Momentum Shifts Once More in Jos. A. Bank Takeover

And so comes another strange twist in the Jos. A. Bank (NASDAQ: JOSB  ) and Men's Wearhouse (NYSE: MW  ) takeover saga, one that could be seen not only as the former thumbing its nose at its rival but also tweaking the nose of the hedge fund operator trying to make it happen.

In a letter yesterday to the board of directors of Men's Wearhouse, the men's clothing retailer utterly rejected the latest pitch its rival made while turning on them all the arguments they used when rejecting Bank's original bid.

Jos. A. Bank points out that Men's Wearhouse opposed its takeover offer because they had antitrust concerns, but apparently don't have them with their own bid. Why? Furthermore, the FTC has sent a "second request" for documents about the offer, a relatively rare occurrence, but Men's Wearhouse says it anticipated the request all along. Bank wants to know why they didn't let shareholders know they expected it from the get-go. And while Men's Wearhouse wants Jos. A. Bank to form a special committee to review the offer, it neglects to inform shareholders that it refused to form a similar special committee to review its own merger bid. Why?

Bank also seemingly holds special contempt for hedge fund operator Eminence Capital for trying to play both sides against each other. It says the only reason the hedge fund is supporting the Men's Wearhouse deal is to protect its arbitrage play that would sustain substantial losses if no deal happens. While a number of hedge funds and institutions have taken an interest in the two men's clothiers, Eminence Capital is betting big on Men's Wearhouse, having acquired a near-10% position in the company while holding less than 5% in Jos. A. Bank, but is considering nominating its own candidates for the retailer's board of directors.

Basically, Jos. A. Bank is telling all the players they can go pound salt, but it may be making a move that would target the hedge fund specifically. In addition to standing firm in opposition to Men's Wearhouse, the men's clothier is also rumored to be negotiating a side deal to acquire Eddie Bauer.

Although it wasn't mentioned in yesterday's letter, reports are surfacing it's in negotiations with the outdoor clothing retailer, which is in line with Jos. A. Bank's position all along that it would consider other targets if the Men's Wearhouse deal fell through. With Eddie Bauer owned by Golden Gate Capital, the hedge fund that had committed $2.3 billion to help Bank finance its takeover offer, it's a deal that has the potential to be fulfilled.

Eddie Bauer has grown to about $1 billion in annual sales through approximately 370 stores and would seemingly not trigger any antitrust worries. Although men's retail is highly fragmented, with department store chains like Dillard's, Macy's, Nordstrom, and Saks selling billions of dollars' worth of men's suits annually, if it could seal the acquisition, it would thwart not only the Men's Wearhouse bid, but would deliver a comeuppance to the hedge fund that went from friend to foe while also sidestepping the thorny trade issue altogether.

Of course, Men's Wearhouse pulled a similar stunt after Bank's original bid, saying it was interested in acquiring shoemaker Allen Edmonds to stop the takeover attempt, but that came to naught and it was sold to someone else.

Still, in this game of tit for tat between the two clothiers, the tables are turning so often one could get dizzy from all the spinning. But where it seemed Men's Wearhouse had gained the upper hand just days ago by appealing to large shareholders, momentum may have swung back again to Jos. A. Bank, with its own double reverse maneuver that could leave its two foes trailing well behind.

A retail dressing-down
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