Men's Wearhouse moved Monday to pin Jos. A. Bank Clothiers in a corner with a hostile $1.6 billion bid for its smaller rival.
With the offer of $57.50 cash for each of Hampstead-based Bank's outstanding shares, Men's Wearhouse is bypassing the retailer's management to appeal directly to shareholders.
The so-called hostile takeover bid is the latest volley in the war to control a merger that analysts now see as all but inevitable.
"There are investors that want to see this deal get done and will hold management to the fire one way or another; that's the bottom line," said Steven C. Isberg, associate professor of finance at the University of Baltimore's Merrick School of Business. "What this is going to come down to is which management team is going to be left standing at the end of the deal."
Analysts anticipate the nation's No. 1 and No. 2 men's apparel retailers eventually will merge because such a deal would create a stronger chain better able to compete with department stores.
Isberg and others said they wouldn't be surprised if Bank comes back with a hostile offer of its own.
"It would not be inconceivable for Jos. A. Bank to do the same thing and have dueling bids," he said.
The latest offer from Houston-based Men's Wearhouse tops its previous $55 per share offer by $60 million. Men's Wearhouse gave Bank's shareholders until March 28 to "tender" their shares for the cash offer.
Bank said its board will review Monday's bid and make a recommendation to shareholders by Jan. 17.
In the meantime, "the company's stockholders are advised to take no action on the tender offer," Bank said in a statement.
The company had no further comment.
Bank's board of directors voted to reject Men's Weahouse's previous offer in late December, saying it undervalued the company. Bank started all the merger action with an unsolicited $2.3 billion offer for its larger rival late this past summer. Men's Wearhouse spurned that offer for the same reason before turning the tables on Bank.
"We believe that our $57.50 per share proposal to acquire Jos. A. Bank is compelling and provides substantial value and immediate liquidity to Jos. A. Bank shareholders," Doug Ewert, president and CEO of Men's Wearhouse, said in a statement. "Although we have made clear our strong preference to work collaboratively with Jos. A. Bank to realize the benefits of this transaction, we are committed to this combination and, accordingly, we are taking our offer directly to shareholders."
Bank's stock surged $2.46 a share to close $56.87 each Monday.
Bank took steps Friday to protect itself from an anticipated hostile takeover, altering the "poison pill" provision in its shareholder rights plan to make it more expensive for Men's Wearhouse to buy the company. Once a shareholder acquires more than 10 percent of Bank shares — rather than the previous threshold of 20 percent — a significant number of shares would be issued, increasing the purchase price.
Men's Wearhouse "has chosen to appeal directly to shareholders with this improved offer, with the hope that they will pressure [Bank] to revoke the poison pill that was recently altered to trigger at 10 percent," Richard E. Jaffe, an analyst with Stifel Nicolaus & Co., said in a report issued Monday.
While analysts believe a merger between the two makes sense, a back-and-forth bidding war that drives up the price could lead to diminishing returns for the winner.
"The problem is, the more and more they pay, the more this competition ramps up the price, the more pressure they are under to generate a return once the deal is done," Isberg said. "If there's not a plan for revenue enhancement, it's a question of whether they will be able to justify a higher purchase price."
Anthony Michael Sabino, business law professor at St. John's University's Peter J. Tobin College of Business, said a competing hostile bid is one of a number of scenarios that could play out.
"Shareholders are all about the money," he said. "They will no doubt reject this first bid and demand more. And they will push until they get a price they want."
But a prolonged battle could make the retailers susceptible to takeover by third parties that could "come in and scoop both of them up, together or separately," Sabino said. "The problem with a protracted takeover fight is that it makes you easy prey for outsiders swooping in and taking you over."
A merged retail chain would benefit from about $100 million to $150 million in annual cost savings over three years thanks to more efficient buying, combined customer service and marketing functions, and streamlined corporate operations, while "greater benefits remain to be realized over time," Jaffe said in Monday's report.
Rolling out the Men's Wearhouse tuxedo rental business to a combined chain could boost Bank's sales by 10 percent to 15 percent, Jaffe said.
"The benefit of taking over your largest rival and becoming the largest specialty retail channel for men's clothing … is significant, albeit difficult to quantify," the analyst said. "We have seen the benefits accrue to TJX and Macy's over time as these retailers acquired their rivals and used their size and market strength to dramatically improve profitability."
Jos. A. Bank operates more than 600 stores in the United States, while Men's Wearhouse has more than 1,100 stores under the Men's Wearhouse, Moores and K&G banners.
Men's Wearhouse's largest shareholder, which had pushed the Houston chain to enter talks after Bank initiated a potential merger, said it was encouraged by the higher Men's Wearhouse bid.
"We continue to believe that a merger of these two companies is in the best interests of all shareholders," said Ricky C. Sandler, CEO of asset management firm Eminence Capital, in a statement.
As part of its bid, Men's Wearhouse said it plans to nominate two independent director candidates for election to Bank's board of directors at its annual meeting this year. The date for the meeting has not been announced.
Men's Wearhouse plans to nominate John D. Bowlin, a former CEO of Miller Brewing Co. and former executive at Kraft Foods North America, Oscar Mayer Food Corp. and General Foods USA, and Arthur E. Reiner, a former director of R.H. Macy & Co. Inc. and former CEO of Macy's East.
The two board seats up for election are held by Bank Chairman Robert N. Wildrick and Bank CEO R. Neal Black.
Men's Wearhouse offered Monday to buy Jos. A. Bank Clothiers' stock directly from shareholders for $57.50 a share, up from the $55-a-share offer the retailer's management rejected in December.
Bank's stock rose to $56.87 a share after the company said it would review the offer and make a recommendation to shareholders by Jan. 17.