Now It's Jos. A. Banks' Knickers in a Knot

Now It's Jos. A. Banks' Knickers in a Knot

Men's clothier Jos. A. Bank was righteously indignant over Men's Wearhouse's refusal to consider its $2.3 billion buyout offer. But with fortunes reversed and its rival deploying a so-called "Pac-Man" defense by making a pitch to take it over, it's Jos. A. Bank's turn to be dismissive of a lowball offer.

On Monday, the men's clothing company rejected the offer of $1.5 billion, or $55 per share, by Men's Wearhouse because it "significantly undervalued" the company. The "thanks but no, thanks" statement said Jos. A. Bank would continue looking for acquisitions on its own to enhance shareholder value.

In reality, it's a hard stance to take seriously, considering how strenuously Bank asserted that a tie-up between the two would benefit both companies. When it was the hunter on the trail of Men's Wearhouse, there was all kinds of talk about the synergies a merger would generate in the competitive but fractured men's suits business. Eminence Capital, a significant shareholder in both companies, has noted that Macy's alone sells $5 billion worth of suits a year and Nordstrom contributes nearly $2 billion worth of sales. Even Saks, which itself was just acquired last month by Canada's Hudson Bay, sold half a billion dollars' worth.

It's likely that the response by Jos. A. Bank was merely a bit of preening in front of the mirror to get Men's Wearhouse to up its bid. Shares of the retailer have traded above the $55-per-share offer price, suggesting the market thinks a new, higher offer will eventually be made, and there's a belief among many analysts that the deal will get done at some point, though at what price remains the question. Moreover, the Men's Wearhouse offer is preferable to the one Jos. A. Bank had made.

There are a number of similarities in the values each retailer placed on the other through their bids. But where Jos. A. Bank would have had to line up outside financing and issue new shares and convertible preferred stock purchased at a premium to seal the deal, Men's Wearhouse says it can complete the transaction without any third-party equity investment, with financing coming from a combination of balance-sheet cash and debt financing.

Still, relations between the companies have seemingly soured since the saga began. While Eminence Capital will probably be working behind the scenes (and in front of them, too, considering the scolding it originally gave Men's Wearhouse for refusing to deal), if Jos. A. Bank does seek out other strategic alternatives, those places could hardly offer the same synergies the union with its rival would.

Everyone agrees the two would be better together than apart, but each side wants to do it its own way and be the one on top. That could spell trouble for both if the deal doesn't happen -- or even if it does.

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