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After rejecting the initial $2.3 billion bid outright for being too low, the clothier's board refused to engage its rival's board in any meaningful dialogue, would not allow them access to its books to conduct limited due diligence despite Jos. A. Bank's willingness to raise its offer if it could peek inside, and ignored its largest investor's entreaties to move off the dime.
Eminence Capital, which owns just under 10% of Men's Wearhouse's stock, urged the board in the strongest language possible to pick up the phone and start talking, or else face the consequences of a shareholder revolt. It agreed the initial offer was too low, but the board had a fiduciary responsibility to its shareholders to at least see what else they might offer.
While the board appeared to indicate it would do so, in a letter to Men's Wearhouse announcing it was spiking its offer, Jos. A. Bank CEO Robert Wildrick suggested they had done anything but that. Although he still thinks a tie-up is good for both companies, and should Men's Wearhouse change its mind he'd be willing to talk, since the board refused to call they were withdrawing the bid.
Needless to say, that isn't setting well with Eminence, whose CEO, Ricky Sandler, says he is launching a preliminary solicitation for a special meeting of Men's Wearhouse shareholders solely for the purpose of ousting board members. He basically says management has gone off the rails, as evidenced by its refusal to engage Jos. A. Bank in a dialogue, imposing a super-majority vote for shareholder amendments to the bylaws, and implementing a poison pill with a 10% threshold (which explains why Sandler's holdings are just under that level).
Eminence says that under Texas law shareholders can call a special meeting if at least 10% of them do so, a threshold that shouldn't be too hard to meet considering all of its shares will be voted in favor of it.
Whatever management thought of the bid, its actions in the aftermath exhibit a level of arrogance that ought to be addressed by Men's Wearhouse shareholders. Although I never really thought the board would change its mind about negotiating with Jos. A. Bank, as it has some set plans it wants to pursue -- such as targeting an upscale clientele through its Joseph Abboud acquisition and appealing to younger men with different tailored cuts -- you don't expect management to outright deceive its shareholders as it apparently did with Eminence Capital.
Such displays of board hubris need to be dealt with swiftly. Investors of Home Depot were subjected to disdain and dismissal back when Bob Nardelli ran the show about a decade ago, and saw the value of their shares plummet 20% over a five-year time period during his reign. The constant harsh criticism he endured afterward helped in part to drive him from the company, and it would seem Men's Wearhouse's board of directors needs its investors to have an equally pointed discussion regarding their behavior during this episode.
Scary boards, scary markets
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