Nothing seems to change leading men’s clothier, The Men’s Wearhouse Inc.’s (MW) intentions of joining forces with smaller rival, Jos. A. Bank Clothiers Inc. (JOSB), despite continued resistance on the latter’s part. Yesterday, Men’s Wearhouse came up with a renewed bid to acquire Jos. A. Bank, offering $63.50 per share in cash along with a proposal to further sweeten the bid to $65.00 per share following limited due diligence.
The Men’s Wearhouse / Jos. A. Bank ‘tug-of-war’ has been the talk of town for quite some time, keeping investors abreast with every development on the issue. Investors reacted positively to the latest proposal by Men’s Wearhouse, which led to a significant upside in the share price of both companies. Men’s Wearhouse rallied about 7.5% to $48.51 on yesterday’s trade, while Jos. A. Bank’s shares soared 9.1% higher to close at $60.04.
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.
Apart from raising the bid, Men’s Wearhouse has conditioned its renewed offer on the termination of Jos. A. Bank's recent agreement to buy Eddie Bauer with immediate effect, the latter’s board withdrawing its "poison pill" shareholder rights plan as well as regulatory approvals and customary conditions. Further, in its latest offer, Men’s Wearhouse has removed the clause of executing a definitive merger agreement with Jos. A. Bank. The company has pushed back the expiration date of its renewed offer to Mar 12, 2014, if at all the bid is not raised further.
Additionally, Men’s Wearhouse is building pressure on Jos. A. Bank’s board members by filing a lawsuit in the Delaware Chancery Court against the directors on the Jos. A. Bank Board, Golden Gate Private Equity, Everest Topco LLC, Everest Holdings LLC and Jos. A. Bank.
In the lawsuit, the company registered charges of violating its fiduciary duties by conducting a chain of irrational, shareholder unfriendly and illegal defensive actions in order to resist an acquisition by Men's Wearhouse, avoid a change of control, pack the board with allies, hinder the upcoming vote for two directors, and entrench the existing board. Through the filed suit Men’s Wearhouse expects to obtain a stay order on Jos. A. Bank proceeding with the Eddie Bauer transaction accompanied by an order instructing Jos. A. Bank’s board to withdraw the poison pill.
On the other hand, Jos. A. Bank opted to stay calm following the Men’s Wearhouse proposal, stating that it will review the renewed offer thoroughly and come up with its recommendations for the shareholders in due course. The company also requested shareholders to reserve their actions until further communication.
In the chain of events, the common shareholder of Jos. A. Bank and Men’s Wearhouse, Eminence Capital LLC, issued statements in favor of the renewed Men’s Wearhouse proposal urging Jos. A. Bank board to accept the offer. Eminence Capital has been in favor of the deal ever since Jos. A. Bank first proposed to buy Men’s Wearhouse.
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 the 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 #3 (Hold), 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.
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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