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Men's Wearhouse Fails to Woo Jos. A. Bank

MW CBK ANF

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The board of directors of Jos. A. Bank Clothiers Inc. appear adamant on their stand and have yet again rejected rival men’s clothier The Men’s Wearhouse Inc.’s (MW - Snapshot Report) proposal last week of raising the acquisition bid further. In a letter to the Men’s Wearhouse board, Jos. A. Bank directors made it clear that a merger between the companies is not possible as they believe it is not in the best interest of the shareholders. The company refused to engage in any negotiations with Men’s Wearhouse stating that it sees no benefits from the talks.

Revealing a separate story, Wall Street Journal on Saturday brought to the lime light the ongoing talks between Jos. A. Bank and retailer Eddie Bauer Inc., for a potential purchase of the latter by the former. Eddie Bauer is owned by private equity firm Golden Gate Capital. However, complete details on the story are yet to be disclosed.

Last week, Men’s Wearhouse approached the independent directors of Jos. A. Bank Clothiers Inc. urging them to reconsider its all-cash offer of $57.50 per share or approximately $1.6 billion and proposing to further raise the bid, if needed. This move by Men’s Wearhouse indicated its intention to complete the acquisition as soon as possible since its offer will expire on Mar 28.

In its letter, Men’s Wearhouse insisted that Jos. A. Bank’s independent directors form a committee and re-evaluate its offer. The former wanted Jos. A. Bank to consider the earlier rejection, which had taken place without entering into any negotiation. The company also stated that it is ready to increase its bidding offer if the committee finds any additional value necessary.

The move came after Jos. A. Bank rejected Men’s Wearhouse’s offer on Jan 20, stating that the bid was inadequate and significantly undervalued the company on grounds of its near and long-term prospects.

Earlier, on Jan 6, 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 nominate two independent director candidates to Jos. A. Bank’s board election at its 2014 Annual Meeting. The names proposed for nomination include John D. Bowlin and Arthur E. Reiner. Further, the company took to Jos. A. Bank’s shareholders, urging them to consider its offer, in order to push management into entering negotiation.

Men’s Wearhouse’s latest 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 earnings before interest, taxes, depreciation and amortization (EBITDA) multiple.

Men’s Wearhouse’s earlier 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.

The ‘tug of war’ between Jos. A. Bank and Men’s Wearhouse began 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 #3 (Hold). Other stocks performing well in the apparel-shoe space include Christopher & Banks Corp. (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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