The battle to control the US discount menswear market took another twist on Tuesday as Men’s Wearhouse launched a $1.2bn bid for Jos A Bank, just a week after rejecting a second takeover proposal by its smaller rival.
The $55 per share offer represents a 45 per cent premium to the price of Jos A Bank’s shares before it launched its initial bid for Men’s Wearhouse in October.
Bill Sechrest, lead director of the board of Men’s Wearhouse, said in a statement on Tuesday: “We are ready to engage with the Jos A Bank’s board immediately.
“After a thorough review, our board concluded that an acquisition of Jos A Bank by Men’s Wearhouse has strategic logic and the potential to deliver substantial benefits to our respective shareholders, employees and customers.”
The offer heralds the return of the “Pac-Man defence” – so called for the arcade game tactic of vanquishing a pursuer by eating it – which has been absent from the US dealmaking landscape for many years.
News of the bid took shares of both companies higher. Jos A Bank’s shares rose 10.4 per cent to $55.87 in early trading, topping the offer. Shares of Men’s Wearhouse rose 9.9 per cent to $51.74.
The decision to table the counter offer – and the accompanying rhetoric – marks a change in stance by the board of Men’s Wearhouse, which had previously declined to enter into dialogue with Jos A Bank, dismissing its rival’s overtures as “opportunistic”.
It is also likely to quell calls by Eminence Capital, the activist investor that has built up a near 10 per cent stake in Men’s Wearhouse, to oust the retailer’s board.
Eminence was a vociferous advocate of a deal between the two companies and had called for a special shareholder meeting after Men’s Wearhouse declined to meet Jos A Bank to discuss a deal. Eminence also holds a small stake in Jos A Bank.
The fund had focused its attention on getting the Men’s Wearhouse board to agree to a takeover by its rival.
We are ready to engage with the Jos A Bank’s board immediately
On Tuesday, Ricky Sandler, Eminence’s chief executive, said he was pleased that the Men’s Wearhouse board had recognised the “substantial benefits of merging with Jos A Bank.”
Jos A Bank issued a short statement in which it said it would consider the offer and respond in due course. In an interview with the Baltimore Sun, Neal Black, the retailer’s chief executive, said his company was “open to talk whenever [Men’s Wearhouse] see the light.”
Men’s Wearhouse’s offer implies a price of 9.1 times earnings before interest, tax, depreciation and amortisation – a higher multiple than Jos A Bank’s 8.3 times ebitda offer. Men’s Wearhouse was advised by Bank of America Merrill Lynch and JPMorgan.
Analysts at Stifel estimated the combined group would have annual cost savings of $100m-$150m, driven by purchasing efficiencies, reduced backroom functions and lower marketing costs.
“The rollout of the very successful Men’s Wearhouse tuxedo rental business could be highly accretive; possibly lifting Jos A Bank’s sales by 10-15 per cent,” the analysts added.