Lululemon founder fights to grab control

LULULEMON Athletica founder Dennis “Chip” Wilson is weighing options for shaking up the company’s board.

Lululemon began in 1998 by creating innovative designs using high-quality fabrics, and its founder wants the company to return to its roots. Picture: Chris McCormack

LULULEMON Athletica founder Dennis “Chip” Wilson is working with bankers at ­Goldman Sachs as he weighs options for shaking up the company’s board and gaining more influence over the yoga gear maker’s operations.

The founder could launch a proxy fight to win additional board seats or partner with a private-equity firm in a buyout. Alternatively, he could sell his stake.

So far, Mr Wilson hasn’t made any decisions on further steps, said a source who would not elaborate on what was under consideration.

Lululemon’s board has sought advice from bankers in response. The board hasn’t been asked to act on a specific proposal from Mr Wilson, and nobody has approached the board about possibly buying the company.

Goldman, which helped take Lululemon public in 2007, has had a long relationship with Mr Wilson. The two sides are in the process of negotiating the terms of their arrangement as Mr Wilson, who is looking for additional advisers, selects his team.

The moves suggest Mr Wilson intends to exert influence over how the maker of fashionable yoga gear is run even though he stepped down as chairman last month and relinquished his role as CEO in 2005.

Earlier this month, he announced that he was voting his 28 per cent stake against the company’s new chairman and another director at its annual meeting.

Both directors were re-elected, but the conflict prompted speculation that Mr Wilson may have bigger changes in mind. Since announcing his opposition, the founder has received several calls from financial firms who have been soliciting him with pitches. Bankers also are trying to interest clients in a deal.

Going private could be a big bite for a private-equity firm given the premium that would be required atop the company’s $US5.9 billion ($6.25bn) market capitalisation.

Once a high-flyer, Lululemon has tumbled over the past year after it had to recall yoga pants that were too sheer. The debacle cost tens of millions of dollars and damaged its reputation. While it was focused on fixing the quality issues, it missed a shift in consumer demand towards bright colours, patterns and new trims from solid staples. The shift caused the company to lose out on sales and left it with unsold inventory.

The company’s shares have lost nearly a third of their value this year and fell US4c to $US40.23 on Friday, giving it a market value of $US5.85bn.

Mr Wilson’s stated frustration isn’t so much with the management, led by new chief executive Laurent Potdevin, which he supports, but with the strategic direction set by the board. Mr Wilson founded the company in 1998 by creating innovative designs using high-quality fabrics, and he wants the company to return to its roots by making product development a higher priority. He had expressed his dissatisfaction to the board on several occasions before going public with his concerns.

A Lululemon spokesman said the company was focused on strengthening its “product engine” and expanding worldwide.

Founders and former executives who wage a battle against their companies can sometimes face an uphill battle. Dov Charney, who was removed last week as chairman of American Apparel and told the board intends to fire him as president and CEO, is facing a similar dilemma. Mr Charney doesn’t intend to sell his 27 per cent stake in the company.

Additional reporting: Joann S. Lublin and Dana Mattioli