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Former Reebok India Executive Sues Parent

The former managing director of Adidas India Pvt. Ltd. has sued the company for $2.8 million over allegations of financial irregularities in the subsidiary.

NEW DELHI — The former managing director of Adidas India Pvt. Ltd. has sued the company for 150 million rupees, or $2.8 million, over allegations of financial irregularities in the subsidiary.

Subhinder Singh Prem sent a legal notice to Adidas AG last week following the German sportswear giant’s statements that financial irregularities amounting to 125 million euros, or $165.8 million, resulted in a pretax loss in India in the first quarter. Adidas said it also may need to spend another 70 million euros, or $92.8 million, to restructure the Indian operations.

“This is a clear case of defamation,” Prem told WWD. He said he sent the company two legal notices, one for the termination of employment and the other for defamation, and has asked for 150 million rupees, or $2.8 million, in damages.

Although Adidas acquired Reebok in August 2005 in a $3.8 billion deal, the merger only took place last year in India. Prem, who was then the managing director of Reebok India Pvt. Ltd., took over the operation of the new entity as managing director.

The management of the Indian company was changed on March 26 with Prem being succeeded by Claus Heckerott, Adidas vice president for finance and global sales. Former chief operating officer Vishnu Bhagat also left the company at the same time and Frederic Serrant came in as sales director with effect from April 1.

“I have no idea where the numbers for the financial irregularities are coming from. My fight is for my own integrity and honor,” Prem said.

He claimed his departure from the company in March was due to being asked to resign because of differences in opinion. “But when I sent in my resignation letter, I was told that the company was ‘surprised’ that I had resigned because I had already been terminated,” he alleged.

He said that there had been no answer to his e-mails to the company subsequently, except for an e-mail to him a few hours before the quarterly statement announcing the “financial irregularities in the Indian operation” was issued. “Meanwhile, my statutory dues and severance package have not been paid either,” he contended.

As for the details of the “financial irregularities” mentioned in the quarterly results by the company, Prem said he had “no idea what these referred to.

“This was hardly a one man operation. We worked as a team and a finance director had been appointed by the Adidas group for the past 14 months to look into all matters pertaining to business and expansion plans,” he said. “The global finance team came to India every three months and every month we had a review and a check with my bosses. KPMG was our auditor and our financials were signed and presented to the board.

“I’m amazed that the company can hold one person responsible for a situation. I have worked with the company for 17 years and am shocked by these developments,” he said.

Prem joined Reebok India in 1995 and has held several positions within the company, including executive director sales and marketing and became managing director of the company in 2003.

Reebok rode the retail revolution in India and has grown to more than 1,000 stores across the country. It is estimated to have a 53 percent market share in the sportswear segment. In 2011, Reebok India had a turnover of $114 million while Adidas turnover here was $91 million. Both the companies together showed a loss of about $17 million with the Registrar of Companies.

Adidas has three brands in India — Adidas, Reebok and TaylorMade. According to estimates, Adidas and Reebok account for more than 70 percent of the branded market, followed by Nike and Puma. According to estimates from RNCOS, the Indian sportswear market is worth 365.8 billion rupees, or $6.9 billion at current exchange, and is expected to grow at a compound annual growth rate of about 33 percent from 2010 to 2014.

An Adidas official who requested anonymity said that the commitment to the Indian market will continue, although more than a third of unprofitable Reebok stores, which are all under franchise, will be closed and the terms of agreement for the merchandise revisited. He said that the expansion of Reebok India was too fast with too many unprofitable stores being taken at very high rentals. The commercial terms with franchisees have been another area of concern, according to the official.

As far as restructuring costs are concerned, Prem observed that the company had been talking about “changing the business model for a while.” Part of it was the change of structure of the company last year, but also the changing business environment in India. “India has its share of retail problems with costs going up, taxes rising and several one-time costs,” he said.