Lululemon (LULU) Takeover By Nike (NKE) or UA (UA) Seen as 'Unlikely' - Analyst

Sterne Agee CRT analyst Sam Poser said while he remains confident that Lululemon (NASDAQ: LULU) business continues to gain momentum he said Nike (NYSE: NKE) and Under Armour (NYSE: UA) takeover chatter is unfounded.

"While we do not dismiss the chatter outright, we believe both scenarios are very unlikely to occur," Poser commented. "Both NKE & UA are focused on building their own respective brand. Adding another brand to the mix would prove a distraction. The differences between the primary consumer of each brand are subtle but real. An acquisition of course, would be good for LULU shareholders, but would prove to be bad for shareholders of NKE or UA."

Why they don't believe NKE or UA will buy LULU:

• NKE & UA are focused on building their own respective brands. Over the past few years, NKE has divested Cole Haan because it was a distraction to its core businesses; and Umbro, because it became clear to NKE management that Nike soccer would give the company anything Umbro could and more. In the same manner, both NKE and UA's women's business should provide more over time than an acquisition of LULU would.
• Both NKE & UA have been investing millions, if not more, in their respective women's businesses. Buying LULU would not be a substitute for building a branded women's business. Neither NKE or UA can be a true global athletic brand without its own branded women's business.
• NKE and UA are inherently wholesale brands. LULU is a vertical retail brand. While the product sold by all 3 brands do share some attributes, LULU's business is inherently different than that of both NKE & UA. NKE & UA prices their goods as a wholesale company, so retail has potential for higher margins. LULU prices goods as a retailer, so conversion to a wholesale platform would not be feasible as margins would be pressured, or retail prices would have to increase.

The firm reiterated a Buy rating and $68 price target.

For an analyst ratings summary and ratings history on Lululemon Athletica Inc. click here. For more ratings news on Lululemon Athletica Inc. click here.

Shares of Lululemon Athletica Inc. closed at $49.28 yesterday.

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