Men's Wearhouse turns hostile in pursuit of Jos. A. Bank

Mon Jan 6, 2014 2:18pm EST

The Men's Wearhouse sign is seen outside its store in Westminster, Colorado September 11, 2013. Men's Wearhouse Inc is due to release their Q2 2013 earnings. REUTERS/Rick Wilking

The Men's Wearhouse sign is seen outside its store in Westminster, Colorado September 11, 2013. Men's Wearhouse Inc is due to release their Q2 2013 earnings.

Credit: Reuters/Rick Wilking

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(Reuters) - Men's Wearhouse Inc (MW.N) mounted a hostile $1.61 billion bid for Jos. A. Bank Clothiers Inc JOSB.O in an attempt to break the resistance of its smaller rival and pacify investors hungry for a merger of the suit retailers.

Shares of Jos. A. Bank were trading below the offer price of $57.50 on Monday, indicating doubt among investors that the offer - the second by Men's Wearhouse in the space of six weeks - would be enough to seal the deal.

But analysts said the bid, at a 6 percent premium to Jos. A. Bank's closing price on Friday, was likely to nudge the two companies closer to the creation of a combined chain selling suits and renting tuxedos from 1,700 stores in North America.

Men's Wearhouse shares rose nearly 3 percent.

Men's Wearhouse has been under pressure from activist shareholders to capture a bigger share of a market where growth prospects are limited and retailers have traditionally offered big discounts to compete with department stores.

By upping its offer and taking it to every Jos. A. Bank shareholder, the company is raising the stakes in a protracted battle between rivals intent on playing the lead role in such a combined company.

The offer, higher than its previous bid of $55 per share, will also test the poison pill defense adopted by Jos. A. Bank on Friday. The company had lowered the trigger to 10 percent from 20 percent to make a takeover more difficult.

Men's Wearhouse Chief Executive Doug Ewert said the company would prefer to work with Jos. A. Bank, but would pursue its target regardless.

"We are committed to this combination and, accordingly, we are taking our offer directly to shareholders," Ewert said.

Men's Wearhouse also said it would nominate two independent directors for election to Jos. A. Bank's board.

Jos. A. Bank said in a statement it would review the latest offer and make a recommendation to shareholders on or before January 17.

"This latest raised bid might get Jos. A. Bank to at least have a conversation with Men's Wearhouse," said Brian Sozzi, CEO of Belus Capital Advisors.

'I GUARANTEE IT'

Fremont, California-based Men's Wearhouse was founded 40 years ago by George Zimmer, known to U.S. television audiences for his advertising catchphrase, "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.

Jos. A. Bank, a century-old retailer of men's tailored and casual clothing, triggered the latest shareholder battle with a $2.3 billion bid for Men's Wearhouse last year that was swiftly rebuffed by its larger rival.

The retaliatory offer from Men's Wearhouse - a tactic called the Pac-Man defense after the 1980s video game in which Pac-Man turns on the ghosts trying to kill him - followed pressure to merge from its largest shareholder.

New York-based asset management firm Eminence Capital LLC, which owns 9.8 percent of Men's Wearhouse and in November revealed a stake of about 5 percent in Jos. A. Bank, said it supported a merger of the two companies.

"We are encouraged by the increased bid MW (Men's Wearhouse) made for JOSB (Jos. A. Bank) and by its commitment to consummate a combination," Eminence CEO Ricky Sandler said in a statement emailed to Reuters.

There is significant overlap elsewhere between shareholders of both companies.

Fidelity and Wellington Management, two of Jos. A. Bank's top five shareholders, are also among the 30 largest shareholders in Men's Wearhouse, according to Thomson Reuters data.

Men's Wearhouse said its nominees for the board of Jos. A. Bank were John Bowlin, a former CEO of Miller Brewing Co, and Arthur Reiner, a former executive of Macy's Inc (M.N). The date of the annual meeting at which their candidacy will be put forward has yet to be announced.

Men's Wearhouse said its offer would close on March 28, unless extended.

Men's Wearhouse operates more than 1,100 stores under the Men's Wearhouse, Moores and K&G banners. Jos. A. Bank has more than 600 stores in the United States.

Men's Wearhouse shares, which have risen about 50 percent since Jos. A. Bank's bid for it in October, were up 2.7 percent at $51.98 on the New York Stock Exchange.

Jos. A. Bank's Nasdaq-traded stock, which has risen more than 35 percent since the takeover saga began, was up 4.3 percent at $56.75.

(Additional reporting by Sruthi Ramakrishnan in Bangalore and Olivia Oran in New York; Editing by Kirti Pandey and Robin Paxton)

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Comments (3)
gcf1965 wrote:
Jos A Bank. I shopped there once. Any store that has to routinely market via “Buy 1 Get 3, 4, or more free” I cannot take seriously. The merchandise is either worth the $600 – $700 per suit or it is not. At almost any time you can go buy a suit and get several more free, making the price around $150 – $200. This seems like the more legit price as the clothing is no better than bargain or department store stuff. The in store “tailor” was horrible leaving one sleeve of my jacket a full1.5 inches shorter than the other side. Here’s an idea, market based on your product and its value, not the way you want customers to see you. If you want to be an elevated or upscale level haberdashery, then provide the clothes to fill that view at the best price possible.

Jan 06, 2014 12:00pm EST  --  Report as abuse
Foxdrake_360 wrote:
While I like Jos. A. Bank more than Men’s Warehouse, the quality of both is piss poor.

gcf1965 is absolutely correct.

Cheap fabrics, poorly tailored. Bought 3 suits at Bank, had to had them re-tailored elsewhere and the fabric in the crouch wore out?

How did my balls wear out a hole in my suit? In like 5 wears?

I know they’re big balls and all, and the NJ-Transit / NYC subway has some rough chairs but really? My crouch?

Spend the $1200, go to a decent tailor in the city, get a decent suit – with a couple of shirts, ties and a belt.

Jan 06, 2014 1:01pm EST  --  Report as abuse
Bob9999 wrote:
A 6% premium over current trading price is substantially less (in fact, 80% less) that the typical 30% “take-over” premium. If Mens Wearhouse is estimating they can to 6% better with Jos. A. Bank than Jos. A. Bank is currently doing, that’s not a serious takeover synergy. In fact, it’s probably within the margin of error between a prediction of making money and losing money on the transaction. And even if it is correct that the value of Jos. A. Bank as owned by Mens Wearhouse is only 6% more than the value of Jos. A. Bank without Mens Wearhouse, then it is extremely possible that transaction costs will exceed any synergies achieved by Mens Wearhouse.

Add to that the management dramas at Mens Wearhouse, which apparently can’t decide who should be running the company. Even if it made sense for Jos. A. Bank to run Mens Wearhouse, that doesn’t mean it makes sense for Mens Wearhouse to run Jos. A. Bank. That’s because Jos. A. Bank could have provided management stability to Mens Wearhouse, while Mens Wearhouse is offering Jos. A. Bank infighting and management changes in the front office.

This proposal appears to be based on an emotional reaction by Mens Wearhouse against last year’s acquisition offer by Jos. A. Bank (a smaller, but lately more stable company). Decision-making based on emotional reaction is something to stay away from in business.

Jan 06, 2014 2:33pm EST  --  Report as abuse
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