The Hockey Company Business Information, Profile, and History

Company Perspectives:

Through its subsidiaries, The Hockey Company, headquartered in Montreal, Canada, is the world's largest marketer and manufacturer of hockey equipment and apparel.

History of The Hockey Company

As its name suggests, Montreal-based The Hockey Company is devoted to the sport of ice hockey. The company manufactures and markets equipment and apparel under some of the best known brands involved in the sport: CCM, JOFA, and KOHO. Primarily known for skates, CCM is a major North American brand that also makes equipment and jerseys. JOFA, founded in Sweden, is famous for its helmets and other high-quality equipment. Finnish brand KOHO started out in the 1950s as a stick manufacturer but has since added skates, protective equipment, and apparel to its product lines. In addition, The Hockey Company owns smaller sub-brands, including Canadien, Titan, and Heaton. While the Hockey Company is very much involved with professional hockey, providing equipment and official National Hockey League uniforms, its business is more reliant on equipment sales to young people as well as NHL-licensed apparel. To a much smaller degree, the company also sells in-line skates and ski and equestrian helmets. The Hockey Company is a subsidiary of Reebok International Ltd., the result of a 2004 acquisition.

Origins

The man behind the creation of The Hockey Company was a Montreal businessman named David Zunenshine, who first made his mark in the 1950s with the launch of a commercial real estate company, Belcourt Inc. In the 1970s, he took advantage of a tax-loss credit to diversify by acquiring a small Montreal knitting factory that produced athletic uniforms. With this toehold in the sporting goods industry, Zunenshine took a major step in 1983 when he purchased the hockey equipment business of CCM Inc. By acquiring CCM, an icon brand in North America, Zunenshine instantly made himself a player in the hockey equipment industry.

The history of CCM dates back to 1899 and the launch of Canada Cycle & Motor Company Limited in Weston, Ontario, Canada. CCM grew out of the bicycle industry, the result of five Canadian manufacturers--Massy-Harris, H.A. Lozier, Welland Vale, Goold, and Gendron--banding together to fend off U.S. competition in the form of the American Bicycle Company, which was looking to invade the Canadian market. As had been the case in the United States, the market for bicycles quickly became saturated, so that within a few years CCM looked for other sources of income. An attempt to become involved in the automobile business failed, prompting the company to turn its attention to ice hockey, a sport that had been gaining in popularity in Canada since the introduction of the Stanley Cup, a silver bowl awarded to the winning amateur hockey team in an annual tournament. Interest in the Stanley Cup led to the creation of professional leagues and eventually the creation of the National Hockey League in 1917. The first hockey product CCM introduced in the early years of the new century was the Automobile Skate. The new product line proved so successful that by the 1930s more than 90 percent of all NHL players used CCM skates, a fact that carried great weight in the sales to amateur players. Over the years, CCM reinforced its dominant position by enlisting major NHL stars as official spokesmen. CCM also remained Canada's leading bicycle manufacturer but began to falter in the early 1980s. Despite a government bailout, the company was forced into bankruptcy in 1983, resulting in Zunenshine picking up the hockey division and the bicycle assets sold elsewhere.

Company Adds Toy Assets in Late 1980s

Zunenshine's next move in diversification, two years later, was to acquire another struggling business, St. Lawrence Manufacturing Company Inc., a skate blade maker. Taking advantage of the company's plastic injection molding equity, he had the plant turn out plastic sleds as well. To add some summer sales to the mix, in 1988 he acquired the children's pool division of bankrupt Coleco Industries, a company that had enjoyed tremendous success with Cabbage Patch dolls in the mid-1980s but had failed to deliver a follow-up hit, posted massive losses, and was forced to shed assets as it spiraled into bankruptcy. Zuzenshine made further inroads into toys in 1990 through another distress sale, picking up the remains of U.S. toy truck maker Buddy L Corporation.

To take charge of his assorted toy and sporting goods interests, Zunenshine brought in Earl Takefman, a veteran of the toy industry. After earning his MBA, Takefman started his career in the school supply business, where he had success in licensing television and sports names to everyday items, such as NHL rulers and Kermit the Frog erasers. He moved into the toy industry, becoming president of Charan Industries, which succeeded nicely as the Canadian distributor of the fad doll Teddy Ruxpin. Unfortunately, when the U.S. supplier began to falter, it dumped merchandise into the marketplace, leaving Charan with overpriced inventory. The offer of employment from Zunenshine came just in time for Takefman, who now took over Zunenshine's collection of castoff assets. In addition, Zunenshine controlled a money-losing chain of Canadian fitness centers, which he began to shut down. Because he still owned the rights to market some exercise products, such as Heavy Hands weights, he placed that on Takefman's plate as well.

