Is Under Armour competing against Nike to buy Lululemon?

Lululemon has made it to the news over the weekend as various media reports point out at renewed takeover bids. This time, Nike and Under Armour are the most likely potential suitors.

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 quite a smaller price than those 12 billion dollars share buyback program Nike just announced.

Later on, on Sunday, the ‘New York Post’ reported that Under Armour Inc. (NYSE: UA) is said to be in talks to acquire Lululemon. So far, neither Under Armour nor Lululemon have made any comments on those rumours.

It is worth of remembering that back in August of 2014, Lululemon’s founder and chairman, Dennis “Chip” Wilson, sold almost half of his 28 percent stake in the company to private equity firm Advent for a reported 845 million dollars.

In June of this year, Wilson filed a document with the US Securities and Exchange Commission to sell his remaining stake in Lululemon.

As a result, Advent currently owns 20.1 million shares of Lululemon stock, unchanged since August 2014 and amounting to circa 15.4 percent of the company’s 130.72 million shares outstanding, notes CNN Money.

On the back of the news, Lululemon shares have advanced by 11 percent.

Under Armour or Nike? Lululemon attracts many suitors

In terms of which reported suitor is better equipped to be the one bagging the yoga apparel company, for Under Armour a deal of this size will come in as a stretch. According to the company’s latest balance sheet, Under Armour has 562 million dollars in long-term debt and just under 160 million dollars in cash.

"Nike and Under Armour have shown an ability to build a women's business in-house," said Bridget Weishaar, an analyst with Morningstar. She adds that lululemon stock still looks expensive - at more than 20 times earnings estimates - even after its big drop. In this vein, Weishaar doubts either Nike or Under Armour would want to pay that much for the company.

Similar scepticism was shown by Susan Anderson, an analyst with FBR, who said that at Lululemon’s current trading of 50 dollars a share, a takeover only makes financial sense at a price of around 30 dollars apiece.

Anderson agreed that there's little for Nike or Under Armour to gain from owning lululemon. "Under Armour wants to grow its own brand. I don't think they want another brand. And Nike's women's business is on fire right now," she said.

Lululemon shares soar on takeover talks

On the wake of the news, shares of the yoga apparel retailer have added more than 15 percent in past few days. With Nike and Under Armour called put as potential bidders in a reported takeover, there is no surprise for the market in this stock rise, assure many analysts following the company.

Market insiders highlight however that even with the recent rally, lululemon shares are still nearly 30 percent below their 52-week high and 40 percent from their 2013 peak.

On a related note, the yoga apparel company will release its latest results in early December. Analysts are expecting a sales increase of 15 percent coupled with decreasing profits.