Just as its offer to buy its rival was rejected, Jos A. Bank Clothiers Inc. spurned a $1.2 billion turn-table acquisition bid by Men's Wearhouse Inc. on Monday, but most observers still believe a merger is inevitable.
Responding to Men's Wearhouse's Nov. 26 bid, Bank, which is headquartered in Hampstead, announced that its board determined the proposed $55 per share price "significantly" undervalued the chain and was not in the best interest of shareholders.
The retailer, which runs 629 stores in 44 states, also repeated earlier statements that it continues to eye potential acquisitions of its own.
"Our board undertook a thorough review and determined that the per share consideration in the proposal made to us by Men's Wearhouse was simply not in the best interest of our shareholders," Robert N. Wildrick, Bank's chairman, said in a statement. "We continue to review acquisition opportunities that would represent a strong strategic fit with our company and provide an opportunity to leverage our core competencies to drive meaningful growth, synergies and substantial value creation over the long term."
The Men's Wearhouse offer came nearly two weeks after Bank withdrew its earlier $2.3 billion bid for its Houston-based rival. Men's Wearhouse rejected the offer as inadequate, even after Bank offered to possibly sweeten its $48 per share bid if it were granted access to Men's Wearhouse's books.
A merger of the nation's two biggest men's specialty apparel chains would create a $3.5 billion retailer with more than 1,700 stores that some experts said would better compete with department stores.
Men's Wearhouse, which has 1,137 stores in North America, said Monday it would continue to look at ways to combine the two businesses and hinted at the possibility of a hostile takeover, in which it would take its offer directly to Bank shareholders.
"While it is our strong preference to work collaboratively with Jos. A. Bank to realize the benefits of this transaction, we are continuing to carefully consider all of our options to make this combination a reality, including nominating director candidates at Jos. A. Bank's next annual meeting of shareholders," Men's Wearhouse said in a statement.
Analysts said Bank's rejection of its bigger rival's offer was expected, but traders could become impatient if the gamesmanship drags on too long, or Bank instead moves to acquire other, less obvious targets.
"We believe the initial rejection by [Bank] was the appropriate decision, and perhaps a negotiating tactic. However, if a deal is not completed, we believe both [Bank[ and [Men's Wearhouse] shares would come under pressure," wrote Richard Jaffe, an analyst with Stifel Nicolaus & Co., in a research report.
Anthony Sabino, an attorney specializing in corporate mergers and a professor at St. John's University's Peter J. Tobin College of Business, expects the tug of war to persist for some time.
"Each company is stubbornly holding on to its independence, and neither has made an offer that overwhelms its target's shareholders," Sabino said. "The game changer will be in the New Year, when we see their respective results for the holiday season. Expect the clothier with the weaker 2013 to fall prey to the other's takeover bid."
By continuing to compete, rather than combining forces, the companies also risk a takeover by a third party, he said.
"Both these companies have to realize that in staunchly defending their independence and trying to take over their archrival, they run the risk of weakening themselves," he added.
In Monday trading, Bank shares fell 74 cents to $56.29 each, while Men's Wearhouse stock slipped 38 cents to $51.63 a share.
New York-based Eminence Capital LLC, which owns 9.8 percent of Men's Wearhouse stock and has a less than 5 percent stake in Bank, had pushed Men's Wearhouse to consider a merger. The investment firm declined to comment Monday.
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A November presentation by Men's Wearhouse pointed to a possible $150 million in savings achieved by streamlining the two companies' operations and combined marketing budgets, among other strategies.
The outcome of the tussle has real implications for Maryland, which could lose jobs and a corporate headquarters if Men's Wearhouse ultimately buys Bank, said Steven Isberg, an associate professor of finance at University of Baltimore's Merrick School of Business. Bank has about 700 employees in Carroll County, according to the state's Department of Business and Economic Development.
"If Jos. A., Bank succeeds in becoming the parent company, then it's probably less likely that Maryland would be affected," he said. "If Men's Wearhouse wins the battle, it's more likely the Maryland economy could be affected."