To turn around this assortment of money-losing companies, Zunenshine needed to raise funds and looked to the equity markets. When Canadian underwriters showed no interest, he turned to the United States, and in September 1991 he formed a Delaware corporation called SLM International, Inc., drawing on the initials of St. Lawrence Manufacturing for the company name. Now based in New York City, SLM made a public offering of stock at $10.50 a share in November 1991. Zunenshine's son, David Zunenshine, served as co-chief executive officer of the company, heading the sporting goods division in Montreal, while his counterpart, Takefman, handled the toy business from New York City offices.

After the infusion of cash, SLM enjoyed a successful run for the next few years. Takefman replicated his success in school supplies by licensing names for its pools and sleds, such as Big Bird for pools and Harley-Davidson for sleds. He supplemented this business in 1992 by acquiring Montreal-based Norca Industries Inc., maker of children's swimming pools and sleds, as well as sandboxes, some of which bore the Batman and Playskool licenses. To fill out the exercise equipment he inherited, Takefman acquired the licenses for other products, and began moving the merchandise with infomercials. Takefman was also adept at cutting ad budgets to lower prices and spur sales. Another way he grew sales was by adding extras along with a lower price, such as integrating voice recognition into Buddy L trucks to give them an edge over more heavily promoted Tonka trucks.

The licensing idea was also taken up by the sporting goods division, which applied Reebok's "The Pump" cushion technology and logo to hockey skates. Sporting goods took another page from the toy side of the company by acquiring Innova-Dex Sports, maker of bicycle helmets, to provide seasonal balance to SLM's hockey helmet business. Also in 1992, SLM found a way to combine its toy and sporting goods aspirations by acquiring Kevin Sports Toys International, an Alberta, Canada-based company that produced the official Wayne Gretzky National Hockey League rod-driven table hockey game. As a result of these endeavors, SLM's balance sheet now showed a marked improvement. After the toy and sporting good assets combined for an operating loss of $2.2 million in 1990, the newly constituted SLM experienced records sales and earnings for several consecutive quarters, resulting in a soaring stock price.

SLM continued to expand in 1993. In May, it acquired The Toy Factory, Inc., a New Jersey maker of children's games. Later in the year it acquired #1 Apparel, a K-Products Inc. subsidiary that produced baseball caps and jackets. However, SLM's high-flying days soon came to an end, as rising advertising costs, especially the infomercials, and large debt soon overshadowed sales increases. Starting in the fourth quarter of 1993, the company began losing money. The situation was only exacerbated by the problems Zunenshine now endured with his Canadian real estate business, Belcourt, which was forced to file for bankruptcy in September 1994. SLM's stock, priced over $30 in November 1993, plummeted to less than $7 a year later. By this point, Takefman was already gone, having resigned in August 1994 because of philosophic differences over the company's future direction. Howard Zunenshine attempted to right the ship by emphasizing products that did not require much in the way of promotion, such as perennial models of trucks and swimming pools, but the change in strategy provided little relief.

From Bankruptcy to New Ownership: Mid-1990s and Beyond

In 1995, SLM began to discard assets. Buddy L. was sold to Empire of Carolina Inc. in January, followed a few months later by the sale of SLM Fitness assets to Madison Group Assets. Nevertheless, these moves could not halt the company's plunging stock price. The shares were delisted by the NASDAQ, and in October 1995 SLM filed for Chapter 11 protection in U.S. Bankruptcy Court in New York. The company's most valuable remaining asset was CCM, a traditionally profitable business that had been long neglected by the Zunenshines and Takefman. An example of mismanagement was the jersey division producing thousands of Quebec Nordiques jerseys well after the team had taken steps to relocate the franchise to Colorado. Many investors recognized CCM's underlying strength and began jockeying to gain control as SLM developed a plan of reorganization in 1996. The man that a reported 19 investment groups contacted to help take over was Gerald Wasserman, a former NHL back-up goalie now retired in California. A chartered accountant, Wasserman was a seasoned executive as well as an experienced hockey man. During his career he helped turn around Melchers Distilleries Ltd. and Bellevue Home Enter- tainment Inc. In the late 1980s, he took over struggling Canstar Sports Inc., a company that made such non-hockey products as ski boots and appliances. Under Wasserman, Canstar focused on hockey, straying only as far afield as in-line skates. Having resurrected Canstar, Wasserman left in 1993 to become president of Weider Health and Fitness. Canstar was acquired in 1995 for CAD546 million by Nike, Inc., the U.S. athletic footwear company that had its sights set on hockey. Canstar subsequently changed its name to Bauer Inc.

