Lululemon rises as ex-chairman agrees to sell half his shares, averting potential proxy fight

MarketsAssociated Press

Shares of Lululemon rose Friday after founder and former chairman Dennis "Chip" Wilson agreed to sell about half his shares in the company, averting a possible fight for control over the yoga apparel maker.

On Thursday investment firm Advent International agreed to buy about half of Wilson's stake in the company. It will pay him $845 million for 20.1 million shares of Lululemon. Advent, a former major investor in Lululemon, will get two seats on the company's board. Wilson criticized the company's board in June, raising the possibility of an attempt to replace some of Lululemon's directors or a hostile takeover. Advent's additions will expand the board to 12 members.

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Shares of Lululemon Athletica Inc. rose $1.19, or 3.1 percent, to $40.22 in late morning trading. They had been down almost 34 percent so far this year through Thursday's close.

Analysts said it's good that Lululemon seems to have reached a truce with Wilson, but that the sale doesn't solve the company's other problems.

Jefferies & Co. analyst Randal Konik said the sale will create some "near term stability" for shares of Lululemon, which have fallen 12 percent since mid-June and are down 52 percent since June of 2013. However he said the company will struggle to improve its profits because competition is growing and its sales trends are weak.

Sterne Agee analyst Sam Poser said the company has lost customers to competing brands like Athleta, Under Armour and Nike, and it is hard to regain those customers. Poser also said he has doubts about Lululemon's management.

"We believe the Lululemon brand has been significantly damaged as a result of all of the events in the past 18 months," he said.

Lululemon's stock price slumped after customers complained that some of its yoga pants were too sheer, making them see-through at times. Other problems included pilling, holes, and seams coming apart. Those problems were expensive to fix. Wilson upset some customers later in the year when he said some of the problems were related to customers' body types. Later in the year he agreed to step down as chairman.

Both Konik and Poser rate the shares at the equivalent of "Neutral."