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After rejecting Jos. A. Bank's (UNKNOWN: JOSB.DL ) unsolicited $2.3 billion takeover offer and digging in its heels by refusing to share nonpublic information to allow Bank to determine whether it should raise the buyout offer, Men's Wearhouse (NYSE: TLRD ) got a dressing-down from its largest shareholder for being so petulant.
Eminence Capital CEO Ricky Sandler, who says the hedge fund is the clothier's largest shareholder with 9.8% of the company's outstanding stock, castigated Men's Wearhouse's board of directors in a letter he sent to them and filed with the SEC declaring its company holdings.
While Sandler agrees Jos. A. Bank's offer undervalues the retailer, he goes on to say the board is not fulfilling its fiduciary obligations to shareholders and has used excuses for rejecting the bid that are "disingenuous at best and reckless and misinformed at worst."
Namely, despite assertions to the contrary, Sandler says Jos. A. Bank has put forth a credible financing scheme that's well within the bounds of an initial offer. Moreover, Men's Wearhouse needn't give up competitively sensitive information while still complying with the request from its rival to perform due diligence. And last, there's little chance there would be any antitrust concerns from a tie-up. The two might be the only pure plays in men's dress clothing, but Macy's (NYSE: M ) , Nordstrom (NYSE: JWN ) , and Saks (UNKNOWN: SKS.DL2 ) are all significant players.
Jos. A. Bank's CEO Wildrick points out Macy's alone sells $5 billion worth of suits annually while Nordstrom sold $1.87 billion worth of men's apparel last year. Saks sold half a billion dollars worth. Whatever it is, it's not an underserved market.
NPD Group has said tailored clothes for men jumped 6% higher over the first six months of the year this year, outpacing the 2.1% gain in women's fashion, with suit separates driving 55% higher and sports coats rising 14% during the period.
With all the holes just punched in Men's Wearhouse's arguments, Eminence Capital demands the board fulfill its duties in the interests of shareholders.
"We believe there are significant synergies available to a MW-JOSB combination giving the buyer substantial room to pay above a fair stand-alone price and still earn a healthy return. Therefore, we believe there is a price materially above $48 that JOSB should be willing to pay and that appropriately compensates MW shareholders."
While Jos. A. Bank has given Men's Wearhouse until November 14 to begin engaging in a good-faith dialogue or it will withdraw its offer, Eminence Capital expects the clothier to move before then and says if it hasn't at least begun the process of starting a conversation about a possible combination by November 11, it will exercise its rights as shareholders to hold the board accountable.
Other than a bit of hubris, there really doesn't seem to be a reason to not meet on the field of battle and discuss terms. While investors bid Men's Wearhouse's stock 7% higher yesterday, believing the board now has a fire lit under its feet, thus far the directors haven't shown signs of wanting to wave the white flag. But if Jos. A. Bank withdraws its offer and Eminence Capital carries through on its threat, we may yet see that this emperor has no clothes.
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