Nike Should Buy Under Armour

During these turbulent economic times, companies with strong balance sheets should look to gain market share and boost long term revenue by acquiring smaller competitors at discounted prices. Nike (NKE) is in an ideal position with enough cash to acquire Under Armour (UA) for pennies on the dollar. Nike was one of the few companies whose previous quarter’s earnings beat analyst expectations with sales and profit growth. Nike earned 4.6 billion which was a 6% increase over its previous quarter. Net income increased 9% and grew to almost 400 million. Nike has over 2.7 billion in cash, short term investments and only 800 million in debt. Nike only has 445 million in long term debt on the balance sheet.

Under Armour is currently selling for $17 per share and has a market cap of just $829 million. The enterprise value is even lower at $788 million. This is the perfect time to make a play for Under Armour. Under Armour has a good balance sheet but the company has seen a slowdown in sales revenue. Under Armour saw its earnings drop 50 percent last quarter to 17 cents per share. Under Armour also had to increase its line of credit with PNC bank to 180 million. Quarterly sales actually increased 3% despite order cancellations and returns. Sales growth for the year still came in at a robust 20%.

Nike could make an offer of $22.10 per share which would value the company at just over 1.08 billion dollars. This is a 30% premium over the current share price. Under Armour executives would have a hard time turning down such an offer in this current recessionary environment. Under Armour’s athletic apparel is very popular with college athletes, schools, and youth. Under Armour is trying to gain a foothold in the athletic shoe market which Nike dominates. Buying Under Armour would give Nike an even greater presence in the athletic apparel and shoe market. Nike would give Under Armour greater international exposure in new markets and provide needed liquidity. The deal appears to be a win win for both companies.

Disclosure: I own shares of Nike stock.

Comments

[DOUGLUVS:]

NKE buying UA would be like Apple buying Dell. NKE is not interested in buying UA. NKE wants to put UA out of business, which probably won't happen.
Also, NKE not buying UA avoids sales cannibalization.

Feb 05 08:53 AM

[mdm12:]

What a ridiculous article/comment. I can't believe you were allowed to publish this crap. Hey, why don't you call Phil Kinght and Kevin Plank and set it up?

Feb 05 09:52 AM

[John316:]

Wow, that's a bit harsh...looks like writer is just paraphrasing Cramer's call in December....give him a call and let him know how you can't believe CNBC allowed him to publish such crap on their network...or allow him to make $MM's through his book sales and show....

NKE)+Should+Buy+Under+Armour+(UA)/4216258.html'>www.streetinsider.com/...


On Feb 05 09:52 AM User 351461 wrote:

> What a ridiculous article/comment. I can't believe you were allowed
> to publish this crap. Hey, why don't you call Phil Kinght and Kevin
> Plank and set it up?

Feb 05 10:04 AM

[turb0kat:]

No way UA would sell under $30. Nike would be smart to buy them now, though, before they start to eat too much market share.

Feb 05 01:35 PM

[SlickrTee:]

UA is a mighty force about to take small bites out Nikes domination, UA is a fresh face in a stale tire Nike dominated apparel world. UA should but Nike.

Feb 05 02:16 PM