Men's Wearhouse struck back at Jos. A. Bank Clothiers with a $1.5 billion bid to acquire the suit and tuxedo retailer, only weeks after rejecting a takeover offer from its smaller rival.
Men's Wearhouse (MW), under pressure from activist shareholders to merge, offered $55 a share in cash for Jos. A. Bank, an unusual counter-offer that values the smaller retailer's stock at a 9 percent premium to its close Monday.
Jos. A. Bank's (JOSB) shares rose as much as 12 percent Tuesday to a 2½-year high of $56.91, topping the offer in a sign investors might be expecting a higher bid. Men's Wearhouse shares rose as much as 10 percent to a year-high.
"For the shareholders of Men's Warehouse and for Joseph A. Bank, Christmas has come early. They will see huge benefits to the merging of these two companies," said Jerry Reisman, an M&A expert at law firm Reisman Peirez Reisman & Capobianco.
The combined company would have 1,700 stores that hire tuxedos and sell suits, a scale that has in the past raised antitrust questions about a merger.
The retaliatory offer from Men's Wearhouse,
Eminence, along with other hedge funds that hold about 30 percent of Men's Wearhouse shares, had tried to persuade other investors to pressure the company into accepting the takeover offer from Jos. A. Bank.
"We are pleased to see that the board of Men's Wearhouse agrees with us and recognizes the substantial benefits of merging with Jos. A. Bank," said Eminence Capital CEO Ricky Sandler.
The last person to push Men's Wearhouse to sell itself was its founder, George Zimmer, known to U.S. television audiences for his advertising catch phrase, "You're gonna like the way you look -- I guarantee it."
Zimmer was ousted by the board in June after arguing for a sale of the company to an investment group. At the time, he accused the board of trying to silence him for expressing concerns about the direction of the company he founded 40 years ago.
Men's Wearhouse is serious about acquiring Jos. A. Bank and isn't simply trying to force the company to raise its bid for Men's Wearhouse, according to sources familiar with the process.
"Viewed in the most favorable light, by making this offer, Men's Wearhouse is agreeing with Jos. A. Bank that combining the companies makes sense, but is trying to capture the upside for its own shareholders rather than giving it to Jos. A. Bank's shareholders," said Spencer Klein, co-head of mergers and acquisitions at law firm Morrison & Foerster.
"Viewed in a more unfavorable light, it can be perceived as another in a line of defensive moves designed to keep the existing board and management of Men's Wearhouse entrenched in place," Klein said.
Jos. A. Bank confirmed that it had received the acquisition proposal and said it was evaluating it with its advisers. As of Aug. 3, the company had cash and cash equivalents of about $333.2 million and no long-term debt.
The unusual tactic of a target firm turning around to try and buy a previous suitor is known as a Pac-Man defense, named after a 1980s video game where Pac-Man turns on the ghosts trying to kill him.
Other situations in which the Pac-Man defense was used include French oil company TotalFina's $43 billion bid for rival Elf Aquitaine, which countered with a $50 billion offer in 1999, and the takeover battle between aerospace companies Bendix and Martin Marietta in 1982.
Men's Wearhouse swiftly rebuffed Jos. A. Bank's offer in October to buy it for $2.3 billion, or $48 a share. Jos. A. Bank walked away from the bid on Nov. 15, although it didn't rule out another bid.
In a statement Tuesday, Men's Wearhouse said it had the "advantage in scale, growth and performance" to combine the two chains.
"We believe we are the right acquirer for this combination and that our experienced management team is best positioned to execute the integration of our companies," said Bill Sechrest, lead director of the board of Men's Wearhouse.
Men's Wearhouse, based in Fremont, Calif., operates more than 1,100 stores under the Men's Wearhouse, Moores and K&G banners.
Jos. A. Bank, a century-old seller of men's tailored and casual clothing, has more than 600 stores in the United States.
"Men's Wearhouse's leadership was not only personally offended by the efforts of Jos A. Bank to try to take them over, but they see this as an opportunity to strengthen their business by eliminating the competition," Reisman said.
After rejecting the October offer, Men's Wearhouse also adopted a poison pill to prevent a hostile takeover. It also said at the time that a combination of the two companies raised antitrust issues.
Jos. A. Bank shares were up 11 percent to $56.21 in afternoon trading on the Nasdaq, while Men's Wearhouse shares were up more than 9 percent to $51.58 on the New York Stock Exchange.
-Additional reporting by Olivia Oran and Nadia Damouni; writing by Robin Paxton.