Men's clothing retailer Jos. A. Bank Clothiers Inc JOSB.O, the target of an unwelcome bid from rival Men's Wearhouse Inc (MW.N), said it would buy outdoor clothing retailer Eddie Bauer for $825 million in its latest effort to stay independent.
Jos. A. Bank said it had reviewed both a possible acquisition of, and sale to, Men's Wearhouse but had determined that the Eddie Bauer deal and a share buyback that it also announced on Friday would provide best value for shareholders.
"(Jos. A. Bank) is doing everything to secure its independence," said Jerry Reisman, an M&A expert at law firm Reisman Peirez Reisman and Capobianco LLP.
The company will pay $564 million in cash and issue about 4.7 million new shares at $56 each to an affiliate of Golden Gate Capital, the ultimate parent of Eddie Bauer.
The private equity firm will end up controlling about 16.6 percent of Jos. A. Bank and have the right to name two directors.
Golden Gate also has the right to a $50 million cash earn-out based on this year's results at Eddie Bauer, a retailer of sportswear, outerwear, gear and accessories for outdoor activities.
The private equity firm bought Eddie Bauer, founded in Seattle in 1920, for $286 million at a bankruptcy auction in 2009.
Jos. A. Bank said it would start a $300 million tender offer immediately after the deal closes to buy back 4.6 million shares at $65 each, a premium of 18.4 percent to the stock's close of $54.92 on Thursday.
Jos A. Bank shares have run up 24 percent to its Thursday close since the company first bid $2.3 billion for Men's Wearhouse last October.
The larger retailer spurned the offer and later turned the tables by offering to buy Jos. A. Bank for $1.5 billion.
Men's Wearhouse sweetened its offer to $1.6 billion last month but Jos. A Bank rejected it again.
Reisman called the buyback "a smart move" as the repurchase would effectively negate the dilution to Jos. A. Bank's shares arising from the new shares issued to Golden Gate.
Reisman, however, said the company might need to raise more debt to buy back shares.
Jos. A. Bank expects to finance the deal through a combination of cash and committed debt financing provided by Goldman Sachs & Co.
The company reported cash and cash equivalents and short-term investments of about $340 million and no long-term debt, as of November 2.
Jos. A. Bank said on Friday it had the right to drop its offer for Eddie Bauer if it got a superior proposal.
Men's Wearhouse said it would evaluate its options regarding Jos. A. Bank. The company's buyout offer is scheduled to expire on March 28.
Jos. A. Bank expects the Eddie Bauer deal, which would create a company with annual revenue of more than $2.1 billion, to immediately add to earnings.
Eddie Bauer estimated its 2013 revenue to be between $885 million and $895 million. Analysts expect Jos. A. Bank to report revenue of about $1.05 billion in 2013.
With the acquisition of Eddie Bauer, Jos. A. Bank - best known for renting and selling tuxedos - would make its first move into women's apparel and footwear.
The company said it had been pursuing Eddie Bauer for two years in an effort to boost shareholder value and had contacted Golden Gate several times to discuss a deal.
Goldman Sachs and Financo LLC are financial advisers to Jos. A. Bank, while Skadden, Arps, Slate, Meagher & Flom LLP and Guilfoil Petzall & Shoemake LLC are its legal advisers.
Kirkland & Ellis LLP is legal adviser to Golden Gate Capital and Eddie Bauer.
Jos. A. Bank estimated adjusted earnings of $1.04-$1.10 per share for the fourth quarter ended February 1, well below the average analyst forecast of $1.25 per share, according to Thomson Reuters I/B/E/S.
A severe winter and slow post-Christmas clearance sales hurt the company's same-store sales, which rose just 1.8 percent in the quarter.