German sneaker giant Adidas announced that it has reached a deal to buy-out its US rival Reebok for $3.8 billion.

Insiders say the merger could cause Adidas/Reebok to challenge Nike as the top sneaker in the U.S. Adidas head Herbert Hainer revealed that the agreement "represents a major strategic milestone for our group."

The buy-out still needs to be approved by Reebok shareholders and competitions authorities. If approved, the contract could be finalized in early 2006.

Shortly after reports of the merger spread on websites and in financial papers on Tuesday, Reebok's shares rose 16% in after-hours New York trading; eventually climbing to $51 per share. Adidas is presently worth $59 per share.

"This is a once in a lifetime opportunity to combine two of the most respected and well-known companies in the worldwide sporting goods industry", stated Mr. Hainer.

According to Adidas, the Adidas/Reebok group will have worldwide footwear sales of $11 billion U.S. dollars (equivalent to $9 billion euros).

Missy Elliot and English soccer star David Beckham are sponsored by Adidas. Meanwhile, 50 Cent, Jay-Z, Nelly and Philadelphia 76ers guard Allen Iverson have deals with Reebok. Reebok also has U.S. sport licensing deals with the NFL (National Football League) and the NBA(National Basketball Association).

North America represents approximately 50% of the worldwide sporting apparel market. Adidas now believes that teaming up with Reebok will double its North American sales to $3.8 billion. The company is also confident that the deal would help balance its portfolio. Furthermore, the deal should also allow Reebok to increase its presence in Europe and Asia where Adidas is already a dominant brand.

The group will be labeled with Adidas and Reebok logos and will also include brands like Taylormade, Rockport, Greg Norman Collection, Maxfli, CCM, Jofa and Koho. With their union, Adidas/Reebok could hold roughly 20% of the U.S. sports footwear market. Nike presently holds 36%.

Reports say Adidas was seeking a bigger status in the U.S. Market. To focus on footwear, the company sold its ailing Salomon winter sports equipment business to Finnish firm Amer, last May.

Along with the Reebok buy-out, Adidas also announced its recent profits. Following the sale of the Salomon business, it's second-quarter profits hiked 33% to $116 million ($94 million euros). Its sales also jumped to 1.5 bn euros from 1.4 bn around May 2004. Adidas expects another sales increase with the upcoming 2006 Soccer World Cup Championship held in Germany.

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