In the end, Goliath prevailed.
This story first appeared in the March 12, 2014 issue of WWD. Subscribe Today.
Ending a back-and-forth bidding war that started last fall, The Men’s Wearhouse and Jos. A. Bank Clothiers Inc. on Tuesday reached an agreement for the larger Men’s Wearhouse to acquire the smaller Jos. A. Bank for $65 a share, or about $1.8 billion.
Together, the two men’s wear giants will have more than 1,700 stores in the U.S. and about 23,000 employees — creating the fourth-largest men’s apparel retailer in the country with combined annual sales of about $3.5 billion. It will lag only Macy’s, Kohl’s and J.C. Penney in men’s wear volume.
“We are pleased to have reached this agreement with Jos. A. Bank, which we believe will deliver substantial benefits to our respective shareholders, employees and customers,” said Doug Ewert, president and chief executive officer of Men’s Wearhouse. “Together, Men’s Wearhouse and Jos. A. Bank will have increased scale and breadth, and Jos. A. Bank’s strong brand and complementary business model will broaden our customer reach. We expect the transaction will be accretive to Men’s Wearhouse’s earnings in the first full year.”
Ewert declined further comment.
Robert Wildrick, chairman of Jos. A. Bank, said the deal will generate “tremendous value” for the company’s shareholders and “create a men’s wear powerhouse.”
“We feel very positive that they will continue to grow Jos. A. Bank and keep the top executives — good people are hard to get,” said Wildrick, who added that he does not plan to be part of the combined company, but is hopeful that Neal Black, ceo of Jos. A. Bank, will be retained. “They have not asked me to be involved, and I don’t plan to be,” he said. “But Neal is one of the very best merchants in America.”
Men’s Wearhouse said that management of the merged firms “will consist of the most qualified individuals from both organizations.”
Under the terms of the deal, there will be no re-branding or remodeling required at Jos. A. Bank stores, whose nameplate will remain in place. “Jos. A. Bank has been a pretty successful profit maker,” Wildrick said, pointing to the company’s track record of profitability, strong manufacturing facilities and brand name. “We can bring a lot to the transaction.”
Gilbert Harrison, chairman of Financo Inc., an adviser to Jos. A. Bank, said when Wildrick and his team took over in 1999, the company had a market value of $20 million. “Our deal today is $1.8 billion. There’s no question that this board and its management team have created tremendous value for its shareholders.”
Wildrick also said Jos. A. Bank has very little customer overlap with Men’s Wearhouse, which attracts a younger man with a lower income. “We’re not in direct competition, we’re the next tier up,” he said. In addition, Jos. A. Bank’s product mix, which is all private label, is more traditional than the more modern mix of brands and private label at Men’s Wearhouse. “They’ve coexisted for some time,” one source noted.
Over the years, Men’s Wearhouse, led by its vice chairman and behind-the-scenes dealmaker David Edwab, has shown a strong ability to acquire and integrate acquisitions. Previous deals executed by Edwab and his team include JA Apparel, After Hours and Moores. Shareholders can expect synergies of between $100 million and $150 million over the next three years through purchasing efficiencies, optimized customer service and marketing practices and the streamlining of “duplicative corporate functions,” according to Men’s Wearhouse.
Absorbing Jos. A. Bank will take some time, and no significant changes are expected before next year, sources said. One of the first priorities will be to wean the business off of its eye-popping promotional cadence, one that has been as aggressive as buy one, get seven free. “Over time, they’ll have to figure out how to take that needle out of their arm,” one observer commented.
With the agreement, Jos. A. Bank has terminated its earlier arrangement to acquire Everest Holdings LLC, the parent company of Eddie Bauer. Jos. A. Bank has also withdrawn its previous tender offer to purchase for cash up to $300 million of its common stock.
Wildrick said that although he had seen a real opportunity to build equity with the addition of Eddie Bauer and its outerwear and activewear concentration, the value to Jos. A. Bank would have been in the future, while the $65 a share from Men’s Wearhouse represents immediate value.
He said the $65 number represents an 18 percent premium over what Men’s Wearhouse had initially offered at the end of last year, so the value to the shareholders is apparent. “It’s a real win-win,” he said, noting that Jos. A. Bank’s share price is up 56 percent since its interest in Men’s Wearhouse became public last October.
