Eminence Capital LLC, a shareholder that's suing Jos. A. Bank Clothiers Inc. for rejecting a $1.6 billion takeover bid from rival Men's Wearhouse, accused the Hampstead-based men's retailer Tuesday of resorting to "desperate tactics" to protect management jobs by planning to buy outdoor clothing retailer Eddie Bauer.
In a letter to Bank's board, Eminence, a New York hedge fund that owns a 10 percent stake in Men's Wearhouse and about 5 percent of Bank's stock, called the $825 million cash-and-stock Bauer deal "a poor strategic decision for Jos. A. Bank at a price that is in our view excessive and almost surely destroys shareholder value."
Bank had no response to the letter, a spokesman said Tuesday. Shares of Bank fell 92 cents to $54.20 each in trading Tuesday.
The men's suit chain, which announced the Bauer deal Friday, said its board of directors had looked at strategic alternatives other than Eddie Bauer. The board considered selling to Men's Wearhouse before determining that Eddie Bauer would be the best fit for shareholders and for long-term growth.
Combined, Bank predicted, the two retailers would have more than $2.1 billion in sales.
The Eddie Bauer chain, started by Eddie Bauer in 1920 as a Seattle sporting goods store, has been through a series of owners and two bankruptcies as it struggled with its evolution into a lifestyle apparel retailer. Bauer runs about 370 mall-based stores and outlets as well as its online catalog.
Taking on Eddie Bauer is risky because that chain, which sells more fashion-oriented apparel including about 40 percent to women, has little product and customer overlap with Jos. Bank's core men's tailored-clothing category, the letter said.
Eminence said the deal to acquire Bauer, including issuing 4.7 millions share of stock to Bauer owner Golden Gate Capital at $56 per share, then buying back shares on the open market at $65 per share, would destroy more than $40 million in shareholder value.
"You plan to deploy significant and valuable company resources into a troubling and risky sector of the retail and apparel industry in which you have absolutely no experience," the letter said.
Eminence also objected to a provision in the Eddie Bauer agreement that allows Bank to end the deal, for a $50 million break-up fee.
"Quite a good deal for Golden Gate's investors, and an exceptionally poor outcome for Jos. A. Bank shareholders," the letter said.
In January, Eminence filed a suit in Delaware to force Bank to consider the Men's Wearhouse bid and block it from acquiring another retailer to stop the takeover.
The tug of war between the nation's two largest men's tailored-clothing sellers started last fall when Bank bid for the larger Houston-based chain. Bauer owner Golden Gate had planned to invest $250 million to help finance the deal.
But Men's Wearhouse turned the bid down and made its own proposal to buy Bank. The takeover turned hostile last month when Men's Wearhouse offered to buy the retailer's shares directly from Bank stockholders.
On Tuesday, Stifel Nicolaus analyst Richard E. Jaffe said in a report that Men's Wearhouse needs to raise its offer for Bank from the current $57.50 per share "if it wishes to stay in the game and pursue the acquisition" of Bank.
An larger offer would give Bank shareholders a choice, Jaffe said, between Men's Wearhouse, "a highly synergistic buyer with a likely all cash offer," or the acquisition of an unrelated business in turnaround mode.
In the report, Jaffe said Eddie Bauer's performance has been improving, and the price offered by Bank is at the high end of acquisition in the retail sector over the last five years.