Jos. A. Bank Clothiers Inc. (JOSB:US) and Men’s Wearhouse Inc. agree they should join forces. Both also agree it’s worth taking on $1 billion (MW:US) or more in debt to create one of the largest U.S. clothing retailers. They just don’t agree who should run it.
Each company has taken shots at the other since Jos. A. Bank offered to buy Men’s Wearhouse in October for $2.3 billion. Men’s Wearhouse ignored the proposal and last month turned the tables by making a bid to buy Jos. A. Bank for about $1.54 billion. Jos. A. Bank hasn’t responded to that offer.
It’s not unusual for executives to resist takeovers to save their jobs. What’s complicating this battle is that each side has made the case in recent months that it’s the superior retailer -- pitting Men’s Wearhouse Chief Executive Officer Douglas Ewert against Jos. A. Bank Chairman Robert Wildrick. That has exacerbated tension between the two management teams that is preventing a deal from being actively discussed, say people familiar with the matter.
“If Bank’s executives accept the offer, they will make some money but they will lose their jobs,” Stifel Nicolaus & Co. analyst Richard Jaffe said in a telephone interview. “Men’s Wearhouse probably has better management -- and they think they’ve got better management, too.”
Aaron Palash, an outside spokesman working for Men’s Wearhouse, declined to comment, as did Molly Morse, an outside spokeswoman for Jos. A. Bank. On the company’s earnings call last week, Jos. A. Bank Chief Executive Officer Neal Black would not give a timeline for responding to Men’s Wearhouse’s $55-a-share bid, and also said his company had potential acquisitions in mind.
The strain between the companies has played out in dueling statistics with curt language mixed in. Jos. A. Bank said Men’s Wearhouse rejection of its overture was a “formulaic, knee-jerk reaction.”
Men’s Wearhouse has derided its competitor’s discounting strategy. In an October investor presentation, Men’s Wearhouse displayed a slide saying that Jos. A. Bank’s “Buy 1, Get 7 Free” strategy of selling suits “confuses its customers” who are now “accustomed to significant discounts and do not understand or focus on quality.”
In a promotion late last year, Jos. A. Bank offered buyers two suits, two shirts, two ties and a smartphone for each regular-priced suit they bought.
In the October presentation, Men’s Wearhouse made the case that CEO Ewert has done a better job of running his company than Jos. A. Bank management has done with theirs. Since he took over in June 2011, it said, the company’s earnings growth has exceeded Jos. A. Bank’s while shareholders have gotten a 56 percent return under Ewert, compared with a 6.7 percent return for its rival during the same period.
For its part, Jos. A. Bank’s original offer letter proposed that its Chairman Wildrick would be the chief executive officer of the combined company, said one person familiar with the matter.
In an interview in October, Wildrick said that his company’s financial results over the past decade surpassed its competitor as measured by metrics including margins and return on assets. Jos. A. Bank’s operating margin over the last three years averages 15 percent (MW:US), compared with about 8.7 percent at Men’s Wearhouse, data compiled by Bloomberg show.
On the company’s earnings call last month, the sniping continued.
“Last week, we received an unsolicited nonbinding acquisition proposal from Men’s Wearhouse,” said Bank CEO Black. “So, despite the fact that they would not engage in discussions with us before, it seems they now agree that a combination of our companies make sense.”
Jos. A. Bank has offered to retain some Men’s Wearhouse managers in a combination, and said it could even keep some of its managers to run the combined company. Wildrick also struck a collaborative tone when he said that he did not plan on closing Men’s Warehouse stores in the event of a transaction.
Both stocks are higher on the possibility of a deal. Pressure from Eminence Capital LLC, a hedge fund that owns 9.8 percent (MW:US) of Men’s Wearhouse as well as a stake in Jos. A. Bank, could be the trigger that makes it happen as they and other shareholders pressure a board to make top managers step aside, one of the people said.
Investors may prefer Men’s Wearhouse as the buyer because the combined company would emerge with less debt, analyst Jaffe said. Either way, the combination of the two companies could yield benefits in cost savings and expanded sales, Jaffe has said.
Before terms can be discussed, someone has to welcome a buyout.
“It’s a fight over who controls it,” said Keith Moore, a strategist at MKM, a Stamford, Connecticut, research firm. “There will be one group that is dominant and one that is slave and that’s what the fight is over.”
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