Hampstead, Md.-based Jos. A. Bank Clothiers Inc. will be acquired by rival The Men’s Wearhouse Inc. for $65 a share in cash, a $1.8 billion deal that ends a months-long hostile-takeover fight.
The retailers, which announced an agreement Tuesday, said both boards of directors approved a transaction that will create a $3.5 billion men’s apparel powerhouse with 1,700 stores in the U.S. and about 23,000 employees. The deal is expected to close by the third quarter.
“We are pleased to have reached this agreement with Jos. A. Bank, which we believe will deliver substantial benefits to our respective shareholders, employees and customers,” said Doug Ewert, CEO of Houston-based Men’s Wearhouse, in the announcement. “Together, Men’s Wearhouse and Jos. A. Bank will have increased scale and breadth, and Jos. A. Bank’s strong brand and complementary business model will broaden our customer reach.”
In a departure from the bitter back and forth that started last year with Bank’s rebuffed offer for Wearhouse, Ewert said, “All of us at Men’s Wearhouse have great respect for the Jos. A. Bank management team and are eager to work with Jos. A. Bank’s talented employees.”
Jos. A. Bank Chairman Robert N. Wildrick said the retailer’s board has been focused on finding a strategic alternative that would maximize value for shareholders.
“The transaction we are announcing today clearly reflects the success of our efforts, providing a substantial premium over any price at which our stock has ever traded, including a 56 percent premium since our interest in Men’s Wearhouse became public last October,” Wildrick said.
Jos. A. Bank also said it has terminated its recent agreement to acquire outdoor-apparel retailer Eddie Bauer.
“It’s a slam dunk – shareholders will approve this,” said Mark Montagna, a senior research analyst with Avondale Partners LLC, a Nashville, Tenn.-based investment bank. “I think it’s a good deal. It’s a positive for shareholders of both companies.”
Each chain will benefit from the other’s strengths, he said. Jos. A. Bank will get a boost for its tuxedo-rental business, while Men’s Wearhouse will get the advantage of lower costs and higher quality in sourcing products.
Both chains will get improved buying power for spending on advertising, sourcing of products, supplies and real estate for store locations.
He said he doubted the merger will be held up by antitrust issues, because the combined company would represent only about 5 percent of the total menswear business.
“You have to look at the total pie, and when you look at it from that perspective, it’s not that big a deal,” Montagna said.
Retail experts believe the store brands will continue to be maintained separately, and continue to draw a slightly different customer. Jos. A. Bank is viewed as slightly higher-end.
“It will not take any special marketing campaign to differentiate the businesses,” Montagna said.
As for the drawbacks of such a combination?
“Will the two sides get along after such public animosity?” he wondered.
After Men’s Wearhouse spurned Jos. A. Bank’s takeover last fall, it countered with its own bid for the other company. After Jos. A. Bank rejected its overtures, Men’s Wearhouse went hostile in January, offering to buy Bank shares directly from shareholders for $1.6 billion.
Men’s Wearhouse raised its hostile offer for Bank to $63.50 per share, and indicated it would raise its bid to $65 per share if a review of Bank’s books allowed it to discover additional value. Bank rejected the offer, but said it would meet to discuss a higher price. The chains agreed more than a week ago to exchange confidential information and consider a potential merger.
The negotiations came after Bank had vowed to remain independent, then made a bid for Eddie Bauer.
The Men’s Wearhouse offer of $63.50 per share was to have expired Wednesday, and hinged on Bank dropping plans to acquire Eddie Bauer in an $825 million cash-and-stock deal. Men’s Wearhouse extended the deadline for the tender offer to 5 p.m. March 19.
Some analysts saw the Bauer deal, which would have meant taking on debt, as a plan by Bank to make itself a less attractive target. Eminence Capital, a New York hedge fund that owns a 10 percent stake in Men’s Wearhouse and about 5 percent of Bank’s stock, had accused Bank of “desperate” tactics to protect management jobs by planning to buy Bauer, and filed a lawsuit in Delaware in January.
Bank started the takeover tiff last year when it offered to buy Men’s Wearhouse with the help of a $250 million investment from Golden Gate Capital, the owner of Eddie Bauer.