Lumber Liquidators: Founder Ends His Exploration Of A Buyout For Now

Summary

• Former CEO Tom Sullivan increased his holdings in Lumber Liquidators and then sold most of his recently acquired shares.
• This appears to end the possibility of a near-term buyout, at least for one spearheaded by Sullivan.
• Lumber Liquidators still has plenty of upside if tariffs end.
• Its nearer-term performance may be weak, with negative EPS possible with the full impact of 25% or 30% tariffs.
• Looking for more stock ideas like this one? Get them exclusively at Distressed Value Investing. Get started today »

Lumber Liquidators' (LL) stock has been quite volatile lately after founder and former CEO Tom Sullivan increased his stake in the company from 1.3% to 7.7%, discussed potentially making a bid for the company, and then sold most of the stake he acquired recently.

The sale of the recently acquired shares apparently removes the potential for a near-term buyout and leaves improved operational performance and/or the end of tariffs as potential catalysts. Lumber Liquidators should be worth significantly more than its current price if tariffs end, but it is still uncertain about when that might happen.

Tom Sullivan Sells Most Of His Position

I mentioned before that I agreed with the belief that Tom Sullivan's acquisition of a 7.7% stake in Lumber Liquidators was positive for shareholders. However, Sullivan has now sold most of the shares that he added recently.

Sullivan purchased 1.35 million shares for an average of $7.88 per share and sold 1.25 million shares for an average of $11.68 per share, potentially resulting in a profit of over $4.7 million on those shares. Sullivan also sold 5,000 call options that he had previously acquired. This leaves Sullivan with around 0.46 million shares remaining, which is a 1.6% stake in the company and only slightly higher than the 1.3% stake he owned before his August purchases.

Sullivan's share sale appears to end his buyout and investor activism bids for now. Sullivan indicated that he felt the share price had gotten too high for a buyout and that Lumber Liquidators had "declined to engage in discussions."

I had been thinking that Lumber Liquidators' price was getting too high for Sullivan to take private, since at over $13 the buyout premium would put any acquisition price at close to the $17.20 value that Lumber Liquidators might have in a no tariffs situation (more on that

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in LL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.