Canstar Sports Inc. History

Address:

5705 Ferrier Street
Suite 200
Ville Mont-Royal, Quebec H4P 1N3
Canada

Telephone: (514) 738-3011
Fax: (514) 738-5178

Wholly Owned Subsidiary of Nike, Inc.
Incorporated: 1969 as W.C.G. Sports Industries Ltd.
Employees: 1,830
Sales: C$201.59 million (1993)
SICs: 3949 Sporting and Athletic Goods, Not Elsewhere Classified

Company History:

Called the "Canadian king of hockey gear," Canstar Sports Inc. ranks as one of the world's leading ice skate manufacturers. According to an August 1994 Forbes article, the company's Bauer and Cooper brands are as widely recognized in Canada as Kleenex and Xerox are in the United States. Based in a suburb of Montreal, the company parlayed its strengths in hockey skates into a strong showing in the in-line skate market in the early 1990s. By that time, Canstar's stable of brands included Bauer, Micron, Lange, Mega, and Daoust ice skates; Flak and Cooper hockey equipment; and Bauer in-line skates. With U.S. sales of $36.4 million, the Bauer brand ranked fourth among in-line skate brands in 1993. Canstar was acquired by master marketer Nike, Inc. in the latter company's largest purchase ever, a $395 million transaction.

Foundation and Corporate Developmentin the Mid-20th Century

The first pair of Bauer skates was hand-sewn in the early 1930s. By the mid-1950s, the Bauer line was the world's top seller of hockey skates, but was just one division of shoe-making conglomerate Greb Industries Ltd., best known as the first international licensee of Hush Puppies shoes. Greb also produced Kodiak boots and Collins safety shoes. Family-owned until 1974, Greb was acquired that year by Warrington Products Ltd., which was in turn controlled by Cemp Investments Ltd. The transaction made Bauer a member of the Bronfman family holdings, whose Seagram's Co. was the world's biggest liquor company. ("Cemp" was an acronym for the Bronfman heirs: Charles, Edgar, Minda, and Phyllis.) Warrington had been incorporated in 1969 as W.C.G. Sports Industries Ltd. and went public under the new name two years later.

After an early 1970s surge, Bauer and its parent companies suffered through a severe contraction in the later years of the decade. From 1971 to 1982, Warrington chalked up five annual losses and its stock plummeted from $8.75 at its initial public offering to less than $1 by 1983. Bauer laid off more than one-third of its workforce and closed plants in Maine and Quebec. With the financial backing of Cemp, Warrington tried to diversify out of its free-fall, acquiring a match producer, a luggage company, an appliance maker, and a plastic pipe business.

Sweeping Change Marks 1980s

The 1980s ushered in an era of sweeping change at the company. Although not yet affiliated with the firm, Icaro Olivieri was in many respects the orchestrator of its transformation. Born in 1940, this native of northern Italy apprenticed in his father's tool shop during the 1950s. Olivieri's work with hinges and springs inspired his 1964 design of an improved ski boot fastener. His buckle was quickly adopted in place of traditional laces. Without the benefit of formal training, Olivieri then invented injection molding equipment custom-made for the production of plastic ski boots. Within just a few years, the inventor's company had captured a commanding lead in the market for boot molds and metal buckles.

After touring Warrington's rather old-fashioned skate factory in 1975, Olivieri saw an opportunity to adapt his new technology to the hockey skate industry. The Italian founded a plant in Montreal and began churning out his Micron brand skates and Tyrol ski boots, the sleek, black plastic styling of which offered a significant challenge to Bauer's long-standing dominance of the market. Several years of intensifying competition culminated in the 1981 merger of the two competitors under the Canadian company's name with Olivieri as chairman. The union created Canada's largest sporting goods firm and signaled Warrington's strategic refocus on that sector.

Given his own creative background, Olivieri sought to keep Canstar in the vanguard of design. Under his direction, the company consistently invested 2 percent to 3 percent of revenues in research and development. An intensive three-year study of hockey skates and skating culminated in the 1987 launch of the Micron Mega, a skate whose quality won Canstar the devotion of 70 percent of National Hockey League (NHL) pros. Even if they were not wearing Bauer or Micron, 90 percent of NHL players used Canstar's Tuuk or ICM blades. Commenting to The New York Times, analyst William J. Chisholm noted that Canstar's "sophisticated engineering, technology and research" gave it a decided edge over its competitors.

Warrington also augmented its line via an acquisition spree during this period. From 1981 to 1987, the company added Caper, Trappeur, Spalding, and Kerma brand ski equipment; Santana, Harvard, and (under Canadian license) Pony brand footwear; Helmetec brand helmets; and Flak brand hockey equipment to its family of sporting goods.

But this rapid diversification proved "a bust," in the words of Forbes magazine's Nina Monk. By 1987, Warrington wavered on the brink of disaster; it lost $34 million that year and was burdened with $90 million in debt. At the same time, intrafamilial differences among the Bronfmans precipitated the breakup of the Cemp investment group. That year, Warrington sold Greb Inc. and its line of fashion shoes, keeping Bauer and the sporting goods. In 1988, Olivieri and investment group Dynamic Capital Corp. stepped in to execute a leveraged buyout of the Bronfmans' 30 percent interest in Warrington. The chairman turned majority stakeholder renamed the firm Canstar Sports Inc. and brought in turnaround expert Gerald Wasserman.

Wasserman gave Nina Monk of Forbes magazine a curt evaluation of the company he joined, saying that it "had great brands but not much else." He divested Canstar's shoe and ski businesses to concentrate on hockey equipment, and, by 1989, the company was earning $8.7 million (US $6 million) on sales of $98.26 million (US $71 million). According to a 1991 article in Financial Times of Canada, Canstar sold nearly 50 percent, or 1.2 million pairs, of the 2.5 million ice skates sold around the world.

