to develop leisure shoes separately from the hard-core Nike sports image.

The purchase price was very reasonable, it didn’t include a premium. There were no other issues in terms of the transaction. Nike paid about the equivalent of Converse's revenue that year which in peoples mind was a “pretty good number” not an exorbitant number, but not cheap either. Converse and Nike represent two different types of shoes, heritages and prices. Nike, with $10.7 billion in sales, had carved out a profitable niche by lining up some of sport's biggest stars, among them LeBron James for $90 million; churning out sports shoes that can cost up to $150 a pair. Converse, based in North Andover Mass., had sales of $205 million annually. Generations of Americans, since 1908, put on the company's canvas and rubber round-toe shoes. Its products were sold in over 12,000 sports and chain stores around the world and through licensing agreements in over 100 countries, which Nike now had access to. Converse had built a reputation for lower-priced and more traditional shoes. (Wayne). This acquisition put Nike squarely into the fast-growing market for “classic footwear”, it helped to fill a void in Nike’s marketplace. The


addition of Converse gave Nike a way to sell shoes to discount stores and other mass- merchandise retailers.

Overall, this was a great opportunity for Nike to take their brand to the mass-market channel through Converse. It was just the right product at the right price. Converse attracted a younger demographic of consumers who had a strong brand loyalty. The deal was completed on September 4th, 2003, only 2 months after the announcement. Nike bought the company for $305 million when Converse had annual sales of just over $200 million. In 2017 Converse’s sales were little over $2 billion and today it makes up about a tenth of Nike’s total footwear revenue. There's no question that Converse has been one of Nike's most important investments yet, with an incredible growth since Nike acquired the brand in 2003. Some-what thanks to this acquisition Nike continues to lead its industry.


Converse Price Breakdown (Bloomberg):

 Total Target Company Ann Date Value

Converse Inc





Handsome Co Ltd

Benetton Group Srl

Sinoer Men's Wear Co Ltd

Peak Sport Products Co Ltd Ningxia Zhongyin Cashmere Co Ltd K-Swiss Inc

Kingnet Network Co Ltd Kingnet Network Co Ltd Peak Sport Products Co Ltd Union Technology 2008 PCL


01/13/12 02/01/12 06/13/17 07/26/16 10/08/15 01/16/13 03/21/14 11/13/15 04/23/09 02/20/09


213.36 204.45 1.84 364.94 364.94 364.71 346.84 310.78 291.78 134.94 85.08 83.59 60 1.84


Works Cited

Jelveh, Zubin. “Just Buy It.” Conde Nast Portfolio, vol. 2, no. 9, Sept. 2008, p. 40. EBSCOhost, l ogin.pallas2.tcl.sc.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db =bth&AN=43504007&site=ehost-live.

Nike. 2003, 2004, 2017 Annual Report. Retrieved from: https://investors.nike.com/investors/news-events-and-reports/?toggle=events

“This Is Nike's Secret Weapon: Converse.” CNNMoney, Cable News Network, money.cnn.com/2015/04/08/investing/nike-secret-weapon-converse/index.html.

Schlosser, Julie. “Nike Goes Old School.” Fortune, vol. 148, no. 3, Aug. 2003, p. 150. EBSCOhost,login.pallas2.tcl.sc.edu/login?url=http://search.ebscohost.com/login.aspx?dir ect=true&db=bth&AN=10350984&site=ehost-live.

Wayne, Leslie. “Nike Purchasing Converse, A Legend on the Blacktop.” The New York Times, The New York Times, 10 July 2003, www.nytimes.com/2003/07/10/business/nike- purchasing-converse-a-legend-on-the-blacktop.html.

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