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

Monied interests played the rivals off each other into multimillion-dollar payouts for both sides.

Mar 12, 2014 at 4:45PM

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.

Images

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.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers