Eminence Capital LLC has taken its desire for a merger of The Men’s Wearhouse Inc.’s $1.61 billion bid for Jos. A. Bank Clothiers Inc. beyond the boardroom and into the courtroom.
This story first appeared in the January 14, 2014 issue of WWD. Subscribe Today.
Eminence, Men’s Wearhouse’s biggest shareholder with a 9.8 percent stake and also the owner of 4.9 percent of Bank, Monday backed MW’s proposed $1.61 billion, or $57.50 a share, tender offer to acquire Jos. A. Bank.
And to back its position, it concurrently filed suit in the Court of Chancery in Delaware seeking a preliminary injunction that would prevent Bank from, among other actions, making an “ill-advised acquisition” that could hurt the value of Bank’s shares and risk “killing” what Eminence has in the recent past viewed and continues to view as an attractive combination.
Bank, based in Hampstead, Md., is a defendant in the suit, as are Robert Wildrick, Bank’s chairman; Neal Black, chief executive officer, and the independent directors of Bank. In addition to the request for preliminary and permanent injunctions, Eminence is also seeking damages in an amount to be proven at trial.
Earlier in the day, Ricky Sandler, ceo of Eminence, sent a letter to Bank’s board in support of the most recent offer from MW, saying it “provides the best path for shareholders to realize the significant value inherent in the combination of both companies. Furthermore, we firmly believe that you will not be able to deliver comparable value to shareholders through any other strategic transaction or action available to you.”
Wildrick said in December, upon Bank’s rejection of MW’s earlier $1.54 billion purchase offer, that Bank would “continue to review acquisition opportunities that would represent a strong strategic fit with our company and provide an opportunity to leverage our core competencies to drive meaningful growth, synergies and substantial value creation over the long term.”
The Eminence suit, however, argues that the quest for such an acquisition would represent a “scorched-earth defensive tactic designed to entrench [the directors] and fend off an attractive acquisition proposal and tender offer” from Men’s Wearhouse.
The Delaware action cites comments from numerous industry analysts extolling the virtues of a combination of the businesses. It emphasized to the court that “despite the significant premium that the Men’s Wearhouse offer would provide to Jos. A. Bank stockholders, despite the public comments by Jos. A. Bank’s chairman that the company would be receptive to an acquisition proposal from Men’s Wearhouse,” Bank had cooled to the idea of a merger if it “were the target instead of the acquirer.”
Sandler’s letter didn’t specifically support the $57.50-a-share price offered by MW but rather encouraged Bank to “engage in meaningful, good faith negotiations in pursuit of such a business combination at a reasonable price.” It noted that Wildrick, in earlier discussions about a combination, said Bank would be receptive to an offer from MW if it carried the same 42 percent premium that Bank had initially offered for MW.
“We therefore find it quite ironic and troubling that you and management have failed to engage in substantive negotiations with MW regarding their offer to acquire JOSB,” Sandler wrote. “Having already acknowledged the merits of a transaction with MW, we are left to believe that the only reason for your not engaging in discussions with MW is that you are more interested in protecting your own lucrative and prestigious board seats than in delivering value for your shareholders.”
MW’s most recent offer carried a 52 percent premium to 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.
Bank’s shares closed at $41.66 on Oct. 8 but have since traded as high as $57.61 on Dec. 5. They closed Monday at $56.41, up 0.7 percent.
Men’s Wearhouse shares closed at $50.39, down 1.4 percent. Since the takeover tug-of-war began in October, its closing prices have ranged from a high of $52.10 on Dec. 24 to a low of $41.99 on Nov. 4.
The battle between the two largest U.S.-based men’s wear chains began with the smaller Bank offering to buy MW for $2.4 billion. After that offer expired in mid-November without any talks between the two parties, MW flipped the script in “Pac-Man defense” fashion, initiating a pursuit of Bank, its former suitor.
In addition to its quest for an acquisition of its own, Bank’s directors revised the company’s shareholder rights plan, or “poison pill,” to kick in whenever a party or parties deemed to be attempting a hostile takeover acquired 10 percent of its stock. The previous kick-in point had been a 20 percent stake.
Officials at MW and Bank had no comment on the developments Monday. In defense of its rejection of the first offer from Men’s Wearhouse, officials at Bank have noted not only its more verticalized sourcing model, which provides it with more generous margins than the third-party-based sourcing used by MW, but also its historically stronger growth rate in recent years, even allowing for Jos. A. Bank’s disappointing fourth quarter last year.
Between 2003 and 2012, Bank’s adjusted earnings before interest, taxes, depreciation and amortization generated a compound annual growth rate of 16.7 percent versus 8.6 percent for MW. Net income on a compounded basis grew at a 19 percent clip at Jos. A. Bank versus 8.6 percent at MW, according to public figures calculated by Bank.