Men's Wearhouse Turns the Tables on Jos. A. Bank

Right when we thought the drama between the two men's apparel rivals had ceased for the time being, Jos. A. Bank Clothiers  (NASDAQ: JOSB  ) and Men's Wearhouse (NYSE: MW  ) are in the spotlight again over the same issue. This time, the tables have been turned with the spotlight pointed directly at Jos. A. Bank. On Tuesday, Nov. 26, Men's Wearhouse offered to buy Jos. A. Bank for $1.54 billion.

Men's Wearhouse believes that Jos. A. Bank's shareholders, employees, and customers will greatly benefit from this strategic move. Time will soon tell if Jos. A. Bank reacts like Men's Wearhouse reacted over the previous buyout proposal, or whether Jos. A. Bank will accept the bid's terms, conditions, and benefits.

Making the first move
This most recent announcement was surely a surprising twist of events since Men's Wearhouse remained mute toward Jos. A. Bank for over a month. In September, Jos. A. Bank proposed a $2.3 billion offer, or $48 per share, to buy out Men's Warehouse. This happened even though Men's Wearhouse is much larger than Jos. A. Bank as far as store count goes and while each company traded at around 18 times earnings. Unfortunately for Jos. A. Bank, Men's Wearhouse rejected the $2.3 billion bid in October, claiming it was "inadequate." Men's Wearhouse also refused to release nonpublic financial information to Jos. A. Bank, which continued to consider other alternatives.

Throughout October, Jos. A. Bank waited to hear from Men's Wearhouse about any counter-offers or proposals, but no discussion occurred. Finally, Jos. A. Bank announced publicly that it would withdraw its bid on Nov. 14 if Men's Wearhouse still remained quiet, which is exactly what happened. Jos. A. Bank withdrew its offer to take over Men's Wearhouse, and added that it may raise its bid in the future after careful consideration.

Turning the tables on its all-time rival
In less than two weeks, Men's Wearhouse and Jos. A. Bank were back in the news with yet another showdown. On Nov. 26, Men's Wearhouse proved its dominance in the men's apparel business for tailored suits, sportswear, footwear, and accessories by offering an all-cash deal with some debt financing of $2.3 billion, or $55 a share, for Jos. A. Bank. Apparently, Men's Wearhouse had a trick up its sleeve, and it wanted to be the one in charge of the deal all along.

Jos. A. Bank acknowledged the offer, but has yet to comment. If the merger goes through, Men's Wearhouse will have a total of over 1,700 stores. Men's Wearhouse has also announced that it will not change the Jos. A. Bank brand, "look," or store appearance in any way to keep Jos. A. Bank investors and customers happy. Men's Wearhouse believes that it can help both companies far more than Jos. A. Bank could if it ran the show.

What Wall Street thinks
Not only did shares in Men's Wearhouse rise in response to the proposed sale of Men's Wearhouse to Jos. A Bank, but its shares actually rose in response to its proposed buyout of Jos. A Bank! Clearly investors are convinced the companies would do well to combine their operations. In fact, Stifel Nicholas, an investment firm, estimates that the combined entity would have cost-saving synergies of $100-150 million a year.

Both companies trade at 21 times this year's expected earnings. Given that they are trading at the same price in relation to their earnings, a strong argument could be made that Jos. A. Bank and Men's Wearhouse could combine and shareholders would benefit from the cost savings. 

Foolish thoughts for investors
Going forward, investors in both companies should anticipate these companies reaching a deal and get excited about a possible merger taking place. More of a benefit will come to investors if Jos. A. Bank accepts the bid from Men's Wearhouse. Although Jos. A. Bank has done quite well for itself despite its small size, Men's Wearhouse is much larger and more profitable.

Plus, with these companies combining operations on all fronts investors can expect greater savings on expenses and more money in their pockets. Jos. A. Bank will hopefully realize that the pros outweigh the cons and strike a deal with Men's Wearhouse.

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