Jos. A. Bank proposed to acquire its bigger rival Men's Wearhouse in a $2.3 billion deal that could create a men's wear juggernaut with close to 2,000 stores.
But the leaders at Men's Wearhouse - which sent the company's founder packing last summer - rejected the offer about two hours after the proposal was publicly disclosed, calling it opportunistic and inadequate.
Jos. A. Bank Clothiers disclosed Wednesday that it had made the unsolicited proposal in September to buy Men's Wearhouse for $48 per share in cash, a 42 percent premium at the time.
Men's Wearhouse said in rejecting the deal Wednesday that it wasn't in the best interest of its shareholders or the company.
The proposal "significantly undervalues Men's Wearhouse and fails to reflect the company's growth strategy and upside potential," Bill Sechrest, Men's Wearhouse's lead director of the board, said in a news release.
"We believe Jos. A. Bank's unsolicited proposal is opportunist, subject to unacceptable risks and contingencies and would deprive our shareholders of the value inherent in Men's Wearhouse for inadequate consideration," Sechrest added.
Sechrest also noted that a challenging second quarter led to a 12 percent decline in Men's Wearhouse's stock price, which the company believes doesn't fairly reflect the "intrinsic" value of the shares.
Shares of The Men's Wearhouse Inc. climbed $10.25, or 29 percent, to $45.49 in midday trading Wednesday after trading as high as $45.56 earlier in the day, their highest level since February 2007. They had been up 13 percent since the beginning of the year.
Jos. A. Bank's shares rose $3.13, or 7.5 percent, to $44.78. The stock had been down 2.1 percent since the beginning of the year.
The overture comes as both companies have seen their male shoppers pull back in recent months, mirroring the overall cautiousness of consumers amid growing economic uncertainty. Men's Wearhouse, which generated total revenue of $2.48 billion in the latest fiscal year, had a market value of $1.68 billion as of Tuesday's close, according to FactSet. Jos. A. Bank, which generated revenue of $1.05 billion in the latest year, had a market value of $1.17 billion.
Jos. A. Bank, based in Hampstead, Md., sells men's tailored and casual clothing, sportswear and footwear and operates 623 stores in 44 states and the District of Columbia. While it gears to a more established male professional, the company is known for generous promotions like buying one suit or sport coat and getting three for free.
Men's Wearhouse sells men's sportswear and suits through its namesake chain of stores, as well as the Moores and K&G retail chains. It runs more than 1,200 stores and is also in the tuxedo-rental business. In recent years, it's been trying to appeal to a younger shopper with suits with slimmer silhouettes. It's also trying to raise the average ticket price and announced in July that it's buying upscale Joseph Abboud brand for about $97.5 million in cash in a deal that will broaden the company's roster of exclusive brands.
"Men's Wearhouse is the first place you go right out of college to get a suit, " said Brian Sozzi, CEO and Chief Equities Strategies at Belus Capital Advisors. "But Jos. A. Bank's is where you trade up." He noted that even with the heavy promotions, Jos. A. Bank's customers have to shell out $700 upfront before they're able to take advantage of the deals.
In June, Men's Wearhouse ousted its chairman George Zimmer - who had also served as the company's pitchman - following a dispute over the direction for the company. Zimmer, who founded the company in 1973, had appeared in many of its TV commercials with the slogan, "You're going to like the way you look. I guarantee it."
Jos. A. Bank made its offer Sept. 17, and privately pitched the deal to Men's Wearhouse executives in a phone call and follow-up letter.
During a media call on Wednesday before Men's Wearhouse issued the statement rejecting the bid, Robert N. Wildrick, chairman of the board of Jos. A. Bank, described the proposal as a "win-win situation" for shareholders and consumers.
He told reporters that if the deal was completed, it would create a company that is large enough to compete with the giants nationally and internationally.
Wildrick noted that he didn't see this deal as an opportunity to cut costs but rather to improve profits margins and boost sales. He added that each company would benefit from its own expertise. Jos. A. Bank is strong in manufacturing and sourcing, he said, and he said the company could help Men's Wearhouse in that area. The deal would help Jos. A. Bank eventually expand into other areas like women's clothing and home furnishings. The plan would be for Jos. A. Bank to use fewer sales promotions.
On the call, Wildrick said that Jos. A. Bank originally gave Men's Wearhouse a deadline of Oct. 4 to respond but then extended the deadline.
Jos. A. Bank had said in June that it was considering acquisitions and it was storing up capital for a possible deal. The company then said last month its fiscal second-quarter net income fell 39 percent as shoppers didn't respond as well to some of the retailer's marketing campaigns as they did a year ago.
Men's Wearhouse reported last month that its fiscal second-quarter earnings fell 28 percent, hurt by one-time charges and an early Easter that pushed prom tuxedo rentals earlier than usual. The men's clothing retailer also cut its full-year guidance.
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