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Shareholders Skeptical on Jos. A Bank's Buy

Zacks Equity Research

The speculation surrounding Jos. A Bank Clothiers Inc.’s (JOSB) intention to acquire Eddie Bauer brand has come true as Jos. A Bank recently declared that it penned an agreement to acquire Everest Holdings LLC, the parent company of Eddie Bauer.

In the agreement with Everest Topco LLC, a portfolio company of Golden Gate Capital, Jos. A. Bank will initiate an issuer tender offer to acquire up to 16.4% (4.6 million shares) of its common stock for about $300 million. Additionally, the company will pay about $564 million in cash to buy the lifestyle brand.

In response to this announcement, The Men's Wearhouse, Inc. (MW), which has been trying to acquire Jos. A Bank since Oct 2013, commented that its board along with its legal and financial personnel will continue to review available options to engage with Jos. A Bank.

Moreover, Jos. A Bank’s action has caused an investor to sue the company, claiming that its board has not fulfilled its fiduciary duties as it turned down Men’s Wearhouse’s offer. The investor believes that the Men’s Wearhouse proposal was in the best interests of Jos. A Bank’s shareholders.

Additionally, other shareholders like Eminence Capital are not happy with the company’s defense mechanism of acquiring Eddie Bauer because they expect the move to bring fewer synergies and heighten the company’s risk as it will now cater to more fashion-oriented segments.

The ‘tug of war’ between Jos. A. Bank and Men’s Wearhouse began in Oct 2013, when Jos. A. Bank had proposed to buy Men’s Wearhouse for $48 per share or a total of $2.3 billion cash. 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.

After rejecting Jos. A. Bank’s proposal, Men’s Wearhouse turned tables by initiating a takeover bid of $55 per share or a total of $1.2 billion to acquire all shares of the former on Nov 26, 2013. Following a rejection, on Jan 6, 2014, Men’s Wearhouse, holding a Zacks Rank #3 (Hold), raised its acquisition bid to $57.50 per share or $1.6 billion in order to woo Jos. A. Bank and its shareholders.

Men’s Wearhouse left no stone unturned to facilitate a merger with Jos. A. Bank. However, on Jan 20, Jos. A. Bank rejected Men’s Wearhouse’s $1.6 billion offer stating that the bid is inadequate and significantly undervalues the company on grounds of its near- and long-term prospects.

Some stocks that warrant a look in the apparel-shoe space include Christopher & Banks Corp. (CBK), with a Zacks Rank #1 (Strong Buy) and Finish Line Inc. (FINL) with a Zacks Rank #2 (Buy).

Read the Full Research Report on JOSB
Read the Full Research Report on CBK
Read the Full Research Report on MW
Read the Full Research Report on FINL

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