A New York hedge fund's push to force Hampstead-based Jos. A. Bank Clothiers Inc. to negotiate with suitor Men's Wearhouse could make it more difficult for Bank to fight off the rival chain's $1.61 billion hostile takeover attempt.
Eminence Capital LLC, a major shareholder in both companies, asked a Delaware court Monday to force the men's retailer to consider the offer from the Houston chain and to stop Bank from acquiring another retailer to thwart the bid. Eminence, which owns 4.9 percent of Bank's common stock and is Men's Wearhouse's largest shareholder, also sent a letter Monday to Bank's board urging it to pursue the Houston chain's proposed merger.
"We demand that you refrain from entering into or announcing any other acquisition or business combination that could in any way affect a transaction with" Men's Wearhouse, wrote Eminence CEO Ricky C. Sandler in the letter.
Eminence supports a Men's Wearhouse acquisition of Hampstead-based Bank because "it provides the best path for shareholders to realize the significant value inherent in the combination of both companies," Sandler wrote.
Bank officials had no comment, a spokesman said. Bank, which turned down a previous bid as too low, said that it would review the Men's Wearhouse offer and make a recommendation to shareholders on the hostile offer by Friday.
Eminence is "heavily invested in this deal, and they want to see it get done, and it looks like they're getting impatient," said Steve Isberg, an associate professor of finance at the University of Baltimore's Merrick School of Business. "A 5 percent shareholder can make a lot of noise. They can reach out to other shareholders and start a proxy fight. They can make it more difficult for Jos. A. Bank to ignore" the takeover bid.
Eminence is seeking an injunction in Delaware's Court of Chancery that would stop Bank and its directors from refusing to negotiate or blocking a Men's Wearhouse acquisition by striking an alternative deal.
Directors are "poised to launch an imminent scorched-earth defensive tactic designed to entrench themselves and fend off an attractive acquisition proposal and tender offer by the company's larger Rival," said the complaint. If the court fails to act, "the members of the Jos. A. Bank board will succeed in killing a highly attractive business combination, destroying the value of Jos. A. Bank's shares through an ill-advised acquisition."
Bank sparked the tug of war last fall, making a surprise $2.3 billion offer to buy Men's Wearhouse and create a men's retailer with more than 1,700 stores. The combined company would be more competitive with department stores, said analysts, many of whom now see a merger as inevitable.
Men's Wearhouse turned down the proposal in October, then came back with a $1.54 billion bid for Bank in late November. Bank rebuffed that deal before finding itself a hostile takeover target last week, with Men's Wearhouse offering $57.50 per share.
Sandler's letter accused Bank's board members of choosing to protect their seats over delivering shareholder value and called it "troubling" that the company has talked about pursuing other acquisitions.
"Most alarming, the Jos. A Bank board is now poised to sabotage any potential acquisition by Men's Wearhouse by engaging in a separate transaction with another retailer," the complaint said. "Any such proposed acquisition target, particularly if it is outside the core business of Jos. A. Bank, would devastate the value of Jos. A. Bank's shares."
Bank shares rose 40 cents to $56.41 in trading on Monday.