The deal, expected to close in the third quarter of the year, received the unanimous approval of both companies’ boards and is contingent upon the receipt of a majority of Jos. A. Bank’s shares when calculated on a fully diluted basis. As part of the agreement, Men’s Wearhouse extended the expiration of its cash tender offer to March 19 from today, and raised the offer to the merger price of $65 a share from its previous level of $62.50.
The conclusion of a nearly six-month standoff between the two men’s wear retailers, brought into the public domain when word of Jos. A. Bank’s interest in Men’s Wearhouse made its way into press reports, will put an end to a lengthy, contentious and expensive battle. With the termination of Jos. A. Bank’s agreement to buy Eddie Bauer for $825 million in cash and stock, Men’s Wearhouse will be on the hook for a $48 million termination fee payable to Golden Gate Capital, Eddie Bauer’s owner and, early in the takeover saga, Jos. A. Bank’s financial partner in its pursuit of Men’s Wearhouse.
Jos. A. Bank had publicly expressed its interest in an acquisition long before the drama began, but word first surfaced that it would pursue its larger competitor in October, when it offered $2.4 billion, or about $48 a share, for Men’s Wearhouse in a deal to be financed in part by Golden Gate.
On Nov. 26, just 12 days after that bid expired without so much as a conversation between the two parties, Men’s Wearhouse offered $1.54 billion, or $55 a share, in cash for Jos. A. Bank. That offer was spurned in January, prompting Men’s Wearhouse, on Jan. 6, to raise its offer to $57.50 a share, or $1.61 billion, and take it directly to shareholders as a cash tender offer.
Jos. A. Bank’s deal to buy Eddie Bauer from Golden Gate came on Feb. 14, raising the ire of Eminence Capital, Men’s Wearhouse’s biggest shareholder with a 9.9 percent stake and a 4.9 percent owner of Jos. A. Bank. Eminence said the Eddie Bauer purchase “defies industrial logic” as it continued to pressure the two sides to talk about a combination of their businesses.
On Tuesday, Ricky Sandler, ceo of Eminence, applauded the deal between the two firms. “Eminence Capital is happy to see these two great companies coming together, and we congratulate both The Men’s Wearhouse and Jos. A. Bank on the merger agreement announced today. In addition, as a result of the announced merger agreement, we are withdrawing our nominees for board seats of Jos. A. Bank.”
On Feb. 24, Men’s Wearhouse boosted its offer to $63.50 a share, or $1.78 billion, and said it was prepared to move to $65, the ultimate selling price, if permitted to conduct limited due diligence.
The parties began discussions earlier this month and reached an agreement after about 10 days of negotiations.
Shares of Jos. A. Bank Tuesday were up 3.9 percent to $64.22, while Men’s Wearhouse’s jumped 4.7 percent to $57.14.
Anthony Sabino, an attorney and a professor at St. John’s University’s Peter J. Tobin College of Business, doesn’t expect there to be any issues ultimately with the Federal Trade Commission. “There’s plenty of competitors out there,” he said, mentioning Macy’s, Penney’s, Target, Brooks Brothers and others. In fact, he said the companies alone have spent years “cannibalizing each other, so combining them will actually create a more robust company and create better value for consumers.”
BofA Merrill Lynch and J.P. Morgan Securities advised Men’s Wearhouse on financial aspects of the deal, while Goldman Sachs & Co. and Financo LLC advised Jos. A. Bank. Legal guidance was supplied by Willkie Farr & Gallagher LLP for Men’s Wearhouse, and Skadden, Arps, Slate, Meagher & Flom LLP and Guilfoil Petzall & Shoemake LLC for Jos. A. Bank.
Late Tuesday, Men’s Wearhouse reported a wider loss for the fourth quarter ended Feb. 1 and a good start for the first quarter, as February comparable sales at the Men’s Wearhouse and Moores units were up 3 and 9 percent, respectively.
In the fourth quarter, the net loss grew to $30.4 million, or 64 cents a diluted share, from a loss of $3.4 million, or 7 cents, in the final quarter of 2012. Excluding a series of charges for items including impairment, the closure of K&G e-commerce activities and the acquisition of JA Holding Inc., the adjusted loss per share was 38 cents, well beyond the 13-cent loss expected, on average, by analysts.
Sales also missed estimates, falling 7.9 percent to $560.6 million in the 13-week 2013 quarter from $608.4 million in its 14-week 2012 counterpart. Comps at the Men’s Wearhouse brand were off 2.5 percent, with about a quarter of the decline attributed to adverse weather conditions.