Jos. A. Bank Clothiers moved a big step closer toward merging with rival Men's Wearhouse, with an announcement Monday that the two men's apparel chains agreed over the weekend to exchange confidential information and evaluate a potential business marriage.
Houston-based Men's Wearhouse said the retailers reached an agreement Saturday night, when Hampstead-based Bank gave it a draft merger plan.
Men's Wearhouse raised its hostile offer for Bank to $63.50 per share last week, which Bank rejected while agreeing to meet to discuss a higher price. The weekend's negotiations were the first in a bitter months-long takeover battle.
Men's Wearhouse repeated in Monday's announcement that it is ready to raise its bid to $65 per share if "Jos. A. Bank can demonstrate or Men's Wearhouse can discover additional value through discussions or limited due diligence."
The Houston chain's current offer of $63.50 per share will expire March 12 and hinges on Bank dropping plans to acquire outdoor apparel retailer Eddie Bauer in an $825 million cash-and-stock deal. The agreement allows Bank to walk away from the deal after paying a nearly $50 million breakup fee if it gets an unsolicited offer that's better for shareholders.
Some analysts see the Bauer deal, which means taking on debt, as a plan by Bank to make itself a less attractive target.
Bank's shares moved higher Monday, rising 23 cents to $62.31 each.
Though Bank's board is legally required to consider any reasonable offer and to act in shareholders' best interests, the negotiations are still no guarantee a deal will happen, said Anthony Michael Sabino, a partner in Sabino and Sabino, a New York law firm that handles mergers and acquisitions.
Several other scenarios could play out, he said.
Bank could try to negotiate a higher price than the $65 per share Men's Wearhouse has said it might be willing to offer.
"I would not be a bit surprised for the Bank board to say … it will take at least $65," Sabino said. "You never leave money on the table."
Or Bank could turn the tables and renew its bid for Men's Wearhouse, he said.
Bank started the struggle last year when it offered to buy Men's Wearhouse with the help of a $250 million investment from Golden Gate Capital, the owner of Eddie Bauer. Men's Wearhouse rejected the offer and made a counterproposal to acquire Bank. In January, the offer turned hostile when Men's Wearhouse went directly to Bank's shareholders in a $1.6 billion acquisition bid.
Another outcome at this point could involve a third party "white knight" offering to scoop up Bank, Men's Wearhouse or both.
"We don't know if there is a third party waiting in the wings to swoop in at the last minute," Sabino said "My overall thought is I think the courtship dance is coming to a close, but it's not over yet. Someone could come in and horn in on the dance."
He said that may be the unlikeliest turn of events because of an apparent lack of retail players likely to see benefits in such a combination.
Eminence Capital LLC, a shareholder that is suing Bank for rejecting the Men's Wearhouse bid, had no comment Monday, a spokeswoman said.
Eminence, a New York hedge fund that owns a 10 percent stake in Men's Wearhouse and about 5 percent of Bank' stock, has accused Bank of "desperate" tactics to protect management jobs by planning to buy Bauer. Eminence filed a lawsuit in Delaware in January to force Bank to consider the Wearhouse bid and stop it from acquiring another retailer.
Experts expect a fairly quick resolution because Bank and Men's Wearhouse may be close to agreement on an acquisition price. That's based on Bank's previously announced stock buyback of 4.6 million shares for $65 each, an offer that would only be consummated if Bank goes through with its planned Bauer acquisition.
Karyl Leggio, dean of Loyola University Maryland's Sellinger School of Business and Management, predicted the chains would settle on a price in the $65 per share to $70 per share range.
Should Men's Wearhouse and Bank reach an agreement, it would then go to a shareholder vote within 30 to 60 days.