Men's Wearhouse Goes From Hunted to Hunter

If the pairing of the two leading men's clothiers is such a good idea, then no one should object to Men's Wearhouse buying Jos. A. Bank .

At least that's the apparent working theory as the embattled clothing retailer turns the tables on its onetime suitor, making an offer to buy Jos. A. Bank for $55 cash per share. After dismissing Jos. A. Bank's acquisition effort, Men's Wearhouse has essentially agreed that a merger is a good idea. But based on its management experience, scale, long-term growth and performance, and history of successfully acquiring companies, Men's Wearhouse decided it should do the buying.

The deal values Jos. A. Bank at an enterprise value of $1.2 billion, an 8.7% premium to its closing price yesterday and a 45% premium to its closing price on Oct. 8, the day before it made a public offer to buy Men's Wearhouse. It represents a multiple of 9.1 times Bank's enterprise value-to-trailing adjusted EBITDA. In comparison, Bank's offer valued Men's Wearhouse at a 42% premium to its closing price, representing a multiple of 8.3 times its enterprise value-to-trailing adjusted EBITDA.

Regardless of who's making the offer, though, the pairing would create a men's clothing juggernaut with 1,700 stores and pro forma sales of more than $3.5 billion.

Men's Wearhouse rejected Bank's original $46-per-share, or $2.3 billion, offer outright, saying it was way too low. However, it then refused to engage its rival in a meaningful dialogue even after Bank said it would be willing to raise the offer if it could get a look at the books.

One of Men's Wearhouse's largest shareholders, Eminence Capital, then demanded it pick up the phone and start negotiating. Despite assurances from management, that never came to fruition and Jos. A. Bank subsequently withdrew its offer. Eminence then announced it was launching a preliminary solicitation for a special meeting of Men's Wearhouse shareholders solely for the purpose of ousting board members.

There's no word yet on whether the Men's Wearhouse proposal will mollify its biggest shareholder, but unlike Jos. A. Bank's offer, this bid is not contingent upon any outside financing. Bank would have had Golden Gate Capital acquire newly issued shares, along with convertible preferred stock purchased at a premium, which in total would have equated to nearly 20% of the clothier's outstanding shares.

In contrast, Men's Wearhouse's proposal doesn't require any costly third-party equity investment and is not conditioned on financing since the retailer expects to finance the transaction with a combination of balance-sheet cash and debt financing.

This looks like a proposal that's all dressed up. Now let's see if it's got some place to go.

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