Lululemon Athletica inc. (NASDAQ:LULU)’s future has hung in the balance while management and analysts consider what the company’s next step might be. Now there’s a report that the sportswear maker is considering a go-private deal backed by one or more private-equity firms.
Lululemon talks to PE firms
The Wall Street Journal cites unnamed sources who said Lululemon Athletica has been speaking with a number of private-equity firms. One of those firms is said to be Leonard Green & Partners. So far though, the sources said there aren’t any deals actually in the works. Insiders in the buyout industry say a deal like this would be difficult to complete, mainly because of the premium that would be needed on top of Lululemon’s already massive $6 billion market capitalization. However, The Wall Street Journal notes that this means Wilson is looking into all options as he tries to more heavily influence the way the company he founded is being run. Wilson is still a director although he stepped down as CEO in 2005 and chairman this past May.
Lululemon founder expresses dissatisfaction
Last month at Lululemon’s annual meeting, Wilson said he had become unhappy with the direction the company’s board had taken. He voted against the selected chairman and a director at that meeting. Wilson has been battling Lululemon Athletica’s board of directors for quite some time. Sources told The Wall Street Journal that approximately six months ago, the sportswear apparel maker was seeking advice from bankers if Wilson decided to dump his entire 28% stake in the company. Even though shares of Lululemon have declined by approximately 30% this year so far, a go-private deal would require a big check from a private-equity firm to cover not only the company’s equity but also the debt it would create in completing the transaction.
Wilson hard-pressed to find backing
The newspaper’s sources also stated that some PE firms are hesitant to team up with Wilson who has sparked controversy in the past at times. For example, last year he suggested that overweight customers were partially to blame for issues with sheerness and pilling in Lululemon’s yoga pants. The apparel maker ended up recalling those yoga pants, shelling out tens of millions of dollars in process. And as it addressed the quality problems, the company missed the market’s shift toward color, trim, and patterns and away from basics, thus further damaging its sales.