Adidas asked us to cook Reebok’s books: Ex-bosses
Former Reebok India chief executive Subhinder Singh Prem and former COO Vishnu Bhagat have in separate suits filed last month in the Delhi High Court said they were asked to 'carry out certain illegal and unethical actions' by the Adidas Group, such as manipulating accounts, booking irrelevant expenses and cancelling large distributorships, to ensure that the market value of Reebok India fell significantly 'so that a significantly lower amount becomes payable to the exiting Indian joint venture partner'. Reebok India is a subsidiary of Adidas.
While the petitions do not mention the names of the joint venture partner, Focus Energy Ltd, a group company of Ajay Kalsi's Phoenix International owns 6.85% in Reebok India. According to the shareholder's agreement, Adidas has a 'call option' or the right to purchase the shares of the Indian partner but the two have been locked in a legal dispute over the price at which Focus Energy will sell its shares. The matter is currently pending before the Delhi High Court.
A person familiar with the development said while Adidas does not want to pay more than 25 crore for Focus Energy's 6.85% stake while the Indian partner was demanding as much as 550 crore. Both Adidas and Focus Energy declined to comment on these figures.
According to an internal e-mail of July 2010, reviewed by ET, Adidas and Reebok India executives have discussed several strategies to keep their payout to a minimum. One of the options considered then was to "to wind down the operation of Reebok India and remove the distribution rights to reduce market valuation."
Adidas AG had also explored the option to transfer its stake in Reebok India to Adidas India based on Controller of Capital Issues (CCI) valuation that values a company based on past performance. The valuation based on this method is usually conservative.
In April 2010, the RBI changed this guideline and said the transfer value of the shares should be decided only through discounted cash flow (DCF) method, which takes into account the projected cash flow in the next five years and not on past performance. Under the present guideline, the valuation of Reebok India would be much more than what it would have been under the Controller of Capital Issues method.