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Jos. A. Bank Prepared to Boost Men’s Wearhouse Bid

Requests "limited due diligence" and sets Nov. 14 deadline.

Jos. A. Bank Clothiers Inc. said Thursday it is willing to consider raising its bid for The Men’s Wearhouse Inc.

The retailer said it would consider raising the original offer of $48 a share if “given the opportunity to conduct limited due diligence in order to determine that such an increase would be justified.”

Jos. A. Bank made the offer on Sept. 18. Robert Wildrick, chairman, stressed that the offer had a time limit of Nov. 14, at which point the company would terminate its proposal if Men’s Wearhouse’s resistance continues and “good faith discussions” don’t begin.

Since the news of the offer became public on Oct. 9, the board of Men’s Wearhouse has refused to discuss the proposal.

Wildrick said there are no plans to turn this into a hostile takeover.

In a letter to Men’s Wearhouse chief executive officer Douglas Ewert made public Thursday, Wildrick said that the $48 offer “was necessarily based solely on publicly available information. We believe that if we were provided with access to a limited amount of non-public information, we could promptly determine whether we could increase our proposed acquisition price. We are, of course, prepared to execute a mutually acceptable non-disclosure agreement to provide Men’s Wearhouse with the assurance that any information provided will be kept confidential.”

The company also disputed an investor update that Men’s Wearhouse released Monday comparing the benefits of the proposed transaction with the company’s stand-alone plan. “You went to great lengths to disparage Jos. A. Bank, pointing out the relative size of the companies (yes, we are smaller), suggesting our proposal was opportunistic (yes, we agree it is a great opportunity), and suggesting that our financing is not credible (we can’t imagine how it could be more credible at this stage of the process given the quality of our partners).” Bank has turned to Goldman Sachs and Golden Gate Capital to provide financing for the deal.

In the update, Men’s Wearhouse projected that, by 2016, its growth initiatives could increase revenue by $450 million to $550 million, excluding certain items such as the divestiture of the K&G Fashion Superstore business.

Gilbert Harrison, chairman of Financo Inc., which Jos. A. Bank retained to help it investigate investment opportunities, rebutted many of Men’s Wearhouse’s projections. “Simply put, while we do not believe that Men’s Wearhouse will be able to increase revenues by $450 million to $550 million by 2016 and have $163 million to $192 million of incremental EBIT [earnings before interest and taxes], if you were to take this figure at face value, the present value of the MW shares at a 14 P/E [price-earnings] multiple would be $51.65 to $56.06 per share. However, at 12.5 times and EPS of $5 per share the present value would be $46.96.

“This goes to show that our present offering of $48 per share is far better since it avoids the risk of the company not performing to expectations. A bird in the hand is worth two in the bush,” he concluded.

Wildrick said the entire idea behind the merger is to create a men’s wear specialty store conglomerate that can better compete with the department stores. “Look at the size of Macy’s men’s department,” he said. “It’s over $5 billion. Combined we’d only be $3 billion to $4 billion.”

Wildrick said the Men’s Wearhouse management team and board is “acting like a private company,” he said. “They have a responsibility to their shareholders [to talk to us].”

He said that under the terms of the offer, there were no planned layoffs and Ewert and the rest of the team would be retained, as would the nameplates of the stores. The combination would create the leading men’s wear retailer in the U.S., Wildrick said, with both companies able to leverage the strengths of the other.

“We’re the best in the market in terms of sourcing, and they have the best tuxedo business,” he said. “We’re vertical and they’re trying to learn to be vertical. We spend $160 million in advertising together,” so there are potential cost savings there. “Maybe they have a better selling organization, but maybe we do. Let’s find out.” He said he envisions that Bank would focus more on building its brand while Men’s Wearhouse’s future would be more focused on store growth. “But it would enhance both,” he said.

He continued: “We feel they’re a good company. We don’t want to buy a bad company. We’ve been studying this for nine months and it makes so much sense. ”

And what would be Jos. A. Bank’s response if Men’s Wearhouse turned the tables and made its own run at Jos. A. Bank? “That’s their right and we would conduct ourselves in a much different fashion than they have.”

Men’s Wearhouse did not respond to requests for comment Thursday.