The soap opera of The Men’s Wearhouse (MW) and Jos. A. Bank ($JOSB) aired its latest episode on Monday, with Men’s Wearhouse taking another stab to acquire its smaller rival and fend off the amalgamation of Jos. A. Bank and Eddie Bauer.
The saga started last September, only a few months after Men’s Wearhouse gave the boot to its founder and chairman George Zimmer, the man who had pushed for the company to sell itself. At that time, suit retailer Jos. A. Bank had made a telephone offer and subsequent follow-up letter to buy its bigger competitor at a 42-percent premium to the closing price of MW on September 17 (the day before the phone call). The offer officially hit the wire on October 8, with Jos. A. Bank saying it would acquire Men’s Wearhouse for $48 per share, or $2.3 billion in cash.
Men’s Wearhouse swiftly refused the proposal, calling it “opportunistic” amid corporate upheaval with the removal of Zimmer as MW shares were trading around $35 per share, after printing $40.67 early in August. Jos. A. Bank pulled its offer in November.
Men's Warehouse Flips the Script
On November 26, Men’s Wearhouse turned the table in what is often referred to as a “Pac-Man” defense, spinning around and offering to gobble up Jos. A. Bank for $55 per share, in a deal worth about $1.54 billion. The offer was only a 9 percent premium to the day-before price of JOSB, but represented an all-time high for the stock. Shares of JOSB rose to $57.61 as investors apparently expected a higher offer in the future.
Although, Jos. A. Bank obviously believed that a merger between the two men’s clothing companies is a smart move (after all, they offered the first deal), the board rejected the $55 per share offer in December, saying the price was too low.
Ringing in 2014 with an undaunted quest, Men’s Wearhouse, which is headquartered in Fremont, California, upped its offer on January 6 to $57.50 per share, or $1.61 billion, to acquire Hampstead, Maryland-based Jos. A. Bank. Men’s Wearhouse said at that time that it was taking its offer directly to JOSB shareholders, with MW president and chief executive Doug Ewert saying the company was “committed to this combination.”
Mutual Poison Pills
Both companies had adopted shareholder rights plans, or “poison pills” as they’re commonly called, to try and fend off any hostile takeover attempt by an unwanted suitor. In short, the plan allows shareholders to purchase stock at a discounted price to try and keep an investor from acquiring a large enough position to try and take control.
Again, Jos. A. Bank wasn’t biting on the offer and rejected it earlier this month. Instead, the company went out and on February 14 disclosed that it is going to spend $825 million in cash and stock to acquire Eddie Bauer, which would diversify its retail offerings to include outdoor and casual wear. Further, if the acquisition of Eddie Bauer were to be completed, the company would repurchase $300 million of its common stock at $65 per share. At the time of the announcement, that was a healthy premium to the aforementioned all-time high for JOSB shares of $57.61.
In addition to expanding its merchandise, it has been speculated that the move may have been designed to create a company that is too big for Men’s Wearhouse to acquire or one that it did not want.
Premiums and Obstacles
On Monday, Men’s Wearhouse went back at it, this time offering $63.50 for each share of JOSB, in a deal now worth $1.78 billion. The company said that the buy-out price would be raised to $65 per share ($1.82 billion) if Jos. A. Bank cancels the acquisition of Eddie Bauer (at a cost of less that $48 million to terminate) and Jos. A. Bank allows Men's Wearhouse to conduct limited due diligence with access to the Jos. A. Bank management team.
Men’s Wearhouse also said that it has sued Jos. A. Bank, demanding that the shareholder’s rights plan that Jos. A. Bank adopted be declared invalid. “The complaint alleges that the Jos. A. Bank Board has breached its fiduciary duties by adopting a series of unreasonable, shareholder-unfriendly and illegal defensive measures designated to thwart the Men's Wearhouse tender offer, prevent a change of control, pack the board with allies, interfere with the upcoming vote for two directors, and entrench the existing board,” Men’s Wearhouse said in a statement today.
Men’s Wearhouse encouraged shareholders to tender their shares by the 5:00 PM March 12, 2014 expiration date of the offer.
"We urge the Jos. A. Bank Board of Directors to immediately engage in negotiations with Men's Wearhouse so we can capitalize on the opportunity we have to enter into a transaction that creates significant value for shareholders of both companies,” commented MW chief executive Doug Ewert in a prepared statement Monday.
This is the type of offer that will be difficult for Jos. A. Bank to dismiss as quickly as it did the previous two, as it is a large premium to the initial proposal. There are clear synergies for the two companies that analysts estimate will create cost saving between $100 million to $150 million within three years, and that will grow as time goes on. The merged company would have more than 1,700 locations (MW about 1,140 and JOSB about 625 currently) and it would allow the large footprint of Men’s Wearhouse’s tuxedo rental business to broaden quickly.
In October, when Jos. A. Bank first made its bid for Men’s Wearhouse, JOSB had a valuation of about $1.17 billion. Four months and a transition from hunter to hunted, the company’s market capitalization has climbed to $1.67 billion, including a rise of more than 8 percent on Monday to $59.70 per share. Shares of MW are ahead in Monday morning action as well, advancing 6.6 percent to $48.08.