The tug of war between men's specialty retailer, The Men’s Wearhouse Inc. (MW), and rival men’s clothier, Jos. A. Bank Clothiers Inc. (JOSB), has started again, but with a twist. This time, Jos. A. Bank is at the receiving end, as Men’s Wearhouse has initiated a takeover bid to acquire all shares of the former.
Men’s Wearhouse has communicated an all cash transaction, wherein it will acquire the shares of Jos. A. Bank for $55 per share or a total of $1.2 billion. The company decided to buy its suitor after meticulous evaluation by its board on various options that would offer value to its shareholders.
Men’s Wearhouse believes that the bid offers ample premium as well as instant liquidity to Jos. A. Bank shareholders. The bid represents a 32% premium over Jos. A. Bank’s closing price on the day prior to the announcement of Jos. A. Bank’s proposal to buy Men’s Wearhouse (Oct 8, 2013). Moreover, it implies a 45% premium to the target’s enterprise value and a 9.1x enterprise value to the trailing 12-month adjusted EBITDA multiple.
In all, Men’s Wearhouse’s acquisition bid reveals a significant premium to Jos. A. Bank’s proposal to purchase the former.
Jos. A. Bank had proposed to buy Men’s Wearhouse in an all-cash transaction, valued at $48 per share or a total of $2.3 billion. The bid offered a 42% premium to the latter’s closing share price at the time of the proposal as well as a premium to the highest traded price of Men’s Wearhouse in the last five years.
Men’s Wearhouse expects the merger to be largely accretive to its earnings within a year of closing the transaction, while the combined company will gain from having a sturdy balance sheet and operational flexibility to achieve its strategic goals. The combination is expected to create a behemoth in men’s wear retailing, providing a superior scale of operation and enhanced product offerings along with improved shareholder value.
Confirming Men’s Wearhouse’s proposal, Jos. A. Bank stated that its board is reviewing the bid and will respond in due course.
Jos. A. Bank is a much smaller company, while Men’s Wearhouse is a market leader in the men’s clothing business. Men’s Wearhouse reported annual sales of about $2.48 billion in the recently concluded fiscal year, more than double of Jos. A. Bank’s annual sales of $1.05 billion.
Men’s Wearhouse believes it is in the best position to acquire Jos. A. Bank, given its larger scale, long history of efficient capital management and a track record of successful acquisition and integration. It has successfully integrated 600 stores and over 7,000 employees from its earlier acquisitions of Joseph Abboud, After Hours and Moores.
Men's Wearhouse expects effortless integration as Jos. A. Bank stores will operate under its name, absent any major rebranding or remodeling. Management of the new company will consist of the most competent members from both companies, while adopting the best practices of both the groups to attain operational and financial synergies.
Both Men’s Wearhouse and Jos. A. Bank currently carry a Zacks Rank #3 (Hold). Better-ranked stocks among the retailers include Hanesbrands Inc. (HBI) and DSW Inc. (DSW). Hanesbrands has a Zacks Rank #1 (Strong Buy), while DSW carries a Zacks Rank #2 (Buy).