The first crack in Jos. A. Bank Clothier's resolve to remain independent emerged Thursday as the menswear retailer rejected Men's Wearhouse's increased hostile takeover offer but said it would meet with its rival to discuss a merger.
Men's Wearhouse raised its offer for Hampstead-based Bank to $63.50 per share from $57.50 per share on Monday and said it would consider an increase to $65 per share if Bank provides access to its financial information.
That offer depends upon Bank ending an agreement reached two weeks ago to buy outdoor apparel retailer Eddie Bauer for $825 million in cash and stock.
Bank Chairman Robert N. Wildrick responded to the latest offer in a letter to Men's Wearhouse CEO Douglas S. Ewert, saying Bank's board would meet to hear out "the highest price you are prepared to pay in an acquisition of Jos. A. Bank."
Wildrick said the offer to meet does not mean the board has decided to sell the company or determined that the offer is superior to plans to acquire Bauer.
But the willingness to talk marks a shift in the strained relationship between the two suit sellers.
"What they're saying is, 'Now you're talking a price level here that is negotiable,'" said Steven Isberg, a finance professor at the University of Baltimore's Merrick School of Business. "It seems like they've really opened negotiations now. The higher the price goes, the more likely that the transaction will take place."
Along with its sweetened bid on Monday, Houston-based Men's Wearhouse took its fight to court, filing a lawsuit in Delaware Chancery Court. The complaint asks the court to stop Bank from acquiring Eddie Bauer and force it revoke a so-called poison pill that would make a hostile takeover more difficult.
Bank's agreement to purchase Bauer from Golden Gate Capital lets it walk away from the deal if it gets an unsolicited offer seen as better for shareholders by paying a nearly $50 million breakup fee.
Wildrick said Bank is prepared to let Men's Wearhouse conduct limited due diligence and asked it to sign a confidentiality agreement.
Once the review is completed, "we would expect you to advise our board as to your best and final offer as to purchase price and other terms," Wildrick said. "Given the compelling nature of the Eddie Bauer transaction from a shareholder value creation standpoint ... we are only prepared to give you a limited amount of time to come forward with your best offer."
The board is recommending that Bank shareholders reject Men's Wearhouse's pending $63.50 offer by not tendering their shares.
It is in Bank's interest to move quickly, Isberg said.
"If the stock market starts to slip at all, that will tend to discourage the deal at a higher price," he said. "If [Bank] can get the offer up to where it's acceptable, they'll want to strike while the iron's hot."
Bank's shares closed Thursday at $60.30, up 35 cents, before the news. They rose about 3 percent in after-hours trading.
A merger of the nation's two biggest men's apparel chains would face scrutiny by the Federal Trade Commission. Bank had raised antitrust concerns in a previous letter to Ewert after the FTC questioned the merger.
Given department stores' larger share of the men's suit and apparel market, "I don't see this transaction as being prohibitive in the sense it would limit market competition," Isberg said. "It would almost serve to put Bank and Men's Wearhouse on more of a level playing field with competitors like Nordstrom and Macy's."
Bank started what escalated into a struggle for its future when it offered to buy the larger Men's Wearhouse last year with the help of a $250 million investment from Golden Gate. Men's Wearhouse rejected the bid and made a counterproposal to buy Bank. That offer turned hostile in January when Men's Wearhouse offered to buy shares directly from Bank's stockholders in a $1.6 billion acquisition.