The hunter is now being pursued by the game.
This story first appeared in the November 27, 2013 issue of WWD. Subscribe Today.
In a stunning turnabout in what has grown into an epic struggle between the two biggest forces in U.S. men’s specialty store retailing, The Men’s Wearhouse Inc. Tuesday offered to acquire its archrival Jos. A. Bank Clothiers Inc. for $55 a share in cash, or about $1.54 billion.
The bid comes just 12 days after Bank’s unsolicited $2.4 billion $48-a-share offer for the larger Men’s Wearhouse had expired and puts Men’s Wearhouse on offense following a year of playing defense.
After facing a public relations setback after founder and former chief executive officer George Zimmer resigned from its board this summer, MW has spent the last two months fending off Jos. A. Bank’s unwelcome advances and the subsequent insistence of its largest shareholder, Eminence Capital, that it seriously negotiate with its suitor.
Eminence, which holds a 9.8 percent stake in MW and unspecified holdings in Bank as well, had begun to press for “white agent” status with MW, seeking a meeting in which the retailer’s bylaws could be modified and paving the way for a change in the composition of Houston-based company’s board.
Eminence had agreed that the $48-a-share was an insufficient offer but wanted the companies to talk.
Eminence’s eagerness for a merger came through again in its reaction to Tuesday’s surprise bid.
“We are pleased to see that the board of Men’s Wearhouse agrees with us and recognizes the substantial benefits of merging with Jos. A. Bank,” said Ricky Sandler, ceo and chief investment officer of Eminence.
The MW offer provided a 32 percent premium to Bank’s stock price of $41.66 on Oct. 8, the day Bank’s takeover bid became public. But shares of Bank soared past the offering price Tuesday, ending the day up $5.70, or 11.3 percent, at $56.30.
By contrast, Jos. A. Bank in October said its offer of $48 per share represented a 42 percent premium over the Men’s Wearhouse’s stock price on Sept. 17, the day before Bank first reached out to its rival. Shares of MW rose $3.50, or 7.4 percent, to $50.57 in trading Tuesday.
Other than to confirm receipt of the offer and indicate that they would review it with their financial and legal advisers, officials at Jos. A. Bank had no comment on the MW offer.
Still, the latest takeover overture has a number of advantages the Jos. A. Bank offer lacked. It would be funded entirely from cash on hand and debt financing, whereas Bank’s acquisition of MW would have required cash, new debt and $250 million in equity financing from Golden Gate Capital.
In a letter sent to Jos. A. Bank chairman Robert Wildrick, Doug Ewert, MW president and ceo, pointed out his company’s greater scope: MW has more stores and its sales for the last 12 months outpace Bank’s by a $2.5 billion to $1 billion margin — and its greater experience with making and integrating acquisitions, including its June purchase of Joseph Abboud and its earlier pick-ups of After Hours, a formalwear specialist, and Moores, a Canadian apparel chain.
Ewert wrote, “Importantly, we expect a smooth integration as there will be no re-branding or remodels required — Jos. A. Bank’s store banner will remain in place. Management will consist of the most qualified individuals from both companies. We are confident Men’s Wearhouse’s deep-rooted corporate culture of customer service will appeal to Jos. A. Bank employees and customers, and that by implementing the best practices of both companies we will drive operational and financial success.”
While there was skepticism from start to finish during Bank’s courtship of MW, the situation is different now that the script has been flipped.
Stifel Nicolaus analyst Richard Jaffe pointed out that Bank officials said during an earlier round of acquisition speculation that it would be open to an offer from MW and said he expects MW’s offer to receive “considerable consideration. Previously we did not believe that MW was interested in buying [Jos. A Bank], that they had numerous initiatives in place and did not believe that MW management valued the [Jos. A. Bank] promotional model highly.
“The situation has changed,” he continued. “The MW board, facing what we believe was pressure from a large shareholder, took a closer look at the opportunity and chose to bid for JOSB.”
He rated the likelihood of a transaction as “high” and the benefits to be derived from it “significant.”
Douglas Hand Jr., attorney at Hand Baldachin & Amburgey, said, “Considering the fact that Jos. A. Bank made the original offer and Men’s Wearhouse has countered with a bid of its own, I’d be surprised if a deal doesn’t ultimately get done.”
As the larger company, MW has the edge, he said, likening its maneuver to the “Pac-Man defense” employed during the “Go-Go” Eighties. “This is classic corporate law,” he said.
Men’s Wearhouse also argued that a combination in which it is the acquirer would result in “substantially lower leverage,” with a ratio of pro forma debt to adjusted earnings before interest, taxes, depreciation and amortization for the last 12 months of approximately 2.8 times, “which affords both brands the operational flexibility to execute on their strategic plans.”
The unusual instance of role reversal affords both companies an opportunity to engage in some soul-searching. Jos. A. Bank had requested the opportunity to conduct “limited due diligence” in its bid for Men’s Wearhouse and now has had the same request directed at its own board.
Jos. A. Bank’s Wildrick, who’d argued about the strength of a business combination, has to live up to the comments he made when asked what he would do if in fact the roles were reversed and MW offered to buy Bank.
“That’s their right and we would conduct ourselves in a much different fashion than they have,” he told WWD last month.
MW is being provided with financial guidance from Bank of America Merrill Lynch and J.P. Morgan Securities and with legal advice from Willkie Farr & Gallagher LLP.
Gilbert Harrison, chairman of Financo Inc., which is counseling Jos. A. Bank, told WWD, “This has been a strange turn of events, the most recent in a string of strange actions by the board of Men’s Wearhouse. Jos. A. Bank will, of course, fulfill its fiduciary obligation to shareholders and thoroughly evaluate the Men’s Wearhouse proposal.”