In September 1996, Wasserman signed a five-year agreement to succeed Howard Zunenshine as SLM's CEO at the behest of a creditor's committee comprised of representatives from six insurance companies and several banks. With Wasserman in the fold, the New York investment firm Wellspring Holdings agreed to pay approximately $30 million to acquire a controlling stake, slightly over 50 percent, in SLM. The insurance companies took the rest, while Wasserman held stock options contingent upon the company's performance. Thus, early in 1997 SLM was able to emerge from bankruptcy protection and lost no time in introducing new products into the marketplace. This action was in keeping with Wasserman's strategy of spending money on research and development to position SLM as a leader in innovation.

SLM greatly expanded its hockey assets in the fall of 1998 when it acquired privately held Sports Holdings Corporation. During the mid-1990s, SHC had been involved in a number of sporting goods areas in addition to hockey, such as footwear, cross-country skis, and snowboards. By 1998, however, the company shed these assets to become a hockey-focused company, looking to exploit its stable of hockey brands, including Titan, Jofa, Canadien, Heathon, and Koho. Jofa and Koho were both venerable European brands doing business for half a century. In October 1998, SLM bought all the outstanding shares of SHC, thereby bringing all of the world's major hockey equipment brands under one roof. In keeping with the addition of these brands, which made it the largest manufacturer of ice and roller hockey equipment and apparel in the world, SLM in March 1999 changed its name to The Hockey Company, its headquarters now located in Montreal.

From a marketing perspective, The Hockey Company viewed itself as three separate companies operating as one. Thus, when in 2000 it won the licensing rights to manufacture and market jerseys for all 30 NHL teams as well as the uniforms for officials, the company parceled the business to the different brands. CCM and Koho would each supply 15 teams with official game jerseys, as well as manufacture replica and official jerseys. Jofa, on the other hand, was tapped to provide the practice jerseys for all 30 teams as well as linesman jerseys. The other brands--Heaton, Canadien, and Titan--became sub-brands under the main three, with CCM associated with Heaton, Titan with Jofa, and Koho with Canadien. The Hockey Company supplemented its NHL apparel business in 2003 with the acquisition of Roger Edwards Sports, a company that produced vintage hockey apparel as well as other sports apparel items.

In June 2003, The Hockey Company completed an initial public offering, netting CAD72 million, and its shares began trading on the Toronto Stock Exchange. The company's days as a publicly traded company would be limited, however, as less than a year later, in April 2004, Reebok agreed to pay $204 million in cash and assume $125 million in debt to acquire The Hockey Company. It was an important deal for Reebok, ranked second behind Nike in almost every sports category. With the addition of The Hockey Company, however, Reebok dominated Nike and its Bauer subsidiary in the hockey market, with a 30 percent market share compared to Nike's 15. Moreover, NHL jerseys were doing well with young men, a demographic that Reebok hoped to target, as well as young girls, who were turning to hockey as a participatory sport in growing numbers. Across the board, participation in youth hockey leagues, high school teams, and college teams had been on the rise for the past decade. Moreover, sales of NHL-licensed apparel was growing, and that business dovetailed nicely with Reebok's successful apparel business, which already included providing uniforms for the National Football League and National Basketball Association.

Labor problems that resulted in the cancellation of the 2004-05 NHL season may have had an adverse impact on The Hockey Company in the short run, but its main business was in fact youth sales, and here the demographics--the continued rise of the echo generation of Baby Boomers--favored the company's long-term prospects.

Principal Subsidiaries: Sport Maska Inc.; Sport Holdings Corporation; JOFA AB; KHF Finland Oy.

Principal Competitors: Bauer Nike Hockey Inc.; Easton Sports, Inc.; K2 Inc.

Chronology

• Key Dates:
• 1983: David Zunenshine acquires CCM Inc.
• 1991: Zunenshine forms SLM International, Inc.
• 1995: SLM files for Chapter 11 bankruptcy protection.
• 1997: SLM emerges from bankruptcy protection.
• 1998: Sports Holdings Corporation is acquired.
• 2000: SLM changes its name to The Hockey Company.
• 2004: Reebok acquires the company.