Men’s Wearhouse struck back at Jos. A. Bank Clothiers with a $1.5 billion bid to acquire the suit and tuxedo retailer, only weeks after rejecting a takeover offer from its smaller rival.
Men’s Wearhouse, under pressure from activist shareholders to merge, offered $55 per share in cash for Jos. A. Bank, a offer that values the smaller retailer’s stock at a 9 percent premium to its close Monday.
Shares of Men’s Wearhouse rose 7.5 percent to $50.60 Tuesday, while Jos. A. Bank’s stock jumped 11.3 percent to $56.29.
The retaliatory offer from Men’s Wearhouse, which the company said implies an enterprise value of about $1.2 billion for Jos. A. Bank, follows pressure from its largest shareholder, New York-based hedge fund Eminence Capital.
Eminence, along with other hedge funds that hold about 30 percent of Men’s Wearhouse shares, had tried to persuade other investors to press the company into accepting the takeover offer from Jos. A. Bank.
“We are pleased to see that the board of Men’s Wearhouse agrees with us and recognizes the substantial benefits of merging with Jos. A. Bank,” said Eminence chief executive Ricky Sandler.
The last person to push Men’s Wearhouse to sell itself was its founder, George Zimmer, known to U.S. television audiences for his advertising catchphrase, “You’re going to like the way you look — I guarantee it.”
Zimmer was ousted by the board in June after arguing for a sale of the company to an investment group. At the time, he accused the board of trying to silence him for expressing concerns about the direction of the company he founded 40 years ago.
“Viewed in the most favorable light, by making this offer, Men’s Wearhouse is agreeing with Jos. A. Bank that combining the companies makes sense, but is trying to capture the upside for its own shareholders rather than giving it to Jos. A. Bank’s shareholders,” said Spencer Klein, co-head of mergers and acquisitions at law firm Morrison & Foerster. “Viewed in a more unfavorable light, it can be perceived as another in a line of defensive moves designed to keep the existing board and management of Men’s Wearhouse entrenched in place.”
Jos. A. Bank confirmed that it had received the acquisition proposal and said it was evaluating it with its advisers. As of Aug. 3, the company had cash and cash equivalents of about $333.2 million and no long-term debt.
The unusual tactic of a target firm turning around to try to buy a suitor is known as the Pac-Man defense, named after the 1980s video game in which Pac-Man turns on the ghosts trying to kill him.
Men’s Wearhouse swiftly rebuffed Jos. A. Bank’s offer in October to buy it for $2.3 billion, or $48 per share. Jos. A. Bank walked away from the bid Nov. 15, although it did not rule out another bid.
In a statement Tuesday, Men’s Wearhouse said it had the “advantage in scale, growth and performance” to combine the two chains.
The combined company would have 1,700 stores that rent tuxedos and sell suits, a scale that in the past has raised antitrust questions about a merger.
Men’s Wearhouse, based in Fremont, Calif., operates more than 1,100 stores under the Men’s Wearhouse, Moores and K&G banners. Jos. A. Bank, a century-old seller of men’s tailored and casual clothing based in Hampstead, Md., has more than 600 stores in the United States.
After rejecting the October offer, Men’s Wearhouse adopted a “poison pill” strategy to prevent a hostile takeover. It said at the time that a combination of the two companies raised antitrust issues.