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Shrugging off an earlier rejection, The Men’s Wearhouse has taken its offer to acquire archrival Jos. A. Bank Clothiers directly to Bank’s shareholders.
Early Monday morning, the Fremont, Calif.-based Men’s Wearhouse, which has been mired in a back-and-forth battle to acquire or be acquired by Bank since the fall, commenced a cash tender offer to acquire all the outstanding shares of Bank for $57.50 a share, or about $1.61 billion, 4.5 percent higher than the $55 a share, or $1.54 billion, offered in November and rejected by Bank’s board on Dec. 23.
Unless extended, the offer to buy Bank’s shares is scheduled to expire at 5 p.m. Eastern Standard Time on March 28.
MW said Monday’s offer represents a 52 percent premium over Bank’s unaffected enterprise value and a 38 percent premium over the company’s closing price on Oct. 8, the day before Bank made public its proposal to acquire Men’s Wearhouse, the opening fusillade in what’s become a war of men’s wear titans.
Men’s Wearhouse delivered notice to Bank that it will nominate two independent director candidates for election to the company’s board at its 2014 annual meeting. These are former Macy’s East chief executive officer Arthur Reiner as well as John Bowlin, a former president and ceo of Miller Brewing Co.
In a research note issued after the offer, Stifel Nicolaus analyst Richard Jaffe noted that the two seats on the Bank board up for election this year belong to Bob Wildrick, chairman of the Hampstead, Md.-based specialty retailer, and Neal Black, president and ceo.
Because it is directed at Jos. A. Bank shareholders, rather than its board, this sweetened offer could also give Men’s Wearhouse a detour around the tougher “poison pill” adopted by Bank’s board last week. Provisions for the shareholder rights plan would now kick in when a hostile suitor — or a group of hostile suitors working in concert — acquires 10 percent of Bank’s shares, half the threshold level previously in force. Deployment of the measure would allow shareholders to purchase shares at a discount, substantially elevating the price for the company and diluting a hostile suitor’s holdings.
Jos. A. Bank acknowledged receipt of the offer Monday and said its board, “consistent with its fiduciary duties…will carefully review all aspects of the Men’s Wearhouse offer in consultation with its financial and legal advisers and make a recommendation to shareholders…on or before Jan. 17, 2014.” Until that time, the company advised shareholders to “take no action” and said the date for its 2014 shareholders meeting has not yet been set and “shareholders are not required to take any action at this time.” Last year’s annual meeting was held on June 21.
Doug Ewert, president and ceo of Men’s Wearhouse, said, “We believe that our $57.50 per share proposal to acquire Jos. A. Bank is compelling and provides substantial value and immediate liquidity to Jos. A. Bank shareholders. Although we have made clear our strong preference to work collaboratively with Jos. A. Bank to realize the benefits of this transaction, we are committed to this combination and, accordingly, we are taking our offer directly to shareholders.”
Ewert continued, “The highly qualified nominees proposed by Men’s Wearhouse have proven track records serving on public company boards, and we believe they will act in the best interest of Jos. A. Bank’s shareholders by carefully evaluating the compelling and value-creating opportunity represented by the Men’s Wearhouse offer. We urge Jos. A. Bank shareholders to tender into our offer in order to send a strong message that Jos. A. Bank should engage in good-faith negotiations immediately so we can complete this value-creating transaction.”
Gilbert Harrison, chairman of Financo, and financial adviser to Jos. A. Bank, said the companies have yet to meet to discuss combining forces. Instead, he pointed to the superior performance of Jos. A. Bank compared with Men’s Wearhouse over the past five years.
“Jos. A. Bank has been a leader in driving industry-leading rates of revenue and net income growth, significantly above those delivered by Men’s Wearhouse. The company has made great strides toward returning to these historic growth rates and has a well-developed strategy in place to continue to drive revenue, substantially improve margins and deliver enhanced shareholder returns.”
Eminence Capital LLC, which owns 9.8 percent of the common stock of Men’s Wearhouse, and is the firm’s single largest shareholder, applauded the higher offer for Bank on Monday. Ricky Sandler, ceo of Eminence, said, “We are encouraged by the increased bid MW made for JOSB and by its commitment to consummate a combination as demonstrated by its tender offer and nomination of a director slate. We continue to believe that a merger of these two companies is in the best interests of all shareholders.”
Shares of Jos. A. Bank closed at $56.87, up $2.46, or 4.5 percent, in New York Stock Exchange trading Monday. MW shares were up 2.2 percent, or $1.09, to close at $51.68.
While Men’s Wearhouse dwarfs Jos. A. Bank in volume, breadth and scope, Jos. A. Bank, with a more vertically integrated supply chain, has generally boasted stronger gross and operating margins as well as growth in profitability. Last year, Men’s Wearhouse generated $2.5 billion in sales to Jos. A. Bank’s $1 billion.