This post is by Stephen Grocer
from Private Equity Beat
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The board and executives of the suit retailer Jos. A. Bank look like they have been playing defense for months, doing anything it takes to ward off a takeover by their larger competitor Men’s Wearhouse.
But has Jos. A. Bank’s board instead been making all the right moves on the chess board?
“Jos. A. Bank’s was whiny and unsophisticated and not communicative with the Street,” said Richard Jaffe, an analyst at Stifel NicholasCK. “Yet they got the bid price up dramatically.”
In early October, Jos. A. Bank and Men’s Wearhouse were simply suit retailers, trying to undercut one another on price or on just how many suits they could give away for the price of one. Men’s Wearhouse’s stock was trading around $35 a share, while Jos. A. Bank’s shares hovered around $41.
Then, Jos. A. Bank struck. With the backing of private-equity firm Golden Gate Capital, Jos. A. Bank made an unsolicited bid for Men’s Wearhouse for $48 a share.
Men’s Wearhouse rejected the offer, but the idea of suit synergies had been planted. Men’s Wearhouse turned around and bid for Jos. A. Bank at $55 a share in late November. By late December, after being spurned once, Men’s Wearhouse came back to the table with a $57.50 offer. Jos. A. Bank wouldn’t take that offer either and said it undervalued the company.
Men’s Wearhouse and Eminence Capital, a 10 % shareholder in Men’s Wearhouse and a nearly 5% shareholder in Jos. A. Bank, each sued Jos. A. Bank in court for refusing to even negotiate with its competitor.
On Feb. 14, Jos. A. Bank announced what seemed like a bizarre acquisition, Eddie Bauer. The suit retailer claimed to see growth potential for both itself and Eddie Bauer and said it would spend $825 to buy Eddie Bauer. The deal has been viewed by the market as a poison pill designed to thwart any takeover by Men’s Wearhouse, which saw its stock drop more than 5% following the Eddie Bauer announcement. Jos. A. Bank’s stock closed slightly higher that day.
Yet could the Eddie Bauer deal have been the push Men’s Wearhouse needed to up its offer by at least $6 per share or roughly $180 million?
A week and a half later, Men’s Wearhouse is back with a $63.50 per share offer for Jos. A. Bank that they said could be raised to $65 per share if they can conduct due diligence. That’s a premium of nearly 60% from where Jos. A. Bank traded in October before all this started.
“Investors would rather see $65 a share or even $63.50 a share immediately rather than just the possibility of shareholder growth from Eddie Bauer,” said Mark Montagna, a senior research analyst at Avondale Partners. “Eddie Bauer is a brand that people haven’t cared about for awhile. It’s hard for a brand to become relevant again when it reaches a certain level of disinterest from consumers.”
Investors seem to be giving more credit to Jos. A. Bank’s negotiating powers than Men’s Wearhouse. Jos. A. Bank’s stock is up more than 45% since the initial bidding began compared to 39% for Men’s Wearhouse.
Still, Jos. A. Bank can reject the offer from Men’s Wearhouse. The board said it will review the offer and make a recommendation to shareholders on how to vote for it in “due course.”
The clock is ticking though. Men’s Wearhouse’s offer expires on March 12. Meanwhile, Jos. A. Bank has said that it has launched a tender offer to buy back roughly $300 million of its shares at $65 each. Buying back those shares would basically end Men’s Wearhouse’s bid.
Should Jos. A. Bank complete its own tender offer and buy Eddie Bauer, it is expected to be subject to continuing litigation from Men’s Wearhouse and Eminence Capital. Still the Delaware courts could weigh in before March 12.
“If they accept the offer, the Jos. A. Bank board looks pretty clever,” said Mr. Jaffe. “If they reject it, they’re subject to prolonged litigation and a lot of risks turning around Eddie Bauer and their own company.”