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Men's Wearhouse may now review potential merger with Jos. A. Bank

Jos. A Bank Clothier's bid for Men's Wearhouse gained new life Tuesday.

Under pressure from its largest shareholder, Men's Wearhouse may reconsider a bid to merge with Jos. A. Bank Clothiers Inc.

Houston-based Men's Wearhouse is asking its financial advisers to review Jos. Bank's $2.3 billion offer, according to a letter from Eminence Capital, which owns 9.8 percent of the chain's common stock. Last week, the New York hedge fund demanded the company consider Bank's acquisition proposal, which Men's Wearhouse previously rejected as too low.

The advisers will present the proposal and other potential options to the Men's Wearhouse board, according to the letter from Eminence CEO Ricky C. Sandler to Men's Wearhouse CEO Doug Ewert, which was released Tuesday.

A spokesman for Men's Wearhouse did not respond to a request for comment Tuesday. A spokesman for Jos. Bank also said the company had no comment.

Hampstead-based Jos. Bank has said it would consider raising its $48 per share offer if allowed to review Men's Wearhouse nonpublic company information. Bank, seeking to create a $3.5 billion men's tailored-apparel giant, has given Men's Wearhouse until Thursday to enter talks before it will walk away.

In the letter, Eminence encouraged the Men's Wearhouse board to quickly complete the review and start discussions with Jos. Bank by the deadline.

"We were encouraged by your comments, specifically your assurances that the board of directors of the Men's Wearhouse Inc. takes its fiduciary duties seriously and that you instructed your financial advisers to review for the board all strategic options available to the company, including a significant return of capital to shareholders and a merger with Jos. A. Bank Clothiers Inc.," Sandler wrote in the letter.

Men's Wearhouse has said it would prefer to stay independent. In an investor update, the chain said Bank's proposal failed to compensate it for its market position as the largest men's specialty chain in North American with $2.5 billion in sales, two times the sales of Bank, its next largest competitor. The company last month sought to protect itself from hostile takeovers by adopting a poison pill strategy

The back and forth is typical for a takeover bid in which the target company is fighting off the acquisition, said Karyl Leggio, dean of the Joseph A. Sellinger School of Business and Management at Loyola University in Baltimore.

"Jos. A. Bank is putting the pressure on Men's Wearhouse to get acquired, and Men's Wearhouse is having trouble fighting it off," Leggio said. "Jos. Bank is doing quite a nice job, [releasing] an earnings announcement saying earnings are better than expected, and now having one of Men's Wearhouse big investors saying, 'You know what? You better take a serious look at the offer.' "

The shareholder pressure has taken the process to the next level, she said.

"It's more likely that the process will continue, and if it continues there's a likelihood that it ends in an acquisition," she said.

Men's Wearhouse stock shot up $1.12 a share to $47.08.

Shares of Jos. Bank climbed $1.70 to $50.26 after Bank said Tuesday that its profit in the third quarter, which ended Nov. 2, will be better than expected thanks to a mid-single-digit increase in total sales. Earnings are expected to rise between 4 percent and 9 percent, to about 49 cents per share to 51 cents per share, excluding the cost of legal and professional services related to the acquisition bid.

Sales at stores open at least a year are expected to be the same as the third quarter of 2012 thanks in part to new marketing strategies and from increases in nonpromotional sales.

"Our projected performance in the third quarter, which was somewhat affected by the government shutdown, marks a continuation of the positive trends we had seen at the end of the second quarter," Bank CEO and President R. Neal Black said in a statement.

lorraine.mirabella@baltsun.com

An earlier version of this story misspelled Karyl Leggio's name. The Sun regrets the error.

Copyright © 2014, The Baltimore Sun
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