Lululemon's founder is taking on some lu-lu-leverage - and it's coming at a time when Lululemon's stock is more than 20% off its recent highs.
Chip Wilson, the founder of Lululemon, has reportedly used a significant portion of his stake in the company to secure financing from Goldman Sachs Group Inc., according to a new report from Yahoo/Bloomberg.
According to a recent regulatory filing, an investment firm representing the Canadian billionaire pledged 1.8 million Lululemon shares, nearly 20% of his total holdings, as collateral for a $200 million margin loan from the US bank.
Wilson's stake, valued at approximately $660 million based on Tuesday's closing price, comes at a challenging time for Lululemon, with its stock declining by 25% since late March due to disappointing US sales and sales projections.
While representatives for Lululemon and Wilson declined to comment, this transaction sheds light on how wealthy individuals leverage their public holdings for substantial liquidity. For Wilson, who relinquished daily management of Lululemon over a decade ago, it signifies a broader investment diversification strategy.
The report states that the 69-year-old entrepreneur has expanded his investments beyond Lululemon, increasing his stake in Amer Sports Inc. and establishing a real estate firm, Low Tide Properties, among other ventures.
Additionally, he is actively investing in research to find a cure for his rare form of muscular dystrophy.
Pledging shares as collateral is common among the ultra-rich, with examples including Elon Musk leveraging Tesla Inc. stock for personal loans.
While borrowing against shares offers tax advantages, it also carries risks, as evidenced by margin calls during market downturns, such as those experienced at the onset of the pandemic.
Wilson founded Lululemon in 1998 and stepped down as chairman in 2013 following controversies and disagreements with the company's leadership.
Despite selling a significant portion of his stake a decade ago, he retains control of approximately 8% of Lululemon's shares, making it his largest individual asset.
Now he better hope yoga pants stay in style...
