UPDATE 2-Men's Wearhouse says has draft merger agreement from Jos. A. Bank

Mon Mar 3, 2014 8:59am EST

* Men's Wearhouse says entered into non-disclosure agreement with Jos. A. Bank

* Says cos agreed to exchange certain confidential information

* Says cos will work in good faith to evaluate potential combination

March 3 (Reuters) - Men's Wearhouse Inc said it was discussing a proposed merger with smaller rival Jos. A. Bank Clothiers Inc, after the two men's apparel retailers spent months bidding for each other.

The companies have entered a non-disclosure agreement to exchange some confidential information and to work in good faith to evaluate a potential combination, Men's Wearhouse said on Monday.

Men's Wearhouse also said it has received a draft merger agreement from Jos. A. Bank, but there was no assurance the discussions will lead to a transaction.

The companies, leaders in a mature market, have bid and counterbid for each other since October.

Jos. A. Bank rejected Men's Wearhouse's revised $1.78 billion takeover offer last week, but said it would be willing to discuss a higher bid.

Men's Wearhouse raised its cash tender offer to Jos. A. Bank shareholders to $63.50 per share from $57.50, and said it could increase the offer to $65 if it was allowed limited due diligence.

The tender offer is scheduled to expire on March 12, unless extended.

Jos. A. Bank started the bidding with an offer to buy Men's Wearhouse in October. Men's Wearhouse turned the tables with its own offer and then, in January, went hostile by taking its offer to Jos. A. Bank's shareholders.

Jos. A. Bank offered to buy outdoor clothing retailer Eddie Bauer in February in an effort to remain independent, a move that was criticized by its shareholder Eminence Capital LLC which has been pushing for a merger with Men's Wearhouse.

Eminence is Men's Wearhouse's largest shareholder.

Last week, Men's Wearhouse filed a motion for a temporary restraining order to prevent Jos. A. Bank from proceeding with the Eddie Bauer acquisition. ()

Men's Wearhouse has said that its amended offer is conditional on the termination of Jos. A. Bank's agreement to buy Eddie Bauer.

Men's Wearhouse operates 1,133 stores in the United States and Canada. Jos. A. Bank operates 629 stores in 44 states and the District of Columbia.

Jos. A. Bank's shares rose 0.7 percent to $62.50. They have gained about 50 percent in the year to their Friday close of $62.08 on the Nasdaq.

Men's Wearhouse shares have risen about 91 percent to Friday's close of $53.79 on the New York Stock Exchange.

Men's Wearhouse shares trade at 19.64 times forward earnings, while Jos. A. Bank's stock trades at 21.41 times.