Men's Wearhouse sweetened its hostile bid for Hampstead-based Jos. A. Bank Clothiers Inc. on Monday, raising its price more than 10 percent in a deal that hinges on Bank dropping its plans to buy Eddie Bauer.
Houston-based Men's Wearhouse boosted its cash offer to shareholders to $63.50 per share from $57.50 per share and moved up the expiration date to March 12. The chain said it would be willing to bid even more — to $65 per share — if Bank allows it to examine the company's financial information.
The offer depends upon Bank ending an agreement reached less than two weeks ago to buy outdoor apparel retailer Eddie Bauer for $825 million in cash and stock, a move some view as an attempt to derail the Men's Wearhouse bid or force a higher price.
"Every time [Bank] does something that increases their costs, they make it less and less attractive for Men's Wearhouse to take them over, and yet Men's Wearhouse still ups the bid," said Karyl Leggio, dean of Loyola University's Sellinger School of Business and Management. "They clearly want them, and they don't want Eddie Bauer."
Promising a possibly higher purchase price in exchange for examining Bank's books is "a good move on the part of Men's Wearhouse to get the shareholders motivated," Leggio said.
Bank said in a statement that its board will review the revised offer and make a recommendation to stockholders "in due course."
Bank shares climbed more than 9 percent to close at $60.04 each on Monday, while Men's Wearhouse stock rose 7.5 percent to close at $48.51 per share.
Men's Wearhouse also took the takeover battle to court Monday, filing a lawsuit in Delaware Chancery Court. The lawsuit asks the court to stop Bank from acquiring Eddie Bauer and force it to revoke a so-called poison pill.
"There is no sign … that the [Bank] board will do anything different except continue to take affirmative action designed to harm [Men's Wearhouse], interfere with the voting rights of [Bank] stockholders, prevent a change of control and cram down — without a stockholder vote — the highly questionable purchase of Eddie Bauer," says the lawsuit, which also names as defendants Golden Gate Private Equity, Eddie Bauer parent Everest Holdings LLC and Everest Topco LLC, the parent company's owner.
Bank has said an Eddie Bauer acquisition would position it for long-term growth and is the best strategic alternative for shareholders, preferable to an acquisition by Men's Wearhouse. The agreement calls for Bank to buy Bauer from Golden Gate Capital for $564 million in cash and about 4.7 million shares of new Bank stock at $56 a share.
But under the agreement, Bank still can get out of the deal by paying a nearly $50 million breakup fee to Golden Gate, if Bank's board gets an unsolicited offer that's deemed a better deal for shareholders. The Bauer deal is expected to close during the current fiscal quarter, which ends in early May.
Stifel Nicolaus analyst Richard E. Jaffe, who follows Men's Wearhouse, called Monday's increased offer "persuasive," though he said a higher bid would put more pressure on a combined company to realize synergies and cost savings.
"It seems to me that Bank would view this as a very attractive offer, a reason to invite Men's Wearhouse in and open their books," Jaffe said.
He said Men's Wearhouse would not be able to complete the deal if Bank owned Eddie Bauer.
"Bank would be without cash and with a lot of debt and a lot of complexity," he said. "The ball is in Bank's court to respond to this."
The back and forth between Bank and Men's Wearhouse started last year, when Bank offered to buy the larger retailer with the help of a $250 million investment from Golden Gate. Men's Wearhouse rejected the offer and made a counterproposal, which turned hostile last month when it offered to buy shares directly from Bank's stockholders in a $1.6 billion bid.
One retail expert called a merger of the nation's two biggest men's apparel chains a bad idea from the beginning — regardless of which company is the buyer.
"Here are two companies that market to the middle class" at a time when stores that target that segment are struggling, said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based national retail consulting and investment banking firm. "From a retailer's point of view, I don't think this makes any sense. Buying a niche acquisition, [such as Bauer] would be much better."
Men's Wearhouse has made its latest offer conditional on Bank's board reversing a "poison pill" designed to prevent a hostile takeover and said at least 90 percent of Bank shareholders must tender their shares by March 12. That deadline is one week earlier than the one set by Bank for a stock buyback of 4.6 million of its shares for $65 each, which would only be consummated if Bank buys Bauer.
"We hope the Jos. A. Bank board of directors will take the responsible step for Jos. A. Bank shareholders and promptly terminate the Eddie Bauer agreement," said Doug Ewert, Men's Wearhouse president and CEO, in a statement. "We are confident that a transaction with Men's Wearhouse will create greater value for Jos. A. Bank shareholders than the Eddie Bauer transaction."
Bank has faced shareholder pressure to merge with Men's Wearhouse. Eminence Capital LLC, which owns nearly 5 percent of Bank's common stock and has a nearly 10 percent stake in Men's Wearhouse, said Monday it supports Men's Wearhouse's higher bid for Bank, which it called a "full and fair offer."
Men's Wearhouse, a 40-year-old retailer operating 1,133 stores, said it would be willing to consider allowing Bank shareholders to elect to receive Men's Wearhouse stock for a portion of the acquisition price, Ewert said in the statement Monday.