Jos. A. Bank Clothiers Inc. may have withdrawn its offer to buy rival The Men’s Wearhouse Inc., but the real battle may just be beginning.

This story first appeared in the November 18, 2013 issue of WWD. Subscribe Today.

On Friday morning, the retailer said it had terminated its all-cash proposal to purchase the competing men’s specialty store chain for $48 a share after its self-imposed Nov. 14 deadline came and went without any communication between the two firms.

Robert Wildrick, Bank’s chairman, released a letter that was sent to Douglas Ewert, Men’s Wearhouse’s chief executive officer, that read, “The MW board has denied our request for limited due diligence and has failed to engage in any discussions whatsoever regarding our proposal. We are therefore terminating our proposal in order to consider other strategic alternatives which we have been investigating.”

Hedge fund Eminence Capital, which owns a 9.8 percent stake in MW, or nearly 4.7 million shares, followed with a filing with the Securities and Exchange Commission seeking from MW shareholders a “white agent” designation. The designation is for the purpose of calling a special meeting to amend certain provisions of the retailer’s bylaws. What it wants specifically is to revert the bylaws to what they were before the most recent changes put through in the last month or so. A reversion would allow the removal of board members, without cause, before the next annual meeting, and allow for a voting change in favor of a majority of shares instead of the more restrictive requirement of two-thirds.

The solicitation is just for the “white agent” designation. The law in Texas, where MW is headquartered, stipulates that holders of 10 percent of the shares entitled to vote are required in order to call a special meeting of shareholders. Eminence is requesting that a special meeting be held on Feb. 14 in New York to amend the bylaws, according to the regulatory filing.

Neither Eminence nor any other shareholder currently is calling for a change in the MW board membership. Even if there is a successful special meeting that results in a reversion of the bylaws, a separate special meeting would have to be called to change MW’s board.

Ricky C. Sandler, ceo of Eminence, said, “In light of the board’s actions, we are forced to launch this initiative that will give shareholders the opportunity to effect important corporate governance changes at Men’s Wearhouse. In our view, the governance changes implemented last month by the board in response to the premium proposal made by Jos. A. Bank, including the imposition of a super-majority vote for shareholder amendments to the bylaws and implementation of a poison pill with a 10 percent threshold, are not in the best interests of shareholders.…We continue to encourage the board to take immediate steps to complete its review of strategic options.…If the board fails to do so, our special meeting initiative will give shareholders the tools to hold the board accountable for its failed leadership.”

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

According to Ted D. Rosen, chair of the New York corporate and securities practice for the law firm Fox Rothschild, “The Men’s Wearhouse board viewed the offer as hostile, instead of working with the Jos. A. Bank board to reach an agreement that is in the best interests of shareholders. In today’s environment, boards need to be careful of what deals they do and don’t do.

“In addition to fighting off Jos. A. Bank, the Men’s Wearhouse board now has a fight in the nebulous world called ‘breach of fiduciary duty.’ That’s a huge distraction to the management team,” he added.

While Rosen believes Men’s Wearhouse “botched” the process, he doesn’t believe that the deal itself is over.

According to Rosen, the MW board likely will reconsider its options over the next few weeks. “A director of a public company who has a stock trading at X and gets an offer at a premium [to that] really can’t ignore that offer,” he said.

With that scenario a distant possibility, Jos. A. Bank is looking for greener pastures.

Gilbert Harrison, chairman of Financo Inc., financial adviser to Bank, said the retailer is considering “three or four serious alternatives that fit within the strategy of our business.” He declined to provide any details. “We have $400 million in cash and no debt,” he added. “And we want to put that money to work for our shareholders in terms of an acquisition.”

Wildrick told WWD: “We’ve got a business to run, and we can’t sit and wait and wait. We’re starting to look at other things on our list.” But any acquisition would have to “be accretive to shareholders. We’re not just going to buy something to buy something. We’ve got very tight standards, and if it won’t make sense to do it, we won’t. ”

Harrison said the company continues to be interested in Men’s Wearhouse: “That’s still our first choice.”

The banker said Jos. A. Bank is waiting to “see if Eminence’s actions make Men’s Wearhouse rethink its strategies. If they want to meet, we’re absolutely available and we’re still willing to talk.”

Wildrick also left the door open, saying in the letter to Ewert, “If, in the future, we are invited by the Men’s Wearhouse board to discuss our acquisition of Men’s Wearhouse, or if circumstances were otherwise to change, Jos. A. Bank may consider whether a new proposal to acquire Men’s Wearhouse is warranted.”

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