Men’s Wearhouse turns tables on suitor

When Jos. A. Bank made a bid for Men’s Wearhouse, it was just a straightforward M&A transaction. But on Tuesday, when Men’s Wearhouse turned the tables and made a bid for Jos. A. Bank, the whole story got a lot more interesting.

The Wall Street Journal wrote this story:

Men’s Wearhouse Inc. launched a surprise offer to buy rival men’s clothing retailer Jos. A. Bank Clothiers Inc., turning the tables on its erstwhile suitor in what has become one of the year’s most colorful takeover dramas.

The bid comes less than two weeks after Jos. A. Bank walked away from its bid to buy its larger competitor, which said the $2.3 billion offer was too low and rebuffed it. The new bid values Jos. A. Bank at about $1.5 billion, or $55 a share—an 8.7% premium over its closing price Monday and 32% above where the shares traded before the possibility of the two companies uniting surfaced in early October.

Investors in both companies cheered the latest step in the takeover dance, with Jos. A. Bank and Men’s Wearhouse shares rising 11% and 8%, respectively, from their already-elevated levels. Both stocks surged when Jos. A. Bank made its $48-a-share bid—and the stocks barely retreated even after it pulled the offer Nov. 15, suggesting investors expected another chapter in the saga.

Men’s Wearhouse’s countermove sets up one of the year’s most unusual deal situations. The company, based in Fremont, Calif., is attempting a version of a rare maneuver known in mergers-and-acquisitions circles as a Pac-Man defense, in which deal prey turns into predator. Popularized during the 1980s, the gambit has met with mixed results, with the proposed deals often not getting consummated.

Reuters reported that this wasn’t just about trying to get a higher price on the original deal, but a true takeover attempt:

The combined company would have 1,700 stores that rent tuxedos and sell suits, a scale that in the past has raised antitrust questions about a merger.

The retaliatory offer from Men’s Wearhouse, which the company said implies an enterprise value of about $1.2 billion for Jos. A. Bank, follows pressure from its largest shareholder, New York-based hedge fund Eminence Capital LLC.

Eminence, along with other hedge funds that hold about 30 percent of Men’s Wearhouse shares, had tried to persuade other investors to pressure the company into accepting the takeover offer from Jos. A. Bank.

“We are pleased to see that the board of Men’s Wearhouse agrees with us and recognizes the substantial benefits of merging with Jos. A. Bank,” said Eminence Chief Executive Ricky Sandler.

The last person to push Men’s Wearhouse to sell itself was its founder, George Zimmer, known to U.S. television audiences for his advertising catch phrase, “You’re going to like the way you look – I guarantee it.”

Zimmer was ousted by the board in June after arguing for a sale of the company to an investment group. At the time, he accused the board of trying to silence him for expressing concerns about the direction of the company he founded 40 years ago.

Men’s Wearhouse is serious about acquiring Jos. A. Bank and is not simply trying to force the company to raise its bid for Men’s Wearhouse, according to sources familiar with the process.

USA Today had this information about the deal and the combined finances of two firms:

A combination of the two companies would create the fourth-largest U.S. men’s apparel retailer, with more than 1,700 total stores and annual sales of more than $3.5 billion, Men’s Wearhouse said.

The company forecast that the combination would create about $100 million to $150 million of annual synergies over three years through more efficient purchasing, customer service and marketing, and streamlining corporate functions. The deal would add to Men’s Wearhouse’s earnings in the first year following closing, it added.

Men’s Wearhouse said it plans to pay for the deal with existing cash from its balance sheet and borrowed money.

Jos. A. Bank withdrew its $2.3 billion offer to buy Men’s Wearhouse earlier in November.

The New York Times story had this background on the original offer and the history of the negotiations:

Jos. A. Bank made an unsolicited $2.3 billion bid in early October for Men’s Wearhouse, which rejected the offer as highly conditional and said it believed that its own turnaround plan would be better for shareholders.

Jos. A. Bank indicated later that it would consider raising its $48-a-share offer if it were allowed confidential access to Men’s Wearhouse’s books. Men’s Wearhouse again rejected the offer, and Jos. A. Bank withdrew its bid this month, but left the door open for possible talks in the future.

The Men’s Wearhouse offer is not contingent on any financing and will not require additional costly third-party equity commitments, the company said.

Bank of America and JPMorgan Chase are advising Men’s Wearhouse, and Willkie Farr & Gallagher is providing legal advice.

Now is when the talks get interesting. One thing is for sure, investors like the idea of a combination of the two men’s retailers and are willing to buy into the idea. Who will have control is the big unknown.