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Men's Wearhouse- Jos. A. Bank Tussle Drags on


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There seems to be no end to the tug of war between The Men’s Wearhouse Inc. (MW - Snapshot Report) and Jos. A. Bank Clothiers Inc. as none of the parties are willing to budge. Yesterday, Jos. A. Bank rejected Men’s Wearhouse’s $1.6 billion offer stating that the bid is inadequate and significantly undervalues the company on grounds of its near- and long-term prospects. Additionally, the company believes that the offer does not provide adequate value to its shareholders.

Jos. A. Bank board believes that the company has been an industry leader for over a decade, remarkably enhancing revenue and net income. Moreover, the board highlighted that the company has a well defined growth strategy aimed at boosting revenues, margins and shareholder returns. Hence, the company appealed to its shareholders to refuse Men’s Wearhouse’s offer of tendering shares.

Following Jos. A. Bank’s negative response, securities law firm, Deans & Lyons, announced that it will conduct enquiries to ascertain if the Jos. A. Bank board is carrying out its duties in the best interest of its shareholders. The law firm will ensure that the Jos. A. Bank shareholders get the best price for their stock.

Earlier this month, 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. Prior to this, 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 into 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.

Following Men’s Wearhouse’s sweetened bid, last week, Eminence Capital LLC, which is a minority (4.9%) stakeholder in Jos. A. Bank and a majority stakeholder in Men’s Wearhouse, had pushed Jos. A. Bank to cut a deal with Men’s Wearhouse and facilitate a merger of the two companies.

To ensure that Jos. A Bank works efficiently towards the collaboration, the hedge fund firm announced its plans to put forward two nominees on the company’s board at the 2014 shareholders meeting. Eminence Capital, which has been in favor of the merger since Jos. A. Bank’s first acquisition bid, also revealed that it will withdraw its nominees if Men's Wearhouse moves ahead with its decision to nominate members to Jos. A. Bank's board at the latter’s annual meeting.

Earlier, the firm had pushed Men’s Wearhouse to enter into talks for an alliance when it rejected Jos. A. Bank’s proposal.

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.

Men’s Wearhouse currently has a Zacks Rank #2 (Buy). Other stocks performing well in the apparel-shoe space include Christopher & Banks Corporation (CBK - Snapshot Report) and Abercrombie & Fitch Co. (ANF - Analyst Report). Of these, Christopher & Banks has a Zacks Rank #1 (strong Buy), while Abercrombie & Fitch carries a Zacks Rank #2 (Buy).

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