Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Shelly Banjo is a Bloomberg Gadfly columnist covering industrial companies and conglomerates. She previously was a reporter at Quartz and the Wall Street Journal.

Nike is running the wrong race. 

Shares of the sportswear behemoth shot up as much as 5 percent in after-hours trading Thursday after it announced a $12 billion stock buyback, as well as a 2-for-1 stock split and a dividend hike. 

Up Top
The sportswear maker is buying back its stock close to the top.
Source: Bloomberg

A less expensive alternative -- and one that would have dramatically improved Nike's access to the sought-after women's market -- would have been to snap up competitor Lululemon Athletica.  

The maker of fancy yoga pants and sports bras has had a wobbly couple of years following its founder's dramatic resignation from the company after insulting its customers following a recall of see-through yoga pants. 

At these levels, Nike is set to buy back its stock at a forward P/E multiple of around 27 when it could get a cheaper deal by buying Lululemon (which is currently trading at just 21 times forward earnings). Nike could -- with any mix of cash and stock -- pay a 25 percent premium to Lululemon’s closing price Thursday and have a deal be accretive to its earnings even before factoring in any cost savings, according to data compiled by Bloomberg.  

Including that premium, a deal for Lululemon would total $7.5 billion after subtracting net cash, meaning Nike could buy its rival and have spare change to complete a $4.5 billion buyback if it had its heart set on putting all of the $12 billion to work. 

It's an opportune time to pounce on Lululemon: The Canadian retailer's stock fell to its lowest level in more than a year earlier this week. 

The company has a massively loyal customer base in a growing market that Nike just hasn't been able to crack with the same extent it's dominated in, say, basketball shoes or men's apparel. Its women's business is worth about $5.7 billion today, representing about 20 percent of total revenue. Nike -- which last year launched its first store focused entirely on women's gear -- wants to grow that segment to $11 billion in the next five years.

Just Doing It
Nike has spent more on buybacks than it has on acquisitions.
Source: Bloomberg

But Nike has made these promises before. Back in 2002, Fast Company asked, "Can a famously high-testosterone company, built on brash ads and male athletic fantasies, finally click with female customers?" Since then, Nike's lack of movement in the women's athletic space gave rise to Lululemon, which brought in nearly $2 billion in sales last year, as well as whole host of athleisure competitors that range from Lucy to Tory Burch's Tory Sport.

Now, Nike's decision to go it alone (it has announced almost $30 billion in buybacks since 2004 and spent less than $1 billion on acquisitions) leaves the window open for rivals. Under Armour has been gaining ground on Nike and trades on a forward P/E multiple of 64.5 times. That leaves room for an even more generous premium should it pounce on Lululemon.

Nike could have gotten there first.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Gillian Tan in New York at
Shelly Banjo in New York at

To contact the editor responsible for this story:
Beth Williams at