German based company, Adidas AG, has announced that it will be returning around 1.5 billion euros (equivalent to roughly $1.9 billion) to shareholders over three years as the company aims to stave off investor unrest.
The world's second largest sporting-goods maker revealed that they will have a three-year buyback which will begin in the fourth quarter of 2014. This will be mainly funded from the company's cash flow. This news affected the company's shares as the stock price increased by as much as 4.8 percent. Adidas has declined 34 percent this year.
According to an analyst in Equita SIM Spa in Milan, "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. This is a fair decision with good timing."
The falling stock price of Adidas had led to a report recently that some investors are thinking about buying stakes. This added pressure on Adidas' CEO Herbert Hainer.
Adidas is also up against the wall with tough competitors such as Nike Inc. and small player Under Armour Inc. A few months ago, Adidas has revised its forecast on its earnings profit for the year. The company is scheduled to release their third-quarter earnings report on November 6 and is expected to report a 16 percent decline in net income. If indeed true, this would be their fourth decline in the past five quarters.
The buyback program is an added feature on the company's policy to provide a dividend annually of 20 to 40 percent of its new income. To help fund the buyback, Adidas is planning to issue around 1 billion euros in Eurobonds. The proceeds of the bond will also be used to repay debt.
Adidas AG is a German multinational corporation that manufactures sportswear, accessories and shoes. It is a holding company for the Adidas Group, including reebok, Rockport, TaylorMade Adidas golf company and a small percentage of FC Bayern Munich. Adidas is the biggest manufacturer of sportswear in Europe.
