Jos. A. Bank Rejects Men's Wearhouse Offer

In yet another landmark event in the tussle between men’s apparel retailers Jos. A. Bank Clothiers Inc. (JOSB) and its larger rival The Men’s Wearhouse Inc.’s (MW), the former again turned down the latter’s recently raised acquisition offer of $63.50 per share stating it as inadequate. However, Jos. A. Bank has agreed upon opening talks with Men’s Wearhouse, given the latter’s willingness to further raise its bid following limited due diligence.

In the letter sent to Men’s Wearhouse, Jos. A. Bank stated that its board after thorough evaluation believes that the Eddie Bauer acquisition and the related issuer tender offer still holds good for the company and is in the best interest of its shareholders.

Further, the company revealed that its deal with Golden Gate Capital to acquire Everest Holdings LLC has received early consent from the Federal Trade Commission, regarding the waiting period under the Hart−Scott−Rodino Antitrust Improvements Act of 1976, to proceed with the deal.

In its meeting with Men’s Wearhouse, Jos. A. Bank intends to provide the limited due diligence as required by Men’s Wearhouse and ascertain the highest price it will be willing to pay for the long sought-after buyout. Additionally, Jos. A. Bank expects to collect details regarding the proposed transaction structure and estimated certainty of its completion with regards to the Federal Trade Commission and other approvals.

Moreover, the company made clear that it will be providing limited time to Men’s Wearhouse for presenting its best offer as it still believes that the Eddie Bauer deal offers more value.

The much talked about Men’s Wearhouse / Jos. A. Bank tussle again brings a positive market reaction, with the shares of both companies gathering some more momentum in the after-trade hours yesterday. Men’s Wearhouse rallied about 2.9% closing at $51.90 in the after-hours trade session yesterday, while Jos. A. Bank’s shares soared close to 3.0% to $62.10.

Earlier this week, Men’s Wearhouse had renewed its bid to acquire Jos. A. Bank to $63.50 per share in cash along with a proposal to further sweeten the bid to $65.00 per share following limited due diligence.

Men’s Wearhouse’s raised offer values Jos. A. Bank at a 52% premium over the latter’s closing price on the day prior to the announcement of Jos. A. Bank’s proposal to buy Men’s Wearhouse (Oct 8, 2013) and a 60% premium to Jos. A. Bank's unaffected enterprise value. It also represents a 9.7x enterprise value to the trailing 12-month adjusted earnings before interest, taxes, depreciation and amortization (:EBITDA) multiple.

The Background Story

The ‘tug of war’ between Jos. A. Bank and Men’s Wearhouse began in Oct 2013, when Jos. A. Bank had proposed to buy Men’s Wearhouse for $48 per share or a total of $2.3 billion cash. The bid offered a 42% premium to the latter’s closing share price at the time of the proposal as well as a premium to the highest traded price of Men’s Wearhouse in the last five years.

After rejecting Jos. A. Bank’s proposal, Men’s Wearhouse turned tables by initiating a takeover bid of $55 per share or a total of $1.2 billion to acquire all shares of the former on Nov 26, 2013. Following a rejection, on Jan 6, 2014, Men’s Wearhouse, holding a Zacks Rank #4 (Sell), raised its acquisition bid to $57.50 per share or $1.6 billion in order to woo Jos. A. Bank and its shareholders.

Men’s Wearhouse left no stone unturned to facilitate a merger with Jos. A. Bank. However, on Jan 20, Jos. A. Bank rejected Men’s Wearhouse’s $1.6 billion offer stating that the bid is inadequate and significantly undervalues the company on grounds of its near- and long-term prospects.

Following this, in Feb 2014, Jos. A Bank penned an agreement to acquire Everest Holdings LLC, the parent company of Eddie Bauer. Later in the month, Jos. A. Bank initiated an issuer tender offer to acquire up to 16.4% (4.6 million shares) of its common stock for about $300 million, as agreed with Everest Topco LLC, a portfolio company of Golden Gate Capital. Apart from the $300 million in tender offer, the company will pay about $564 million in cash to buy the lifestyle brand, Eddie Bauer.

Other Stocks to Consider

Other stocks that warrant a look in the apparel-shoe space include Christopher & Banks Corp. (CBK), with a Zacks Rank #1 (Strong Buy) and Finish Line Inc. (FINL) with a Zacks Rank #2 (Buy).

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Read the Full Research Report on JOSB
Read the Full Research Report on FINL
Read the Full Research Report on CBK


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