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Adidas AG (ADDYY) Shares Surge on News of Rorsted’s Appointment

adidas AG (ADR) (OTCMKTS:ADDYY)

Adidas AG.  shares surged on Monday after it confirmed that it had appointed Karsten Rorsted as its new Chief Executive Officer. Rorsted, who is presently the CEO of Henkel AG, will replace Herbert Hainer, whose tenure at the German sportswear firm hasn’t been viewed kindly by investors.

adidas AG (ADR) (OTCMKTS:ADDYY)

Rorsted, 51, will become a full board member in August before fully taking over as a CEO from October 1.  Hainer’s contract was set to expire in March 2017. News of the appointment saw Adidas’ shares appreciate more than 11 percent, fuelled by investor optimism that Rorsted will power the Herzogenaurach, Germany-based firm back to growth. Predictably, Henkel’s shares tanked nearly 6 percent once news of his resignation filtered in

“We welcome the appointment of Rorsted as successor to Hainer and hope that the long dry spell for Adidas’s profitability will come to an end,” said Ingo Speich, fund manager at Union Investment, which owns roughly 1.2% of Adidas’s stock.

Reviving Adidas is no Mean Feat, But..

The incoming CEO has an arduous task ahead as he embarks on reinvigorating Adidas, which has lost a lot of ground to industry titan Nike Inc. as well as newcomers such as Under Armour Inc . One major challenge Rorsted faces at Adidas will be to reduce the profitability gap between the company and Nike. Adidas’s operating margin, which analyses how much is left after labor and production costs are factored in, averaged 7 percent in 2015. This contrasts with Nike’s 14 percent.

However, if his record at Henkel is anything to go by, investors can rest easy. He presided over the Dusseldorf, Germany-based chemical firm at a time when its operating profit margin reached record highs while shares tripled. Henkel’s shares rose to €93 euros ($101), up from a low of €22 in 2008, the year Rorsted unveiled his four-year strategic plan.

Adidas AG.  has been forced to part ways with Hainer, who has served for more than 14 years as its CEO, after shareholders lost patience. This was occasioned by poor sales in North America, sluggish growth in its golf division as well as currency slump in Russia that affected its business valuation there. Hainer will exit in late September.

Insider Takes Over..

Early on Monday, Henkel announced that its shareholder committee and supervisory board had accepted Rorsted’s premature resignation and announced that Hans Van Bylen, who runs the consumer giant’s beauty care segment, will take over as the new CEO on May 1.

Rorsted previously worked at computer maker Compaq in the nineties and early 2000s, and continued working there for two more years after its acquisition by Hewlett-Packard in 2002. His stint at the tech industry is expected to influence his turnaround strategy at Adidas, which is seeking to boost its online sales and equip its factories with robots to shift part of its production back home from Asia.

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