Nike Armour: Why Acquiring Under Armour would be in Nike’s Best Interest

After researching both Nike (NKE) and Under Armour (UA) recently I think Nike needs to start realizing the benefits to be had if they were to purchase Under Armour. This would be a big acquisition and I believe it could help secure Nike’s dominance for the next decade or so.

Why Nike Should be Interested?

As of right now, Nike has tried to duplicate many of Under Armour’s top products such as Cold Gear and Heat Gear. So far they have had very little success in taking away any form of market share against these products. Adding to the concerns to Nike Investors, Under Armour has been dominating the younger generations, 25 years below. Another recent concern was the release of Under Armour’s running shoes and cleats. This has to be a threat to the long-term value of Nike. Right now this isn’t a concern to Nike, however with the younger consumers wearing Under Armour’s brand the momentum is in their favor to one day steal a large piece of the pie.

What Nike would have to do?

For Nike to have any chance at buying Under Armour, the deal would need to happen soon. Under Armour is still several years away from being a major threat to Nike, however by that time it will be to late for Nike to make any form of move. Right now Nike is sitting on roughly $3 billion in cash. This could be used to acquire Under Armour even at their current depressed price. As long as Nike could offer a premium price to entice shareholders to sell all would be set. Currently, insiders own less than 7% of the company. That would make it difficult for Under Armour’s CEO Kevin Plank to put up much of a fight against Nike. He would need to have a killer speech to explain to shareholders why Under Armour will be better off not selling. Going against both the uncertainties of the economy and the retail sector, this would be a hard sell. Plus with the current cash problems Under Armour is having, sale would make sense.

Nike Needs to Act Fast

Nike needs to take advantage of the depressed consumer spending market to acquire Under Armour. Currently, they are an iconic global brand and have both the management and the balance sheet to make such a move. Nike could help introduce Under Armour to the developing nations, a sector Nike has had recent success in. Purchasing Under Armour right away will give Nike time to introduce the brand and help decrease competition. Obviously, we know over time Nike could beat Under Armour but instead they should acquire them at a discounted price and use the brand as an asset. This would also ensure Nike keeps growing. Currently I am holding neither company. However, Nike should definitely take a serious look at this acquisition before they are fighting head to head against Under Armour for sales.

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