Is Under Armour Going to Buy Lululemon?

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Chatter and speculation on the street has had Lululemon Athletica Inc. (NASDAQ: LULU) as a buyout target for some time now. Last Friday, an article at Bloomberg’s Gadfly blog suggested that Nike Inc. (NYSE: NKE) had missed an opportunity to pick up the maker of high-dollar yoga pants for a lot less than the $12 billion share buyback program Nike just announced.

On Sunday, the New York Post reported that the latest rumor is that Nike nemesis Under Armour Inc. (NYSE: UA) may be in talks to acquire Lululemon. Neither Under Armour nor Lululemon commented on the report.

A little history might be in order here. In August of 2014, Lululemon’s founder and chairman, Dennis “Chip” Wilson, sold about half his 28% stake in the company to private equity firm Advent for a reported $845 million. Advent received two board seats at the time of the transaction.

In June of this year, Wilson filed a document with the U.S. Securities and Exchange Commission to sell his remaining stake in Lululemon and Yahoo! Finance indicates his current holding as 7,120 shares.

Advent currently owns 20.1 million shares of Lululemon stock, unchanged from the time of the firm’s August 2014 purchase. That amounts to about 15.4% of the company’s 130.72 million shares outstanding.

Lululemon’s stock price has risen about 11% since closing just above $44 a share last Tuesday. Shares began rising the next day and closed above $49 on Friday. At Tuesday’s price the company’s market cap was about $5.8 billion and even a 30% premium would have cost Nike only about $7.54 billion.

For Under Armour a deal of that size for Lululemon is more of a stretch. The company’s latest balance sheet shows about $562 million in long-term debt and just under $160 million in cash. But share price growth is nearly double Nike’s over the past two years, and Under Armour could use a solid boost to its growth prospects. Women’s sportswear could provide it.

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Lululemon’s shares were inactive in Monday’s pre-market session having closed Friday at $49.28 in a 52-week range of $43.14 to $70.00. Under Armour’s stock traded up about 0.3% at $92.25 in a 52-week range of $63.77 to $105.89.

The analyst picture is still positive for both Lululemon and for Under Armour. Lululemon has a consensus analyst price target of $64.42 from Thomson Reuters, while Under Armour has a consensus analyst price target of $107.11. Nike shares just went out at their all-time high last week and the stock’s $132.20 price on Monday morning compares to a consensus analyst price target of $140.79.