Jos. A. Bank Clothiers Inc JOSB.O offered to buy bigger rival Men's Wearhouse Inc MW.N for about $2.3 billion to create a men's apparel heavyweight with more than 1,700 stores - a proposal that Men's Wearhouse swiftly rejected.
The offer of $48 per share in cash is a 36 percent premium to the closing price of Men's Wearhouse shares on Tuesday.
Men's Wearhouse shares opened at $43.35 on the New York Stock Exchange, after hitting $47.00 before the bell. Jos. A. Bank's shares were up 5.4 percent at $43.90 on the Nasdaq.
The offer, which comes at a time of intense competition in the men's suit market, would be funded by a combination of cash-on-hand, debt and new equity, including a $250 million investment by Golden Gate Capital, Jos. A. Bank said.
However, Men's Wearhouse said the non-binding offer undervalued the company and could raise anti-trust issues.
The "highly opportunistic" proposal also did not reflect the company's growth strategy and upside potential, Bill Sechrest, lead director of the Men's Wearhouse board, said in a statement.
"The challenging second quarter results led to a 12 percent decline in Men's Wearhouse's stock price, which Men's Wearhouse believes does not fairly reflect the intrinsic value of Men's Wearhouse shares," the company said.
Men's Wearhouse shares, which hit a year-high of $41.02 in August, last traded above the offer price exactly six years ago.
Fremont, California-based Men's Wearhouse had a market value of about $1.68 billion, compared with Jos. A. Bank's $1.17 billion, as of Tuesday's close.
The company sells discount suits through 1,137 stores, its website shows.
Jos. A. Bank, with more than 600 stores, is a century-old seller of men's tailored and casual clothing, according to its website.
"I GUARANTEE IT"
Men's Wearhouse was founded in 1973 by George Zimmer, known to U.S. TV audiences for his advertising catchphrase "you're gonna like the way you look - I guarantee it".
The company fired Zimmer in June, saying he had pushed to take the company private and effectively demanded to be reinstated as the company's sole decision-maker.
Zimmer denied he had pushed for a sale, insisting he only presented that suggestion to the board as an option.
Men's Wearhouse struck a deal the following month to buy designer brand Joseph Abboud for about $97.5 million.
Zimmer owned about 3.7 percent of Men's Wearhouse as of July 22, making him the eighth-biggest shareholder.
Net income at Men's Wearhouse more than doubled to $130.4 million over the four years to February 2, while Jos. A. Bank's earnings seesawed over the period to reach $79.7 million.
Men's Wearhouse cut its full-year earnings forecast last month, saying weak economic conditions were hurting sales.
Jos. A. Bank, which makes heavy use of promotions, also reported a drop in quarterly sales, but said it expected results to improve.
Its shares have fallen about 2 percent so far this year, while those of Men's Wearhouse have risen about 13 percent.
Jos. A. Bank, based in Hampstead, Maryland said in June it was considering strategic opportunities to enhance shareholder value, including acquisitions.
The company said a deal with Men's Wearhouse would "immediately and significantly" add to earnings.
Jos. A. Bank is being advised by Goldman Sachs and Financo. Its legal advisers are Skadden, Arps, Slate, Meagher & Flom and Guilfoil Petzall & Shoemake.
Men's Wearhouse is being advised by Bank of America Merrill Lynch, JPMorgan Chase and law firm Willkie Farr & Gallagher.
(Reporting by Sakthi Prasad in Bangalore; Editing by Christopher Cushing, Gopakumar Warrier and Ted Kerr)