Jos. A. Bank Banks on Eddie Bauer to Thwart Takeover

Although some analysts initially thought the company's expressed interest was just a negotiating ploy to keep Men's Wearhouse (NYSE: MW  ) at bay, men's clothing retailer Jos. A. Bank (NASDAQ: JOSB  ) announced this morning it would buy outdoor apparel maker Eddie Bauer for $825 million.

Source: Wikipedia.com.

Through a combination of $564 million in cash and some 5 million new shares of Jos. A. Bank stock, the clothier said it expects the combined company will generate more than $2.1 billion in revenue this year, effectively doubling the $1.05 billion in sales Bank recorded in the fiscal year that ended on Feb. 2, 2013. At the same time, Bank will buy back 4.6 million shares of its own stock at $65 a share, an 18% premium to its closing price yesterday.

Ever since Jos. A. Bank made an unsolicited $2.3 billion bid for Men's Wearhouse last year, the two have danced a minuet, with each attempting to gain better footing over the other. Bank's rival dismissed the offer out of hand and refused to negotiate with its smaller competitor, even after being urged on and threatened with lawsuits to do so by one of its largest shareholders, hedge fund Eminence Capital.

After making no headway, Bank withdrew its offer and said it would look elsewhere for acquisitions, only to find itself on the receiving end of an unwanted advance when Men's Wearhouse turned the tables and offered $1.5 billion, or $55 a share, for the men's suits company. It was then Bank's turn to act affronted, summarily rejecting the takeover bid and refusing to enter into talks with its new mortal enemy. Eminence Capital, which also holds nearly 5% of Jos. A. Bank's outstanding shares, began pressuring Men's Wearhouse to make the deal happen.

Bank says the only reason the hedge fund supports Men's Wearhouse's offer is to protect the arbitrage play it made that would result in substantial losses if the deal didn't go through. However, a number of other large shareholders, who own about 17% of Bank's stock, also urged the retailer to engage in negotiations, The play for Eddie Bauer is an outright attempt to make sure that doesn't happen, a move that would thwart its rival's advance and cause financial pain for the shareholding agitators.

Making out on the deal will be a separate hedge fund, Golden Gate Capital, which owns Eddie Bauer and will now hold nearly 17% of Jos. A. Bank stock. The hedge fund could earn up to $50 million more in cash based on Eddie Bauer's adjusted earnings for fiscal 2014.

While analysts felt the tie-up with Men's Wearhouse made the most sense, Jos. A. Bank still left the door open to be acquired by someone who would make an offer with terms superior to those outlined in the purchase agreement. Men's Wearhouse has said it was willing to offer a higher bid, and though Bank would have to pay a termination fee if it accepted such an offer, there's no assurance its rival will be willing to go so high.

Jos. A. Bank sees the Eddie Bauer bet as immediately accretive to earnings, with further substantial gains anticipated in 2015 and beyond. And where it values the retailer with a multiple of 9.5 times 2013 estimated adjusted EBITDA, analysts doubt it will generate the synergies that being acquired by Men's Wearhouse would have offered.

In short, Jos. A. Bank is telling Men's Wearhouse to pay up -- way up -- or shut up. At the same time it's proven a willingness to play a game of hardball with elbows every bit as sharp as those its rival has exhibited.

A good deal for you
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 12, 2014, at 3:14 AM, comfy2trav wrote:

    Did this deal go through? Does this mean Men's Warehouse is the offical owner of Eddie Bauer as well?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2840632, ~/Articles/ArticleHandler.aspx, 9/18/2014 6:10:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement