Even though The Men’s Wearhouse Inc. has rejected Jos. A. Bank Clothiers Inc.’s $2.4 billion offer, don’t expect the men’s vertical retailer to walk away anytime soon.
Robert N. Wildrick, chairman of Jos. A. Bank, said in a telephone interview, “I am disappointed in their formulated response. In the interests of shareholders, and more importantly in the interests of customers, this is an opportunity to put together a couple of very good companies and come out with an extraordinarily good company with better product that’s cheaper to compete against the big guys, such as Macy’s. That’s a plus in my point of view. It’s a win-win for everybody.”
Wildrick emphasized: “Their obligation is to sit down with us, rather than put us down.…We have no plans at this time to go away.”
Jos. A. Bank reached out to Men’s Wearhouse on Sept. 18 regarding an acquisition proposal that would give Men’s Wearhouse’s shareholders a cash offer of $48 a share. The transaction would be funded from cash on hand, financing and $250 million in new equity capital from private equity firm Golden Gate Capital.
Although Men’s Wearhouse received the proposal on Sept. 18, it didn’t reject the offer until Wednesday, when Jos. A. Bank publicly disclosed it.
Bill Sechrest, Men’s Wearhouse’s lead director, said the proposal “significantly undervalued Men’s Wearhouse” and called it “opportunistic.”
Doug Ewert, Men’s Wearhouse’s chief executive officer, said, “Men’s Wearhouse has undertaken a number of strategic initiatives to accelerate growth and profitability, including our recent acquisition of JA Holding Inc. and the Joseph Abboud brand. We believe we are well positioned to deliver compelling value to our shareholders.”
The offer on the table represents a 42 percent premium to the closing price of Men’s Wearhouse’s stock of $33.71 on Sept. 17, and a 17.8 percent premium to the 52-week high and five-year high of $40.75, according to an investor presentation from Goldman Sachs and Financo Inc. that was filed with the Securities and Exchange Commission.
The presentation said the benefits from combining the two retailers include: complementary business strengths and market positioning; operational synergies; impressive offerings of men’s apparel and sportswear at various price points; a platform to optimize and expand the global real estate footprint, and an increased scale with more than 1,700 stores across North America and revenue in excess of $3.5 billion. It also indicated that a combined company will have a “largely undrawn asset-based revolving facility of up to $600 million and cash on the balance sheet.”
Gilbert Harrison, Financo’s chairman, said, “Over 40 percent of the shareholders of Jos. A. Bank and Men’s Wearhouse overlap. This deal allows those shareholders to keep the cash from their Men’s Wearhouse shares and keep their Jos. A. Bank shares to get the upside.”
The investor presentation also noted that the transaction, if completed at the current offer price, would be immediately accretive, at a 50 percent accretion rate, before any revenue or cost synergies.
Stifel’s Richard Jaffe said the offer is at a slight discount when compared with recent transactions, where offers are in the 9x enterprise value range. At that range, Jaffe thinks Men’s Wearhouse should be acquired at $52 a share.
Brian Sozzi, a former retail analyst and now ceo and chief equities strategist at Belus Capital Advisors, said, “This is a well-thought-out deal. Not sure why Men’s Wearhouse is balking. When I look at the [Goldman Sachs-Financo] investor presentation, one glaring omission is a guarantee for jobs, particularly for [Ewert]. Perhaps the board is looking for some form of a role in the company for him.”
The investor presentation said the combined firm will be led by Wildrick as chairman, and that management will “consist of the most qualified individuals from both organizations who are best suited to integrate the two companies and drive long-term growth.”
Sozzi added that he sees the deal getting done, but maybe not until early 2014. “I think a sweeter deal will get this done,” Sozzi concluded.
Whether that’s a possibility, Wildrick didn’t know. “I have not talked to a soul about that yet. We’re offering a premium [now],” the chairman said.
Wildrick said of the offering price: “The advice from our advisers was that if we’re serious, we should go in with a very fair price…at a respectable level. We don’t buy a lot of companies. This has a nice premium, and if we [went with it], the [expectation was the] directors [at Men’s Wearhouse] would exercise their fiduciary responsibility and engage in a discussion.”
Wildrick said Jos. A. Bank never approached former Men’s Wearhouse chairman George Zimmer, a move he said would be the equivalent of a hostile deal when there were first rumblings of dissension within Men’s Wearhouse.
“We wanted this to be a friendly deal,” Wildrick said. To that end, Jos. A. Bank’s chairman emphasized that as for staffing in a post-merger world, the company isn’t looking to fire people to get synergies. “We need good management,” he said.
And while he is reported to be open to an acquisition by Men’s Wearhouse at the same premium, Wildrick noted what he said was that if one came, he would have to take it to the board for consideration given his “fiduciary responsibility.”
Wildrick joined Jos. A. Bank as ceo from November 1999 to December 2008 before taking on the chairmanship.
According to Wildrick, “If you bought $2 million worth of stock in Jos. A. Bank in 1999, it would now be worth $120 million.”
Sources familiar with Jos. A. Bank’s plan said if it did pull back its offer, it would do so before the holiday season and then consider another play post-holiday. That would be risky for Men’s Wearhouse, said one contact who noted that a lackluster holiday selling season would translate into a lower bid than the one on offer now.
Shares of Jos. A. Bank rose 6.4 percent to $44.33 in trading on the Nasdaq, while Men’s Wearhouse shares jumped 27.8 percent to $45.03 in Big Board trading.
After the markets closed, Men’s Wearhouse said its board has adopted a “limited duration shareholder rights plan” that has a dividend of one right on each share of the firm’s common stock. While the plans typically are considered “poison pills” to discourage a takeover, they do not prevent a board from accepting an offer they deem in the best interests of its shareholders.
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