Why lululemon athletica Won't Be Acquired

One analyst recently suggested that Lululemon could be an excellent acquisition target. Don't believe it.

May 14, 2014 at 5:01PM

A surprising possibility for lululemon athletica (NASDAQ:LULU) made a foray into the market yesterday. 

The research firm ISI Group suggested that the yoga-gear retailer would be an excellent acquisition target for VF Corp (NYSE:VFC), the parent of brands such as North Face and Timberland. Lululemon shares were up as much as 4.5% on the news yesterday morning as analyst Omar Saad said the two companies would be a good fit. He argued that VF "lacks a foothold in the performance athletic apparel market," while Lululemon could benefit from VF's "brand-building capabilities, an excellent supply chain, and a strong product innovation platform."

Images

With Lululemon shares getting beaten down recently, the company might seem ripe for a buyer, but I wouldn't expect a deal to emerge, be it with VF or any other clothing company. As for VF, Lululemon may be a bit out of its price range, as the yoga-apparel retailer still carries a market value at north of $6 billion. The North Face parent has just over $300 million in cash on its balance sheet, meaning a potential deal would have to be almost entirely debt-financed, and VF would likely be loath to take on an additional annual interest expense of $300 million. To date, VF's biggest acquisition was of Timberland for $2.3 billion in 2011, significantly less than Lululemon's value. 

Don't count out the culture
But the bigger reason that Lululemon is unlikely to be acquired has to do with the company's distinct culture.  

Many of the components of Lululemon's operations are unique, starting with its corporate culture. The company's aspirational philosophy extends to its employees as well as customers, as job applicants are often asked to fill out a goal sheet in addition to submitting a resume, and the company's manifesto is a central piece of the brand. Many of its fabrics, such as its trademark Luon blend, are patented, and the company seems to pride itself on its independent spirit. Its mission statement, "To elevate the world from mediocrity to greatness," is also imbued with that spirit of independence and unique sense of purpose. In addition, Lululemon's culture has garnered controversy over the years, as some former employees have said the work environment is cultlike, and its founder, Chip Wilson, has made several off-color remarks over the years that seemed to be blaming women's bodies for problems with the clothes. He recently stepped down from his chairmanship after the comments went viral.

Combining cultures is always tricky in M&A deals, and that controversy and unique culture would likely make it especially difficult to integrate Lululemon into a large enterprise. An acquisition could easily result in the company losing much of its authenticity with both its customers and employees, as its mission would seem lost. If the company is truly elevating the world from mediocrity to greatness, can it really do so as part of the same company that owns Vans and Jansport? 

Although 2013 was a forgettable year for the company, Lululemon still has plenty of opportunity ahead of it with its international expansion just kicking off and the recent introduction of its new &Go line of clothing. CEO Laurent Potdevin has just stepped into the leadership role and has a lot to prove. Not only for himself, but also for shareholders who are counting on him to return the company and share price to its former glory.

Rumors may continue to swirl about a deal with VF or another company as long as Lululemon shares are this cheap. You can ignore them. 

Lululemon was a multibagger. Will this stock be your next one?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers