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Here’s a Quick Solution to Nike Inc (NKE) Stock Troubles

A small investment of $10 billion could solve Nike’s growth issues

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Call an ambulance. Nike Inc (NYSE:NKE) is on life support. This may be true, but we’re a long way from calling in the bankruptcy lawyers. Yes, NKE stock is going through a sales funk at the moment, but I do think there’s a quick remedy.

Here’s a Quick Solution to NKE Stock Troubles
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Nike should buy Lululemon Athletica Inc. (NASDAQ:LULU) for $10 billion because it allows the world’s biggest sneaker company to resume its growth trajectory. It also allows NKE stock to avoid reacting to every move its competitors make and instead lead the way, which is the hallmark of Phil Knight’s legacy.

Just Do It!

In April of this year, I suggested that Lululemon and Under Armour Inc (NYSE:UA,UAA) join forces.

“Under Armour and Lululemon ought to come together to fight Nike and Adidas. Both firms currently face serious challenges as they cope with growth. Together, they would make a formidable team,” I wrote on April 17. “LULU founder Chip Wilson floated the idea back in February when he rented a Vancouver bus shelter outside the company’s headquarters that stated: ‘Lululemon, Buy Under Armour Now!’”

In that scenario, like LULU founder Chip Wilson, I saw Lululemon buying Under Armour.

However, given their market caps are close and UA CEO and co-founder Kevin Plank controls Under Armour through a dual-class share structure, it would be difficult if not impossible for that to happen without Plank’s blessings.

It’s possible that Plank could choose to make a bid for Lululemon, but there’s been no evidence to suggest this is even remotely close to happening. As for private equity, there have been rumors circulating that interested buyers are out there, but given they’d likely have to pay between $70-$80 per share, it’s a remote possibility.

Why NKE Stock?

Although NKE stock’s got a spotty record when it comes to M&A, its 2003 deal to buy Converse for $305 million has paid off in spades. Today, Converse’s annual sales are close to $2 billion, an annual growth rate just shy of 20%, and it’s still growing.

Nike needs more growth in its stable to offset some of the market-share erosion it’s experiencing at the hands of Adidas AG (ADR) (OTCMKTS:ADDYY) and Puma, among others.  

I think Lululemon could be a transformational deal for the company because of the three areas Lululemon CEO Laurent Potdevin is focusing its efforts.

International Expansion

First, Lululemon’s international expansion plans dovetail nicely with Nike’s goals for Asia and other high-growth regions outside the U.S.

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Article printed from InvestorPlace Media, https://investorplace.com/2017/10/nike-inc-nke-stock-solution/.

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