Growth Through Focused Diversificationin the 1990s

It was the perfect time to focus on skates. Ice hockey enjoyed unprecedented popularity in the early 1990s. Faye Landes, an analyst with Smith Barney (New York), told Business Journal-Portland, "Hockey is the hottest thing out there." Part of the resurgence was credited to the NHL, which achieved new heights of popularity under a more forward-looking team of leaders in the mid-1990s. Canstar's continued dedication to ice hockey was exemplified by its 1990 acquisition of Cooper Canada Ltd.'s hockey division. The country's premiere producer of protective hockey gear, Cooper offered a 1,700-item selection of pads, gloves, and helmets. Canstar acquired the Daoust ice skate business from A. Lambert International Inc. for $30 million in 1992 and launched Canstar Apparel Inc., a manufacturer of hockey jerseys and socks, the following spring.

Given its substantial position in Canada's hockey skate market, Canstar cautiously sought new avenues for growth in the early 1990s, taking special aim at the burgeoning in-line skate market. Although ice hockey skates remained Canstar's core, accounting for more than one-third of annual sales in the mid-1990s, in-line skates were touted as the key to the company's future.

In-line skates are essentially a hockey-style boot with four roller skate-type wheels mounted in line from toe to heel. Although there's considerable debate over the origins of the in-line skate (some trace it to Yoshisada Horiuchi's 1969 development of a prototype, whereas others say it was first created in the 1800s), there is a general consensus that Minnesota's Scott Olson launched the modern industry in the early 1980s with his "Rollerblade" brand skate. Initially intended for hockey players to practice and keep in shape during the warm summer months, in-line skating soon spread to the general public. The sport's widespread popularity was credited to its combination of recreation, fitness, and competitive values.

From 1990 to 1994, the number of in-line skaters in North America increased from 2 million to nearly 20 million and wholesale revenues multiplied from $75 million in 1989 to $500 million in 1994, making in-line skating the fastestgrowing sport in the United States. By 1995, the number of in-line skaters surpassed the number of participants in football, baseball, and soccer. Industry observers predicted that climb to continue, albeit at a slower pace, through the late 1990s.

Canstar got into the market in the late 1980s. In-line or off-ice skates grew from 2 percent of the firm's annual sales in 1990 to 18 percent by 1993. In 1992, the company became a founding sponsor of the 24-team professional Roller Hockey International League, as well as amateur leagues, in an effort to promote in-line skating. A 1995 brief in the Chicago Sun Times noted that roller hockey was the fastest-growing segment of the in-line market. The company also hoped to piggyback in-line skate sales on the growing popularity of the NHL, focusing especially on nontraditional skating areas in the southern United States, especially Florida, Texas, and California, where new team franchises were granted in the early 1990s.

In addition to its diversifications into related sporting goods, Canstar hoped that international expansion would provide a new avenue for growth. In 1993, the company acquired a controlling interest in Canstar Sverige AB and established an $8 million ice and in-line skate factory in Czechoslovakia. Canstar added British figure skate blade manufacturer Hatersley & Davidson to its roster of companies in 1994, thereby fulfilling two goals, diversification and geographic expansion, with one purchase. From 1990 to 1996, the geographic distribution of Canstar's revenues shifted from 70 percent domestic to about one-third indigenous.

In 1992, both Wasserman and President and Chief Operating Officer Donald C. MacMartin abruptly resigned. In 1994, Olivieri tapped Pierre Boivin, former president and CEO of Weider Sporting Goods and noted Wasserman follower, to become Canstar's president. Despite the management upheaval, Canstar enjoyed rapidly rising sales and profits in the early 1990s. After declining from $105.9 million in 1988 to $98.26 million in 1989, sales more than doubled to $201.6 million in 1993. Profits increased from $3 million in 1988 to $15.33 million.

Rumors that the company was being targeted for acquisition by footwear giant Nike began to fly in mid-1994, when the latter company signed on to sponsor the National Hockey League. After months of denial from both parties, that December Nike announced that the two companies had come to an agreement. Icaro Olivieri would sell his 46 percent stake in Canstar to the American shoemaker. The $395 million purchase price paid by Nike to acquire Canstar made it Nike's largest acquisition to date.

The union promised benefits for both companies. Canstar gave Nike an instant, well-respected and well-established position in the fast-growing ice hockey and in-line skating markets. Canstar became part of a widely praised marketing and distribution powerhouse, but Nike president Philip Knight vowed that the US $4 billion giant would not interfere with its $200 million subsidiary's autonomy. Pierre Boivin praised the merger in a 1995 interview with Greg Pesky of Sporting Goods Business, saying, "I have seldom seen such a perfect marriage between two companies."

Boivin predicted that Canstar's sales would top $400 million and Bauer's share of the in-line market would increase from about 7 percent to 32 percent by the end of the 1990s. Having long enjoyed a dominant position in the hockey market, the company planned to focus its acquisition strategy on figure skating, apparel, and vertical integration. Boivin expected to target Eastern and Western Europe, South America, and Asia for geographic growth in the late 1990s.

Principal Subsidiaries: Canstar Sports Group Inc.; Canstar Sports U.S.A., Inc.; Canstar Sports AG; Canstar Italia S.p.A.; Canstar Apparel Inc.; Canstar Sverige AB; Helmtec Industries Inc.; Helmtec U.S.A., Inc.

Canstar Sports Inc. History

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