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Men's specialty retailer in North America, The Men's Wearhouse (MW - Snapshot Report), rejected smaller rival men’s clothier, Jos. A. Bank Clothiers Inc’s (JOSB - Snapshot Report) proposal to buy the former in an all-cash transaction, valued at $48 per share or a total of $2.3 billion.
Men’s Wearhouse rejected the bid describing it as “opportunistic” and “inadequate”, soon after Jos. A. Bank issued a public notice on Oct 9. Jos. A. Bank had privately communicated the proposal to Men’s Wearhouse on Sep 17.
Men’s Wearhouse’s board believes that the proposal undervalues the company and its future prospects and is not in the best interest of its shareholders. The board stated that the recent downside in Men’s Wearhouse’s shares is due to its challenging second-quarter results and the removal of founder George Zimmer as the executive chairman over policy disputes in June. The company notes that the current market price does not reflect the intrinsic value of the company at the moment.
Simultaneous to the rejection, Men’s Wearhouse adopted a poison pill (the Rights Plan) to protect itself against hostile or any other takeover tactics. The company revealed that its limited period shareholder rights plan, which expires on Sep 30, 2014, will prevent any single owner to own more than 10% stake (15% for a passive institutional investor) in the company.
In response to Men’s Wearhouse’s rejection, Jos. A. Bank stated that its $48 per share bid, values the former at a 42% premium at the time of the proposal. The company also noted that its offer price reflects a premium to the highest traded price of Men’s Wearhouse in the last five years. Further, Jos. A. Bank revealed that Golden Gate, a leading investor in the industry, intends to invest about $250 million in the combined company.
Jos. A. Bank believes that the merger will prove beneficial to the shareholders and customers of both the companies, creating a behemoth men’s wear retailer with nearly 2,000 stores.
Shares in Men's Wearhouse escalated 27.8% to $45.03 after rejecting Jos. A. Bank’s bid, while despite facing rejection, Jos. A. Bank’s shares were up 6.4% to $44.33.
Jos. A. Bank is a much smaller company, while Men’s Wearhouse is a market leader in the men’s clothing business. Men’s Wearhouse reported annual sales of about $2.48 billion in the recently concluded fiscal year, more than double of Jos. A. Bank’s annual sales of $1.05 billion.
Men’s Wearhouse also has a higher market cap and almost twice the number of stores compared to Jos. A. Bank. Men’s Wearhouse has a market cap of $2.15 billion, compared with Jos. A. Bank’s $1.24 billion. As of Aug 3, 2013, Men’s Wearhouse operated more than 1,200 stores, while Jos. A. Bank operated 623 stores in 44 states and the District of Columbia.
Men’s Wearhouse currently carries a Zacks Rank #5 (Strong Sell), while Jos. A. Bank has a Zacks Rank #4 (Sell). Better performing stocks among apparel-shoe retailers include Citi Trends Inc. (CTRN - Analyst Report) and DSW Inc. (DSW - Snapshot Report). Both these stocks carry a Zacks Rank #1 (Strong Buy).