Dick Sporting Goods (DKS.US) bought FL.US (FL.US) and Nike (NKE.US) for $2.4 billion may also “follow suit”

The Zhitong Finance App learned that Dick Sporting Goods Company (DKS.US) announced the acquisition of Fulaker (FL.US) for 2.4 billion US dollars to merge these two retailers dragged down by President Donald Trump's tariff war. According to reports, Dick will buy Foot Locker (Foot Locker) at a price of 24 US dollars per share, an 86.5% premium over the closing price on Wednesday before the announcement of the transaction. Fulaker shareholders can also choose to receive Dick shares instead of cash. The two companies said in a statement that the deal involved an equity value of 2.4 billion US dollars and a corporate value of 2.5 billion US dollars.

As of press release, in pre-market trading on Thursday, Fulaker's share price increase extended to 83%, while Dick Sporting Goods shares fell 11% before the opening of the market.

Although both chains rely heavily on sneaker sales, the merger will face the integration of two companies with vastly different business models: Fulaker has 2,400 stores, mainly small stores in cities around the world; while Dick is comprised of about 800 large warehouse-type stores in suburban America.

Dick said on Thursday that it plans to operate Fullerke as a separate business unit under its umbrella and keep the brand. Since many of the products sold by both companies (such as Nike and Adidas brands) are manufactured at overseas production sites such as China and Vietnam, they are all feeling the pressure of Trump's trade war with the rest of the world.

Dick CEO Lauren Hobart (Lauren Hobart) has been promoting the company's e-commerce capabilities and investing in physical stores. However, the company's sales growth has gradually slowed in the last two quarters.

Under CEO Mary Dillon (Mary Dillon), Fulaker has been trying to boost sales by refurbishing most of its store network and promoting its membership rewards program. The company is also working to repair its relationship with Nike (NKE.US) — Nike previously reduced cooperation with wholesale partners to promote its own sales channel.

Transformation Plan

Dillon became CEO in 2022 and has developed ambitious transformation plans for Fulaker, including achieving $9.5 billion in annual sales by 2026. But progress is difficult as American consumers cut back on non-essential spending. In the fiscal year ending February 1, Fullerker's revenue fell for the third year in a row, below $8 billion.

“If the acquisition passes, Dick will take over a business that is still at a disadvantage,” said Neil Saunders (Neil Saunders), managing director of GlobalData. “The recovery has not yet fully begun.”

Dick said that through procurement and direct procurement efficiency, the deal is expected to achieve a cost synergy of 100 million to 125 million US dollars.

Citibank analyst Paul Lejuez (Paul Lejuez) wrote in the report that the positive significance of the deal is obvious, because Dick is a proven operator, and Fulleker has a lot of room for improvement, and the merged group will also have stronger purchasing power.

Sanders pointed out that given Dick's dominant position in the market, the acquisition may lead to regulatory scrutiny, but there is no shortage of competition in the market from big brands such as Nike (NKE.US) and retail chains in a growth model such as JD Sports.

TD Cowen analyst John Kernan (John Kernan) said before the deal was officially announced that it would be a “strategic mistake” as Dick would be more involved in streetwear and lifestyle brands while competing with more flexible sneaker retailers and markets.

“In our opinion, countless mergers and acquisitions have caused billions of dollars in value losses since we covered the industry,” he wrote in the report. He added that there may also be antitrust concerns.

Nike may be the beneficiary

Notably, Nike is also seen as the winner of this major Dick-Fullker deal.

Jefferies analyst Randal Konik (Randal Konik) pointed out that Dick Sporting Goods's acquisition of Fulleck would be a positive sign for Nike, and the brand has close partnerships with both retailers. Dick Sporting Goods is considered a company with strong operational capabilities and high efficiency, and the acquisition is expected to improve Fulaker's operations.

“As Nike CEO Elliott Hill (Elliott Hill) further strengthens the already strong partnership with Dick Sporting Goods, this integration may increase Nike's retail reach and brand consistency,” Kornick wrote in the report. He pointed out that Nike dominates footwear sales in the Dick chain and accounts for more than half of Fulaker's sales, highlighting the importance of these two channels to Nike's wholesale strategy.

Fullerke, under Dick's Sporting Goods leadership, is expected to improve operational capabilities, and overall this will benefit Nike, strengthen its distribution strategy, and further strengthen its position in the sports retail sector. According to Kornick, Nike's “buy” rating is a typical “self-improvement” narrative.

As of press time, Nike was down 1.17% in the premarket on Thursday.