By Evan Clark
with contributions from Jean E. Palmieri
 on November 23, 2015

Big deals are afoot on Wall Street and there’s at least some interest in getting fashion into the game — specifically Lululemon Athletica Inc.

Maybe it’s the $4.5 trillion in the buyout system ready to be put to work, or a sense that the U.S. consumer is strong enough to weather a downturn relatively well or the willingness of the debt market to fund big deals.

Whatever the stimulus, it’s strong enough to spur on CVC Capital Partners and the Canada Pension Plan Investment Board, which agreed Monday to pay $4.6 billion for Petco Animal Supplies Inc. (In a whole other world, pharmaceutical companies Pfizer and Allergan inked a merger to create a company valued at about $160 billion).

Lululemon investors were hoping some of that enthusiasm would come to the activewear market and pushed the company’s stock up 7.1 percent to $52.77 on a New York Post report that Under Armour Inc. might be knocking on the door.

Shares of Under Armour were relatively placid, up 0.2 percent to $92.16.

The two companies were neck-and-neck about two years ago, but Under Armour has pulled ahead as Lululemon struggled. Under Armour has a market capitalization of $19.9 billion, where as Lululemon’s stock is worth $7.4 billion in aggregate.

An Under Armour spokeswoman declined to comment on rumors. But a source close to the company said a Lululemon deal wasn’t in the cards.

Under Armour has been on the prowl lately, looking to transform its business through acquisitions. The company this year spent $560 million to acquire MyFitnessPal and Endomondo and build what it described as “the world’s largest digital health and fitness community.”

A Lululemon deal would certainly further the company’s efforts to get into women’s, but it might not be such an easy deal to pull off.

Lululemon stock took a hit in September when the company said its gross profits tallied 46.8 percent of revenues in the second quarter, down from 50.5 percent a year earlier. But chief executive officer Laurent Potdevin attributed that to a freshening up for the future.

“It’s really, really important for everybody to understand that the short-term growth margin pressure that we are experiencing is not the result of higher markdowns or quality issues,” Potdevin told analysts at the time. “We’re building a very scalable, complex platform at a time where we’re growing internationally, and we’ve added resources to the team, and we have validated not only that we will see the margin expansion that we committed to, but see it in 2016 and beyond.”

 

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