In a dramatic turn of events, Men's Wearhouse (MW) received and promptly rejected a takeover bid from rival Jos. A. Bank (JOSB). All cash at $48 per share, a more than 36% premium to where shares closed on Tuesday afternoon and Men's Wearhouse turned it down flat. Either the team at Men's has a wildly inflated sense of self-worth or something is happening here.
Men's Wearhouse's stated explanation was that Jos. A. Bank's "inadequate" offer was an opportunistic attempt to take advantage of a drop in Men's Wearhouse shares after the company lowered its earnings forecast last month. The explanation rather willfully ignores the fact that Men's Wearhouse has been looking frayed around the edges for a while. Sales growth and earnings are forecast to be negative for both this quarter and the critical Christmas selling season.
The Return of George Zimmer?
Jos A Bank offered a struggling company an all cash deal worth 4x where MW shares were trading in 2009. There has to a better reason the board rejected the offer. The best guess is the board is holding out for a hero, a white knight to come in and raise the stakes. Enter for CEO George Zimmer.
Recall that last summer Men's Wearhouse unceremoniously dumped Zimmer with almost no explanation. Twisting the knife further, the company edited Zimmer's voice and trademark "You're gonna like the way look" tagline out of commercials that were already on the air. As if that wasn't bad enough the commercials in question were tied into a donation program for the recently unemployed!
Judging by sales results for the last quarter the company's efforts at capturing a younger demographic failed to catch on with consumers.
A week later Zimmer fired back, claiming he wasn't fired but rather quit when the Men's Wearhouse board rejected Zimmer's proposal that the company consider going private. In an open letter Zimmer claimed the board of directors was trying trying to portray Zimmers as an "obstinate former CEO, determined to regain absolute control by pushing a private transaction for my own personal benefit and ego. Nothing could be further from the truth" [emphasis his].
At the time he was fired Zimmer reportedly owned 1.8 million MW shares, an amount equal to roughly 3.7% of the company's float. Had Men's Wearhouse accepted Jos. A. Bank's offer, Zimmer's position would have gone up by almost $20 million overnight. If Zimmer wasn't angry before he probably is now.
In the last 6 months the company has booted it's founder, launched a questionable strategic shift and rejected a monster cash bid. As it stands the board of Men's Wearhouse needs George Zimmer much more than he needs them.
Unlesss Jos. A. Bank is willing to up its bid or another offer emerges, Men's Wearhouse executives are going to be staring down the barrel of a collapsing stock and likely shareholder lawsuits. The company needs a hero. The question is whether or not the old sheriff prefers saving the day to watching his tormentors twist in the wind.
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