11:32 AM EDT, 05/16/2025 (MT Newswires) -- Dick's Sporting Goods (DKS) is "taking a shot at shoes" with its proposed acquisition of Foot Locker ( FL ) , and it could also use the deal "to play a resurgence" in Nike (NKE), UBS Securities said Friday in a research note.

Dick's Sporting Goods has agreed to acquire Foot Locker ( FL ) in a transaction that implies a $2.4 billion equity value and a $2.5 billion enterprise value. Dick's said it intends to finance the deal, which is slated to be completed in H2, with cash on hand and new debt.

UBS said shoes remain the core driver of the category, describing them as "milk to a grocery store," and highlighting how they drive customer engagement in sporting goods retail more than other categories.

The brokerage also said Dick's Sporting Goods would be "sufficiently hedged" if Nike's turnaround falters, since it would become the leading showcaser and distributor of premium athletic and casual footwear in the US and beyond.

Still, the market appeared unimpressed. Shares of Dick's Sporting Goods fell about 15% following the deal's announcement, a decline equivalent to roughly $2.5 billion in market cap-more than the equity value of the proposed acquisition. UBS said this suggests investors believe the tie-up may destroy more value than it creates.

That sentiment could be due to past failures and challenges with horizontal retail mergers.

"The potential addition of FL could bring a possible set of complexities and challenges to an investment story that was finding its way, generating consistency and realizing share gains," according to the note.

The firm also said its discussions indicate "deep and broad" skepticism across the market. Still, some investors argue that at this valuation, the deal doesn't need to be a "homerun" to be accretive.

UBS has a buy rating and a $260 price target on Dick's Sporting Goods.

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