Men's specialty retailer, The Men’s Wearhouse Inc. (MW - Snapshot Report) refuses to give up on its acquisition battle with rival men’s clothier, Jos. A. Bank Clothiers Inc. , despite the latter’s efforts to resist the former’s hostile actions.
In the latest move, yesterday Men’s Wearhouse raised its acquisition bid to $57.50 per share or $1.6 billion in order to woo Jos. A. Bank and its shareholders. Earlier, in Nov 2013, the company had offered to acquire all shares of Jos. A. Bank in an all-cash transaction worth $1.2 billion or $55 per share.
Additionally, Men’s Wearhouse communicated its intention to deliver a notice to Jos. A. Bank for nominating two independent director candidates for election at its 2014 Annual Meeting. The names proposed for nomination include John D. Bowlin and Arthur E. Reiner. Further, the company took the offer to Jos. A. Bank’s shareholders urging them to tender into its offer, in order to push the board of directors of Jos. A Bank for healthy negotiations.
Men’s Wearhouse’s fresh proposal values Jos. A Bank at a 38% premium over the latter’s closing price on the day prior to the announcement of Jos. A. Bank’s proposal to buy Men’s Wearhouse (Oct 8, 2013) and a 52% premium to Jos. A. Bank's unaffected enterprise value. It also represents a 9.4x enterprise value to the trailing 12-month adjusted EBITDA multiple.
Men’s Wearhouse’s previous bid represented a 32% premium over Jos. A. Bank’s closing price on Oct 8, 2013. Moreover, it implied a 45% premium to the target’s enterprise value and a 9.1x enterprise value to the trailing 12-month adjusted EBITDA multiple.
Markets reacted positively to Men’s Wearhouse’s fresh proposal with the shares of Men’s Wearhouse and Jos. A. Bank rising 2.2% and 4.5%, respectively. At this point, we wait to see which company succeeds in retaining an upper hand in this acquisition war and becomes the parent company in the combination.
Reacting to Men’s Wearhouse’s revised bid, the Jos. A. Bank board stated that it will closely evaluate all aspects of the new proposal in the best interest of the company and its shareholders. The board expects to communicate its recommendation to shareholders by Jan 17. Meanwhile, the company has requested its shareholders to stay put regarding the tender offer.
Further, the raised bid and Men’s Wearhouse’s attempt to persuade Jos. A. Bank investors seemed like an attempt to mock Jos. A. Bank’s recently revised poison pill (shareholder rights plan) that restricts shareholder ownership to 10% compared to the prior 20% limit.
Jos. A. Bank resorted to revising its shareholder rights plan to shield itself from Men’s Wearhouse’s hostile attempts to takeover the company and threats of future action, following the rejection of latter’s bid in Dec 2013. This revision brings Jos. A. Bank’s ownership threshold limit at par with the limit Men’s Wearhouse had framed after rejecting Jos. A. Bank’s buyout call.
The Jos. A. Bank and Men’s Wearhouse ‘tug of war’ commenced in Oct 2013, when Jos. A. Bank had proposed to buy Men’s Wearhouse for $48 per share or a total of $2.3 billion cash. The bid offered a 42% premium to the latter’s closing share price at the time of the proposal as well as a premium to the highest traded price of Men’s Wearhouse in the last five years.
The shareholder rights plan, also known as poison pill, reduces the chances of gaining control over a company by any person or group through accumulation of shares in the open market without appropriately compensating shareholders.
Last week, leading U.S. rental-car company, Hertz Global Holdings Inc. (HTZ - Snapshot Report) adopted a one-year poison pill to prevent activist investors from a complete takeover. The decision to adopt a shareholder right plan came after the company realized certain unusual and substantial options activity in its shares.
Jos. A. Bank currently carries a Zacks Rank #3 (Hold), while Men’s Wearhouse has a Zacks Rank #2 (Buy). Another stock performing well in the apparel-shoe space includes Finish Line Inc. (FINL - Snapshot Report), which carries a Zacks Rank #2 (Buy).