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Why Shares of Lumber Liquidators Surged on Thursday

By Lou Whiteman - Updated Sep 5, 2019 at 5:17PM

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Fresh evidence emerges that the troubled company's founder could pursue a buyout.

What happened

Shares of Lumber Liquidators (LL -2.67%) climbed more than 14% on Thursday after the company's founder took additional steps that indicate he is serious about trying to take the flooring products retailer private. It's the second straight day of double-digit gains for the company, as investors grow more excited about the prospects of a buyout for the struggling company.

So what

Lumber Liquidators on Wednesday jumped off 52-week lows after a Bloomberg report that founder Thomas D. Sullivan was working on a bid to take the company private. Thursday's jump came after Sullivan executed call options through his F9 Investments fund to increase his stake in Lumber Liquidators to 7.7% from 6%, a clear step toward trying to influence the company's direction.

A flooring specialist installs carpet.

Image source: Getty Images.

In an interview with Bloomberg Thursday, Sullivan said that since word of his interest became public, he has received additional inquiries from potential partners. His original plan was to work with private equity firms and banks to merge Lumber Liquidators with his current company, Cabinets to Go.

Lumber Liquidators is yet to comment on the interest.

Sullivan has been critical of Lumber Liquidators since leaving his day-to-day role at the company, saying that the current management has veered from his formula of low overhead. The shares have lost more than three-quarters of their value over the past five years, and Lumber Liquidators last month lowered its full-year guidance due to lower foot traffic and trade uncertainty, risks associated with investing in consumer stocks.

Now what

The market is clearly excited about the prospects of a Sullivan bid, reversing what has been a down year for the shares and pushing them to a 20% gain year to date in a matter of days. Given how far the company's stock price has fallen and its poor financial performance of late, the founder is likely expecting to get a warm reception from investors if and when he makes a formal bid.

Investors need to remain cautious, however. Companies have a number of takeover defenses at their disposal, and even if Lumber Liquidators is open to an acquisition, Sullivan still needs to secure deep-pocketed partners and funding. Shareholders deep underwater on their investments might be about to be thrown a lifeline, but there's still a lot that has to happen before a buyout can be completed.

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Lumber Liquidators Holdings, Inc. Stock Quote
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