NEW YORK -- Never say never.
Just when it looked like a potential combination of Men's Wearhouse and Jos. A. Bank was dead in the water, the script has been flipped.
Now it's Men's Wearhouse that is offering approximately $1.54 billion for its rival. Less than two weeks ago, Jos. A. Bank dropped a $2.3 billion bid for its competitor. A combination could create a menswear powerhouse of more than 1,700 outlets.
The announcement that Men's Wearhouse was interested in a possible deal came as a bit of a surprise on Tuesday. The retailer had received an unsolicited offer of $48 per share from Jos. A. Bank Clothiers in September. But it rejected that bid in October, calling it "opportunistic" and inadequate."
Jos. A. Bank was still in the hunt back then though, saying it would be open to raising its offer if allowed to assess whether an increased bid was justified. But Men's Wearhouse wouldn't give the Hampstead, Md., company access to nonpublic information, and Jos. A. Bank dropped its bid on Nov. 15.
While Men's Wearhouse publicly scoffed at Jos. A. Bank's offer, the proposal clearly gave it some food for thought. Lead director Bill Sechrest said in a statement Tuesday that the Houston company's board decided to review its strategic options after Jos. A. Bank's buyout bid went public.
In addition, Men's Wearhouse faced pressure from its biggest shareholder, Eminence Capital. On Wednesday, Eminence urged Men's Wearhouse to talk with Jos. A. Bank. The hedge fund argued that a combination of the two businesses would create value and increase the growth potential of Men's Wearhouse. Eminence owns 9.8 percent of Men's Wearhouse's stock.
Men's Wearhouse appears to have now come around to Eminence's view, with Sechrest stating that the potential acquisition of Jos. A. Bank at $55 per share has "strategic logic" and could benefit its shareholders, workers and customers. The per share offer is a 9 percent premium to Jos. A. Bank's $50.32 Monday closing price.
Jos. A. Bank said Tuesday that its board will evaluate the offer and respond "in due course."
The decision by Men's Wearhouse to go from an acquisition target to the bidder is known in the investment world as the Pac-Man defense. The phrase comes from the famous video game, in which Pac-Man was able to go from being hunted by ghosts to turning around and gobbling them up once he swallowed a power pellet.
Men's Wearhouse said Tuesday that it is familiar with being the bidder, with prior acquisitions including Joseph Abboud, After Hours and Moores. The company said it wouldn't rebrand Jos. A. Bank or remodel any stores if a deal goes through.
Jos. A. Bank sells men's tailored and casual clothing, sportswear and footwear. While it targets a more established male professional, it's 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 Moores and the K&G retail chain. Recently, the company has been going after younger shoppers with suits featuring slimmer silhouettes.
The company anticipates the transaction for Jos. A. Bank, which it plans to finance with cash and debt financing, would substantially add to its earnings in the first year following the closing. It said the deal would still allow it to keep a quarterly dividend of 18 cents per share.
Shares of Men's Wearhouse rose $3.57, or 7.6 percent, to $50.64 in midday trading. Jos. A. Bank's stock jumped $4.90, or 9.7 percent, to $55.50.