Private Equity Is the Real Winner in Men's Wearhouse Merger Deal

While the ink's barely dry on the agreement signed by Men's Wearhouse (NYSE: MW  ) to take over Jos. A. Bank (NASDAQ: JOSB  ) , the real winners seem to be the private equity firms that were the actual puppeteers manipulating the merger of the two retailers.

A preeminent player
On one hand is Eminence Capital, which first backed Bank's bid to take over Men's Wearhouse, but then switched allegiances when hunted became hunter and Men's Wearhouse went on the attack. Jos. A. Bank all along said the only reason the hedge fund was trying to force the issue, such as suing the men's retailer in court earlier this month, was because of the large bet it had placed on getting the deal done.

With a 4.9% stake in Jos. A. Bank, Eminence sees the value of its position growing to around $89 million, not to mention the value of the near-10% position it still has in Men's Wearhouse.

Not burning any bridges
On the other hand is Golden Gate Capital, the PE firm that owns outdoors gear retailer Eddie Bauer, which Jos. A. Bank had agreed to buy for $825 million in a bid to thwart its rival's advances. It was spelled out in that merger agreement that if someone (e.g., Men's Wearhouse) came along with a higher takeout offer, Bank would pay Golden Gate $48 million as a breakup fee, certainly nothing to sneeze at for something that was probably not going to happen anyway.

Although there was some sense in Bank bidding for Bauer in that it could offer diversification away from just men's suits into outdoor apparel, as well as women's and children's clothes, it was speculated that, right from the beginning, the whole purpose of the proposal was to wrangle a higher offer out of Men's Wearhouse.

After all, it was Golden Gate that had been in on Bank's original buyout offer, agreeing to underwrite that deal. So when Men's Wearhouse turned the tables with its Pac-Man defense, and first offered $55 a share and then $57.50, having a side deal on hand that would be troublesome for Men's Wearhouse if it didn't fork over even more money seemed like a pretty shrewd negotiating tactic. In the end, Men's Wearhouse bumped up its offer first to $63 a stub, and finally to the $65 per share that both sides settled on.

In the end, Golden Gate Capital's assist gave Jos. A. Bank shareholders an additional $210 million to pocket from the increased offers that Men's Wearhouse made -- not a bad return for their $48 million "investment." Had the deal gone through, the PE firm would've ended up owning nearly 17% of the retailer's share, and could have earned an additional $50 million in cash based on Eddie Bauer's adjusted earnings for fiscal 2014.

A private affair
Or so it said on paper. Now it has a pocketful of change, a still valuable retail asset, and all the time in the world to sell the company to a new bidder if it so chooses. Both private equity companies come out winners, as do Jos. A. Bank's common investors, who gain extra value because of the hard stance management took.

The longer-term question is, will it pay off for Men's Wearhouse's shareholders, who now have to watch the company digest the acquisition through a transition phase? At best, the men's retailer is fairly valued, and I'd be loathe to hold the stock as it enters a period of uncertainty.

Try these on for size
They said it couldn't be done. But David Gardner has proved them wrong, time, and time, and time again, with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently, one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (0) | 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.

Be the first one to comment on this article.

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: 2873588, ~/Articles/ArticleHandler.aspx, 9/3/2015 12:42:40 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...

Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


Today's Market

updated 3 hours ago Sponsored by:
DOW 16,351.38 293.03 1.82%
S&P 500 1,948.86 35.01 1.83%
NASD 4,749.98 113.87 2.46%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
JOSB $0.00 Down +0.00 +0.00%
Jos. A. Bank Cloth… CAPS Rating: ***
MW $55.12 Down -0.15 -0.27%
The Men's Wearhous… CAPS Rating: **