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)