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Men's Wearhouse (NYSE: TLRD ) got a boost this week after an extremely short-lived buyout offer from Jos. A. Bank (UNKNOWN: JOSB.DL ) for $2.3 billion -- a sharp premium to the company's then-market cap. The interesting part of the story is that the stock held its value after gaining more than 20%, implying that the buyout proposal was convincing enough to investors that the company should trade near the $48-per-share offer. Moreover, Men's Wearhouse's management found that figure to "undervalue" the company. The event sent the stock well into its fresh highs and has since given up little to none of the gains. If management believes the stock is worth upward of $50 per share, should you take a closer look at Men's Wearhouse?
One night stand
For 364 days out of the year, Men's Wearhouse and Jos. A. Bank are strict competitors in a low-margin business. But on Tuesday night, Jos. A. Bank wanted to become one with its peer. The company offered a buyout at a near 40% premium to Men's Wearhouse market value. Negotiations couldn't have gone too far, though, as by the the next morning it was clear Men's Wearhouse management had no intention of selling at that price.
This doesn't appear to be the end of the fallout, though, as the company has since adopted a shareholder-rights plan to prevent any open-market takeover efforts.
Men's Wearhouse has swallowed a poison pill -- allowing investors to buy discounted shares in the case that a single investor acquired more than 10% of the outstanding shares -- an effort to ensure that it is prohibitively expensive for anyone to amass a giant stake in the company and potentially execute a hostile takeover.
Jos. A. Bank's unsolicited offer was certainly a bold move. In the last fiscal year, Men's Wearhouse had top-line sales that were more than twice those of Jos. A. Bank's. Interestingly, the company's chairman made it clear that it did not have to be the acquirer. In a statement, Robert Wildrick said Jos. A. Bank would be open to Men's Wearhouse approaching it with a similar premium buyout offer.
The former's efforts appear to be firmly routed in the idea that the combined forces of the two biggest suit-sellers would create synergies and boost cash flows, enhancing the returns of all parties involved. It seems clear that this is not an attempt to take the company at a discount, all while it is still recovering from a major executive shake-up (Chairman George Zimmer was ousted last Spring).
Investors in either company (perhaps more so for Men's Wearhouse) should be intrigued as to what the companies would look like as one. If consolidated, the suit giant could focus on unit profitability, without the pressing need to gain/retain market share. Perhaps shares have remained high because the market is pushing for a merger.