It is not hard to identify when the fortunes of the women’s athletic apparel company changed. On March 18, 2013, Lululemon recalled a large portion of its yoga pants because they were too sheer and as a result too revealing. The problems did not end there and resulted in management changes, revenue drop offs and a collapse of its share price.
The fallout cost CEO Christine Day her job in June 2013. Founder and Chairman Chip Wilson announced that he would step down in December of last year. Wilson has since returned as the potential leader of a buyout to take the company private. Wilson believes he can find a private equity backer. He will likely be able to buy Lululemon at a discount price, at least based on what its shares traded for at their peak.
Lululemon’s last quarterly financial statement shows the extent of the company’s troubles. Revenue at the previously fast growing company was up only slightly to $385 million from $346 million in the same period a year ago. However, net income collapsed from $47 million to $19 million. The stock is down 50% from its peak set at the start of June 2013.
AT&T’s plan to buy satellite TV giant DirecTV is an example of a broadband carrier trying to extend its reach into American households. AT&T’s U-verse fiber to the home broadband and TV product has only been modestly successful. It has 5.7 million customers to DirecTV’s 38 million.
The $49 billion deal has to clear federal regulation. Some members of Congress have sharply questioned AT&T’s management about the consumer benefits. While the two companies argued their marriage will lower consumers’ costs, some consumer groups believe that prices will go up and the new company will be able to control access to popular programming like NFL games.
AT&T has reason to fight for the deal and make sure it closes. Its attempted bid to add wireless broadband capacity via a buyout of T-Mobile was blocked by the government. Beyond that, increasing customers by more than six times makes the business case for the deal even more compelling.
3. Hillshire Brands
Hillshire Brands, which markets Ball Park hot dogs and Jimmy Dean sausages, the top-selling products in their categories, has been on the radar of several food packagers. The company reached an agreement to buy Pinnacle Foods in May for $4.23 billion. But the agreement sparked interest in Hillshire and triggered a bidding war for the company among the largest food packagers in the country, Tyson Foods and Pilgrim’s Pride.
Hillshire accepted Tyson’s final offer of $8.5 billion including debt, a nearly $1 billion premium over Pilgrim’s offer and a 50% premium over its share price prior to the bidding war. To close the Tyson deal, Hillshire had to terminate the Pinnacle agreement. Tyson expects the Hillshire buyout to close before the end of its fiscal year, but that does not mean the fight is over. Pilgrim’s Pride may not go away and might still offer a higher bid.