Jos. A. Bank offers to buy Men's Wearhouse, gets brush-off

Reuters

* Offer of $48/shr is 36 pct premium to Men's Wearhouseclose on Tuesday

* Men's Wearhouse says bid undervalues company, could raiseanti-trust issues

* Men's Wearhouse later adopts poison pill to preventhostile takeover

* Jos. A. Bank says stands by initial offer

By Siddharth Cavale

Oct 9 (Reuters) - Jos. A. Bank Clothiers Inc offered to buy Men's Wearhouse Inc on Wednesday for about$2.3 billion in cash but was swiftly rebuffed by its largerrival, which dismissed the offer as "inadequate" and said itcould do better on its own.

Later on Wednesday Men's Wearhouse adopted a poison pill, orshareholder rights plan, that would be triggered if an outsideinvestor acquires more than 10 percent or more of Men'sWearhouse common stock, or 15 percent if a passive institutionalinvestor were to take a stake. The poison pill, a device used bycompanies to prevent hostile takeovers, expires Sept. 30, 2014,unless Men's Wearhouse decides to end it earlier.

The $48 cash offer, which would create a men's wearheavyweight with more than 1,700 stores in North America, is a36 percent premium to the closing price of Men's Wearhouseshares on Tuesday.

But Men's Wearhouse shares closed the day up 27.8 percent at$45.03 on Wednesday, below the offer price. Jos. A. Bank'sclosed 6.4 percent at $44.33 on the Nasdaq. After Men'sWearhouse announced the poison pill, shares fell 0.5 percent inafter hours.

Men's Wearhouse said the non-binding offer undervalued thecompany and its growth prospects.

"We are confident that we can achieve total shareholderreturns well in excess of what can be derived from Jos. A Bank'sunsolicited and inadequate proposal," Men's Wearhouse CEO DougEwert said in a statement.

In a statement late on Wednesday, Jos. A. Bank said it wouldcontinue to pursue the deal at its initial $48 per share offer."The formulaic, knee-jerk rejection by Men's Wearhouse, andtheir refusal to even discuss our proposal, do not serve theinterests of their shareholders or their customers," the companysaid in a statement.

Men's Wearhouse last month bought designer brand JosephAbboud for about $97.5 million. The company said that deal,along with its expansion of full service stores, outlet storesand expanding its share of the formalwear market would lift itsshares more than being bought by Jos A. Bank would.

Jos. A. Bank said the offer would be funded with acombination of cash-on-hand, debt and new equity, including a$250 million investment by private equity firm Golden GateCapital.

Stifel Nicolaus analyst Richard Jaffe said in a note thatthe offer was probably too low in comparison with other recentspecialty apparel deals, where enterprise value was typicallynine times earnings before interest, taxes, depreciation andamortization.

By that measure, Jos A. Bank should be offering about $52per share, Jaffe wrote, saying he expects a higher offer fromJos. A Bank. But that would entail the smaller company taking onmore debt to do so or more equity from Golden Gate and wouldmake the deal harder to carry off.

Fremont, California-based Men's Wearhouse had a market valueof about $1.68 billion, compared with Jos. A. Bank's $1.17billion, as of Tuesday's close.

The company sells discount suits through 1,137 stores, itswebsite shows. ()

Jos. A. Bank, with more than 600 stores, is a century-oldseller of men's tailored and casual clothing, according to itswebsite. ()

"I GUARANTEE IT"

Men's Wearhouse was founded in 1973 by George Zimmer, knownto U.S. TV audiences for his advertising catchphrase: "you'regonna like the way you look - I guarantee it".

The company fired Zimmer in June, saying he had pushed totake the company private and effectively demanded to bereinstated as the company's sole decision-maker.

Zimmer denied he had pushed for a sale, insisting he onlypresented that suggestion to the board as anoption.

Zimmer owned about 3.7 percent of Men's Wearhouse as of July22, making him the eighth-biggest shareholder, according toThomson Reuters data.

Net income at Men's Wearhouse more than doubled to $130.4million over the four years to Feb. 2, while Jos. A. Bank'searnings seesawed over the period, but last year fell 18 percentto $79.7 million.

Men's Wearhouse cut its full-year earnings forecast lastmonth, saying weak economic conditions were hurting sales.

Jos. A. Bank, which makes heavy use of promotions, alsoreported a drop in quarterly sales, but said it expected resultsto improve.

Its shares have fallen about 2 percent so far this year,while those of Men's Wearhouse have risen about 13 percent.

Jos. A. Bank, based in Hampstead, Maryland, said in June itwas considering strategic opportunities to enhance shareholdervalue, including acquisitions.

The company said a deal with Men's Wearhouse would"immediately and significantly" add to earnings.

Jos. A. Bank is being advised by Goldman Sachs and Financo.Its legal advisers are Skadden, Arps, Slate, Meagher & Flom andGuilfoil Petzall & Shoemake.

Men's Wearhouse is being advised by Bank of America MerrillLynch, JPMorgan Chase and law firm Willkie Farr & Gallagher.

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