Lululemon Athletica Inc. (LULU) shares climbed the most in more than a month amid speculation that founder Chip Wilson will push for a sale of the yogawear company.
Lululemon’s stock rose as much as 4.3 percent to $41.94 in New York, the biggest intraday gain since May 13, after the Wall Street Journal reported that Wilson is considering selling his stake or working with private-equity firms on a buyout of the company.
Wilson, who agreed to resign as Lululemon’s chairman in December, has been voicing his displeasure with the company’s current direction. On June 11, he said he voted unsuccessfully against the re-election of Michael Casey, his successor as chairman. Wilson, who remains a Lululemon director, is working with Goldman Sachs Group Inc. on plans that may include shaking up the board, the Journal reported yesterday, citing people it didn’t name.
The clash with Wilson has brought another headache to Lululemon’s management, which is trying to regain shoppers’ trust after recalling a popular line of black Luon yoga pants last year for being see-through. The company also cut its full-year forecast on June 12, sending its shares down to the lowest price in three years.
Lululemon responded to the latest report on Wilson by saying the board and managers are “focused on further strengthening the company’s product engine and relentlessly innovating to drive global expansion and create value for Lululemon shareholders.”
Wilson, a billionaire who said this month that he owns 27 percent of the company, declined to comment to Bloomberg News today. Lululemon, based in Vancouver, has a market valuation of about $6 billion.
The 59-year-old founder, a meditation activist, drew controversy last year when he said Lululemon’s pants “don’t work for some women’s bodies.” He apologized a week later for the remarks, which he made on Bloomberg Television.
Wilson’s history of being outspoken may make it difficult to attract investor partners, Faye Landes, a New York-based analyst at Cowen & Co., said today in a report.
“A deal involving Lululemon founder Chip Wilson is unlikely,” she said. “We know and like him, but think that his recent track record of provocative remarks makes a deal that would involve raising billions of dollars unlikely.”
Still, Lululemon’s share decline has made the company an easier takeover target. The slump left Lululemon trading near its lowest earnings multiple since 2009, which may encourage an opportunistic buyer to make an approach, said Scott Rostan, founder of Training the Street. Rostan’s New York-based firm teaches new hires at investment banks how to structure mergers and acquisitions.
VF Corp. (VFC), the $27 billion owner of the Vans and the North Face brands, is one of the most likely candidates to consider acquiring Lululemon, said Canaccord Genuity Group Inc. Adidas AG also would make sense as a buyer because the $22 billion sporting-goods maker could use its international expertise to help guide Lululemon’s overseas expansion, Wedbush Inc. said.
Lululemon may be a good fit for VF because the larger company already has a presence in athletic apparel, Camilo Lyon, a New York-based analyst at Canaccord, said earlier this month. VF, which traces its retailing roots back to 1899, could also use its expertise to remedy Lululemon’s supply-chain challenges and cut costs, Lyon said.
Omar Saad, an analyst at International Strategy & Investment Group LLC, highlighted Lululemon as a potential takeover target for VF last month. A takeover at $50 a share could be accretive for the maker of Wrangler denim and Ella Moss dresses, he wrote.
Representatives for Greensboro, North Carolina-based VF and Adidas, which is based in Herzogenaurach, Germany, have declined to comment.
Nike Inc. (NKE) may also be interested in adding Lululemon’s tank tops and yoga pants to its athletic lineup, according to Jennifer Black, chief executive officer at Lake Oswego, Oregon-based Jennifer Black & Associates LLC. She said earlier this month that the company’s takeover prospects will increase if it continues to struggle this year. A representative of Beaverton, Oregon-based Nike has declined to comment.
The previous Lululemon CEO, Christine Day, announced she was stepping down in June. Former TOMS Shoes inc. President Laurent Potdevin took the reins in January.
Wilson founded the company after taking a yoga class and built a devoted following for the brand in the U.S. and Canada with unconventional methods, such as local brand “ambassadors” and free yoga sessions.
He said in December he would resign as chairman prior to the June annual meeting, handing off the duties to Casey, a former Starbucks Corp. (SBUX) executive. Wilson’s involvement in the company may have scared off some potential candidates to replace Day as CEO, Saad said in November.
Wilson also voted against re-electing director RoAnn Costin, a financial investing executive who has served on the board since 2007.
After the turmoil at American Apparel Inc. (APP), another clothing chain with a controversial founder, investors may be less likely to ally themselves with Wilson, Landes said.
“Funders tend to be conservative individuals working at conservative firms,” she said. They’re likely to “shy away from voluble founders.”
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