Can New Lululemon Shareholders Fix Founder’s Blunders?

Source: courtesy of Lululemon Athletica

Correction: In an earlier version of this article the author wrote that Lululemon founder, Chip Wilson, suggested, “some women’s bodies just don’t work” for Lululemon pants and this led to his ouster. In fact, neither Wilson nor the company disclosed that the two issues were related.

There was a firestorm when Lululemon Athletica Inc. (NASDAQ: LULU) founder Chip Wilson suggested that “some women’s bodies just don’t work” for Lululemon’s pants.

Wilson resigned as the company’s chairman on December 10, 2013 and said he would step down before the next annual meeting.

In an agreement announced Thursday evening, Wilson agreed to sell approximately half his 27.7% stake in Lululemon to private equity firm Advent International Corp. for $845 million and to enter a standstill agreement that prohibits Wilson from soliciting proxies until after the 2016 Lululemon stockholders’ meeting.

. And in an agreement announced Thursday evening, Wilson agreed to sell approximately half his 27.7% stake in Lululemon to private equity firm Advent International Corp. for $845 million and to enter a standstill agreement that prohibits Wilson from soliciting proxies until after the 2016 Lululemon stockholders’ meeting.

As part of the agreement Advent will add two of its senior managers, David Mussafer and Steve Collins, to Lululemon’s board which has been expanded from 10 to 12 seats. The two appointments were made with Wilson’s approval, and Wilson will also retain his board seat. Advent previously held an ownership position in Lululemon but exited the investment in 2009. Both appointees have prior experience on Lululemon’s board. Mussafer will be named co-chairman of the board along with Michael Casey who Wilson failed to oust in a proxy fight earlier this year.

But, according to analysts at Sterne Agee, that’s the end of the good news about this deal. Here’s the bad news:

Chip Wilson is still on the board. We believe the Lululemon brand has been significantly damaged as a result of all of the events in the past 18 months. The success of LULU was a result of great product combined with excellent customer and community engagement. We believe the company will be able to fix the product problems. However, after numerous industry checks, we do not believe that Laurent Potdevin is the right person to fix the problems “under the hood” and return the company to its prior prominence.

Over the past 18 months, Nike Inc. (NYSE: NKE), The Gap Inc. (NYSE: GPS) through its Athleta stores, and Under Armour Inc (NYSE: UA) have all moved into the territory that Lululemon once held without significant competition. And is Laurent Potdevin the man to bring the yoga crowd back to the Lululemon fold? We’ve never thought so and Sterne Agee doesn’t think so either.

While the next 18 months may not be as exciting for Lululemon as the past 18 months have been, there remain many reasons to expect more turmoil and excitement. Shares of Lululemon are up more than 3% in the first half hour of trading this morning at $40.22 in a 52-week range of $36.26 to $77.75. If Wilson sold his entire stake and left the board, imagine where the stock price might have risen to.

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