Adidas Is Entangled in a Legal Battle With a Company It Once Owned — Here’s What You Need to Know

Bankrupt shoemaker Rockport’s plans to move forward with a sale to private equity firm CB Marathon Opco LLC has hit a snag — of the three-stripe variety.

The company — which filed for Chapter 11 in May — is facing an objection to the sale from previous owner Adidas AG. (CB, an affiliate of Charlesbank Capital Partners LLC, had entered the stalking-horse bid for Rockport’s assets in May. In July, Rockport announced that after completing a court-approved marketing process, it intended to complete the asset purchase with CB, pending approval by the Delaware bankruptcy court.)

In court documents filed on June 28, Adidas alleged Rockport’s proposed sale to CB would shortchange its former owner out of millions of dollars it is owed.

“Adidas and its subsidiary Reebok are former owners of the Rockport business and two of the largest unsecured creditors of [Rockport] and their affiliates. The sale of the Rockport business in 2015 required Adidas to facilitate a post-closing transition of operations in foreign markets to the new owner in exchange for the recovery of a variety of costs and lost benefits,” Adidas stated in the legal papers objecting to the Rockport-CB sale. “Following that transition, which took over two years to complete, it became clear that Rockport was unwilling to hold up its end of the bargain. Now, having reaped all the benefits of Adidas’s considerable operating expertise in foreign retail markets, [Rockport proposes] to sell the very business that Adidas maintained for them and to leave Adidas and Reebok holding the bag.”

This is the latest battle in an ongoing saga between Rockport and its former parent company. Previously family-owned, Rockport — founded in 1971 in West Newton, Mass. — came under Reebok’s ownership in 1986. Reebok and its subsidiaries were purchased by Adidas in 2005. In early 2015, New Balance Holding and Boston-based Berkshire Partners LLC bought Rockport from Adidas for an estimated $280 million.

When Rockport filed bankruptcy in May, in a court declaration, its interim CFO Paul Kosturos claimed that a “costly and time-consuming separation” from Adidas was among the key factors contributing to the shoemaker’s need to seek Chapter 11 protection.

“Separation of the [Rockport Group’s] operations from the Adidas Networks was not completed until November 2017 and proved to be more complex, took meaningfully longer and was significantly more expensive than planned,” Kosturos told the court on May 14. “In addition, [Rockport] encountered operational challenges during the initial development of [its] own logistics network that negatively impacted revenue.”

Conversely, Adidas now claims that Rockport and its affiliates are liable “for no less than $54 million in obligations” owed to Adidas in connection with the post-closing transition. (When Rockport filed for Chapter 11, it said Adidas and Reebok held the No. 2 and No. 3 largest unsecured claims at $58 million and 12.5 million, respectively.)

“Further, the [intellectual property] license [Rockport] purports to assign cannot even be assumed without the consent of Adidas, which has not been given,” Adidas stated in the June 28 filing.

Adidas further said it is willing to work “cooperatively” with Rockport, CB and other parties “to achieve a successful sale of the Rockport business” — noting that its conflict is with the sale as it is currently proposed.

Rockport is home to the Aravon, Dunham, Rockport and Cobb Hill collections.

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