October 1, 2014 / 7:14 AM / in 3 years

Adidas seeks to placate investors with share buyback

PARIS (Reuters) - German sportswear maker Adidas, facing investor discontent after a series of profit warnings, plans to return as much as 1.5 billion euros ($1.9 billion) to shareholders over the next three years.

Adidas soccer shoes are pictured before the company's news conference in the northern Bavarian town of Herzogenaurach, near Nuremberg in this June 24, 2014 file photo. REUTERS/Michaela Rehle/Files

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, Adidas said in a statement on Wednesday.

The buybacks would not come at the expense of a planned hike in investment in marketing, an Adidas spokesman added.

The company, struggling to keep pace with larger U.S. rival Nike in the sportswear market, issued its third profit warning in a year in July, blaming a plunge in sales at its golf business and exposure to a weak Russian market.

“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,” said Ingo Speich, a fund manager at Union Investment which is the ninth-biggest investor in Adidas with a 1.2 percent stake.

Chief Executive Herbert Hainer said in August that Adidas had no plans for a share buyback.

Adidas shares, which are down more than a third this year, traded 1.9 percent higher by 0918 GMT, outperforming Germany’s blue-chip index, which was 0.2 percent higher.

“Given our group’s strong projected cash flow generation and healthy balance sheet, we have the necessary funding for both reinvestments for growth as well as cash returns to shareholders,” a company spokesman said in an emailed comment.

Adidas has said it would increase spending on marketing and invest more in its own stores, although it is scaling back expansion plans in Russia due to higher risks to consumer sentiment and spending over the Ukraine crisis.

LOSING MARKET SHARE

While Nike has encroached on Adidas’s home territory in western Europe, the German firm has failed to make serious inroads in North America. Its U.S. rival extended its lead to take a 15 percent global market share in 2013 compared with 10.8 percent for Adidas, according to Euromonitor.

Last month, Germany’s manager magazin said hedge funds including Knight Vinke, Third Point and TCI were considering buying stakes in Adidas to pressure management to make sweeping changes, although one of the funds dismissed this.

The magazine said the funds would seek radical changes at Adidas, including the removal of CEO Hainer and the possible spin off of fitness brand Reebok and golf label TaylorMade.

Hainer had his contract extended until 2017 earlier this year to allow the company to work on a succession plan. He has recently overhauled top management, appointing Roland Auschel and Eric Liedtke as new heads of global sales and global brands.

Adidas said the buybacks were in addition to the company’s policy of paying out 20-40 percent of its net income as a dividend to shareholders .

Adidas also said it would issue two Eurobonds with a total volume of up to 1 billion euros - with a seven and 12 year term - saying it would use the proceeds to pay down debt and to prefund future debt maturities, pension payments and returns to shareholders.

($1 = 0.7925 euro)

Reporting by Emma Thomasson; Editing by Keith Weir

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