On Dec. 23, Jos. A. Bank Clothiers (NASDAQ: JOSB ) stole back the lead from The Men's Wearhouse (NYSE: MW ) by rejecting their all-cash offer of $1.54 billion. This follows a great deal of drama between the two companies over the last few months that featured multiple buyout attempts by both sides. Not only did Jos. A. Bank reassert its independence with this move, but it used similar sounding language to what Men's Wearhouse stated publicly when its board rejected Jos. A. Bank's buyout offer. Given the incentives for combining these two companies, this can only be taken as a surprise that will leave investors guessing what will happen next.
Standing its ground
Shockingly, the offer by Men's Wearhouse to purchase Jos. A Bank was rejected as inadequate for shareholders. Despite the cost-saving benefits of a merger and the fact that Jos. A. Bank shareholders can purchase shares in the new company with the proceeds of a buyout, Jos. A. Bank decided that it wanted to remain independent. This decision came after much discussion and review of the company's current and future standing in the men's apparel industry.
Addressing the latest offer, JoS. A. Bank's chairman Robert N. Wildrick stated, "The proposal made to us by Men's Wearhouse was simply not in the best interest of our shareholders." Ultimately, the board of directors feels that the company still has huge growth potential ahead of it and is worth more than the buyout amount. According to Wildrick, Jos. A. Bank's board of directors will continue to review other possible mergers with other retailers in the meantime.
The dance continues
Despite the rejection, the share prices of both companies (which have both gone up a great deal since discussions started in early October) have barely budged. Clearly, investors still believe these two companies can merge for the benefit of everyone.
Almost immediately following the rejection, Men's Wearhouse went public with a statement. Not only does Men's Wearhouse still want to cooperate with Jos. A. Bank regarding a potential merger, but should that fail, it is prepared to take its case directly to Jos. A. Bank shareholders and nominate directors at the company's next annual meeting.
Feeling very confident about striking a deal and the benefits that it will yield, Men's Wearhouse went on to state "The transaction represents a 9.1 times enterprise value to last twelve months (LTM) adjusted EBITDA multiple (assuming $133 million of LTM Adjusted EBITDA as of Aug. 3, 2013), a significant premium to Jos. A. Bank's proposal to acquire Men's Wearhouse." Clearly, Men's Wearhouse felt the offer was adequate at over 9 times Jos. A. Bank's EBITDA and is willing to take the case to the company's shareholders themselves.
Shares of both companies have hardly moved since this latest buyout offer fell through, which tells us that investors believe the dance is far from over. It has been a roller-coaster ride since the first of several offers was made on Oct. 8, 2013. There is no telling what the conclusion of this story will be, but the benefits of the proposed merger are apparent to all, regardless of who does the acquiring.
Things are likely to get heated if this potential merger takes a hostile turn as hinted by Men's Wearhouse in their press release following Jos. A. Bank's rejection of the $55 a share offer. Both share prices have increased by approximately 40% since the two began discussion of a potential deal, so it is probably best that Foolish investors making any new investments in either company wait until a clear winner emerges.
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