Men’s Wearhouse Inc. (MW:US) rejected a $2.3 billion cash takeover offer from Jos. A. Bank Clothiers Inc. (JOSB:US), saying the bid undervalued the company and wasn’t in the best interest of investors. It also adopted a shareholder rights plan.
Jos. A. Bank, based in Hampstead, Maryland, disclosed yesterday that it had made a non-binding proposal on Sept. 18 to acquire Men’s Wearhouse for $48 a share, 36 percent higher than the Oct. 8 closing price.
The suitor is pouncing at a moment of turmoil for Houston-based Men’s Wearhouse, which cut its profit forecast last month and removed founder George Zimmer as executive chairman over strategy disagreements in June. Men’s Wearhouse’s last-reported annual sales of about $2.5 billion were more than twice those of Jos. A. Bank. It also has a higher market value and almost twice the number of stores as of Aug. 3.
“Jos. A. Bank’s unsolicited proposal is opportunistic, subject to unacceptable risks and contingencies, and would deprive our shareholders of the value inherent in Men’s Wearhouse for inadequate consideration,” Bill Sechrest, Men’s Wearhouse’s lead director, said yesterday in a statement.
Men’s Wearhouse fell 1.6 percent to $44.32 at 9:33 a.m. in New York. Jos. A. Bank advanced 1.3 percent to $44.90. Men’s Wearhouse had a market value of $2.15 billion at yesterday’s close, compared with Jos. A. Bank’s $1.24 billion.
Men’s Wearhouse said yesterday that its board adopted a shareholder rights plan after rejecting the Jos. A. Bank offer. The plan, which expires Sept. 30, 2014, allows investors to acquire Men’s Wearhouse stock at a discounted price when someone acquires 10 percent or more of the company’s common shares in a transaction not approved by the board, Men’s Wearhouse said in a statement. If the buyer is a passive institutional investor, the trigger is a 15 percent stake.
“The rights plan is not intended to prevent an acquisition of the company on terms that the board of directors considers favorable,” it said.
Financo LLC Chairman Gilbert Harrison, whose firm is advising Jos. A. Bank, said in a phone interview that Men’s Wearhouse’s rejection of the bid “does not make sense.”
“We have come forward with an extremely attractive bid price,” he said. “It’s a defining deal to redefine the entire menswear business.”
Jos. A. Bank said yesterday in a statement that it would continue to pursue the deal, calling Men’s Wearhouse’s rejection “inexplicable.”
The Wall Street Journal reported that Jos. A. Bank Chairman Robert Wildrick said in an interview that his company would be open to being bought by Men’s Wearhouse at the same premium it had offered.
The company was “merely illustrating the point that boards of directors should carefully consider significant cash premiums for their shares,” Molly Morse, a spokesman for Jos. A. Bank who works for Kekst & Co., said later in an e-mailed statement. Morse declined to comment on whether Jos. A. Bank would consider an offer if one were made.
Jos. A. Bank has been under pressure from shareholders to use its cash, said Eric Marshall, a portfolio manager at Hodges Capital Management Inc. in Dallas, whose assets include the company’s stock. A deal would broaden Jos. A. Bank’s offerings into tuxedo rental and casual clothing, he said.
“There aren’t very many national menswear concepts like this,” Marshall said in a phone interview. “They could be a very powerful franchise if they could put this all together.”
The offer implies a valuation for Men’s Wearhouse of 8.4 times 12-month earnings before interest, tax, depreciation and amortization, Jos. A. Bank said. That compares with a median multiple of 8.3 times for similar deals that were announced in the past five years, according to data compiled by Bloomberg.
The bid would be funded by $300 million of cash, new equity capital and debt financing, Jos A. Bank said. The new equity would be provided by private-equity firm Golden Gate Capital, while Jos. A. Bank adviser Goldman Sachs Group Inc. is “highly confident” that debt funding can be obtained, according to the statement.
Ken Dennard, a Men’s Wearhouse spokesman who works for Dennard-Lascar Associates LLC, didn’t respond to voicemail and e-mailed requests for comment.
Zimmer owned about 3.7 percent of Men’s Wearhouse shares as of April 3. A phone number for Zimmer couldn’t be found.
Jos. A. Bank’s offer comes after Men’s Wearhouse reported second-quarter earnings in September that missed analysts’ estimates, citing a drop in customer traffic. The company’s shares have gained 13 percent this year through Oct. 8. Men’s Wearhouse operated 1,137 stores as of Aug. 3, while Jos. A. Bank had 611 locations as of the same date.
Jos. A. Bank said in June that it was seeking potential acquisitions to expand more quickly. The chain bid for Fifth & Pacific Cos.’s Lucky Brand, according to a June 4 report by Women’s Wear Daily, which didn’t say where it got the information.
Jos. A. Bank is being advised by Goldman Sachs and Financo, with Skadden, Arps, Slate, Meagher & Flom LLP and Guilfoil Petzall & Shoemake LLC acting as legal advisers. Men’s Wearhouse said it is getting financial advice from Bank of America Corp. and JPMorgan Chase & Co. and legal advice from Willkie Farr & Gallagher LLP.
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