It is ironic that in a week that saw American football invade London,
as the New York Football Giants took on the Miami Dolphins in the first
NFL regular season game outside the U.S., that an American company
would reveal its plans to acquire the U.K.'s largest British football
brand.

Nike, Inc. will pay a premium for the Umbro brand, ponying up 193.06
pence per share for the company that holds the rights to the England
team kit through 2014. NKE has also committed to honor dividend
payments, which brings the deal value to approximately $4.00 (195p) per
share, or approximately $582 million (£285 mm) in total value.

The Board of Directors of Umbro plc, which is listed on the London
Stock Exchange, has unanimously recommended that shareholders accept
the offer. Among the shareholders are two key U.K.
retailers that hold roughly 25% of Umbro shares. Sports Direct,
which was rumored to have been in the mix for a deal for Umbro, holds a
15% stake that was accumulated over a two-week period in
September. JJB Sports, the U.K. 's largest sporting goods
retailer, holds a 10% stake it acquired just two weeks ago. Both
retailers said their moves were made to ensure an unimpeded flow of the
England team jerseys in the lead up to the European Championships next
year.

Nike Inc. CEO Mark Parker said the 70-year old Umbro business will be
treated as a stand-alone subsidiary. The brand's headquarters
will remain in the U.K., but will be able to take advantage of NKE's
expertise in product innovation, design and development, sourcing,
supply chain efficiencies, financial strength and sports marketing
expertise.  Parker likened the relationship and positioning for the
Umbro brand to that of Nike, Jordan and Converse in the basketball
category.

The positioning appears to be focused on Umbro's lifestyle
opportunities as a football (soccer) heritage brand, rather than
exploring new opportunities for Umbro on the performance side of the
spectrum where the Nike brand has built a $1.5 billion business.
Parker was adamant that the positioning would not be based on a value
versus performance strategy. Like Nike, they see an opportunity
for Umbro growth in the emerging markets.

“I think there's a tendency for some to suggest that Umbro may be a
value brand,” said Parker during a conference call with analysts.
“We're not looking at it that way. We see opportunities across a broad
spectrum of pricepoints like we do with the Nike brand.”

Parker said that there is an opportunity to double the size of the Umbro business worldwide.

“Our goal is to work with Umbro to further diversify their business,
balance their portfolio, so to speak, so it's not so completely reliant
on the England National Team kit,” he continued. “We think we have
great opportunity to expand their presence in branded apparel, to grow
their footwear business both in performance and lifestyle, as well as
the lifestyle apparel business as well, and then obviously some
equipment opportunity for growth as well.”

Like Converse, which Nike acquired in 2003, Umbro sees a big chunk of
its business come from licensing and distribution arrangements. NKE
will most likely see opportunities to grow revenues by converting the
licensing deals to direct distribution as they have with
Converse. One deal that will not be expiring anytime soon will be
the arrangement in
Japan, where Umbro sold the rights to the brand.

China and France are both managed through joint ventures.

Parker said that Umbro's recently announced 15-year exclusive deal with
Dick's Sporting Goods will not be affected by the acquisition, nor will
Umbro's deal with Sports Direct in the U.K.

The majority of Umbro sales for the last fiscal year were generated
outside of the direct distribution arrangement in the U.K.
Of the $755 million (£409 mm) in sales generated worldwide in fiscal
2006, only $276 million (£150 mm) came from direct sales.

Outside the U.K., international sales grew 14% at constant rates, led
by Greater China (up 48%) and Russia (up 40%). The U.S. business was down 63% for the year.

For the 2007 fiscal first half through June, U .S. sales – including
licensed – ” jumped 155%. Umbro said its U.S. soccer specialty
business increased by over 50% during the period and the distribution
agreement with Dick's Sporting Goods was “progressing well.” As
part of its private brands initiative, Dick's has secured the rights to
the Umbro brand for footwear, apparel and soccer balls. However,
Umbro, which also sponsors six clubs in England's top soccer league,
said overall pretax profits dropped 44.5% in the six months to July 1,
to £9.8 million ($19.7 mm) as sales declined 49% to £55.7 million
($112.7. mm).

NKE has committed to keep Umbro's double diamond logo on the England
kit until at least 2014. The decision has led the Football Association,
which oversees sponsorship of the English national team, to bless the
deal, waiving its right to terminate its England shirt contract with
Umbro under a change-of-ownership clause.

NKE intends to send details of its offer, which will be structured as
“Scheme of Arrangement,” to shareholders in the next two weeks and
expects to complete the deal early next year. The company will
need to convince JJB and Sport Direct to approve the deal, which
requires 75% approval from shareholders under the current
structure. If the two retailers don't support the deal, it can
apparently be restructured as a straight offer, which would only
require a 50% affirmative vote from shareholders.

Parker said that Nike had put in a courtesy call to both companies telling them about the deal.


>>> Maybe the question is what JJB and Sports Direct might have known about the Nike deal in advance.