Will Jos. A. Bank Merger Come Apart at Seams for Men's Wearhouse?

The deal's been zipped up, but there's plenty of time for the buttons to come undone.

Mar 12, 2014 at 1:19PM

Finally, after months of sniping and drama, Men's Wearhouse (NYSE:MW) has successfully won over competing clothier Jos. A. Bank (NASDAQ:JOSB), and will complete a $1.8 billion merger. Analysts generally love the deal, and the market responded by sending both stocks higher. However, there's cause for concern that giving in to its rival's demands for a higher price -- the $65 per share accepted bid values Jos. A. Bank's enterprise value at 10 times its EBITDA, and implies a multiple of 17 for its cash flow -- suggests that Men's Wearhouse has to work overtime now to ensure a smooth transition and integration, and there's no guarantee that will happen.

Images

Certainly there's some sense to the notion that a sluggish economy means at least one of the two retailers is superfluous in the marketplace. While menswear has been one of the few niches that has been a bright spot for retailers, with both J.C. Penney and Macy's recently counting on the segment to bolster otherwise lackluster Christmas-season sales, it's not so clear the vaunted savings of $100 million to $150 million through "synergies" over three years can be achieved. Sure, there will be improved purchasing power, lower overhead, and more efficient marketing and customer service, but the markets that the two companies address really isn't the same, despite both selling "men's suits."

The Men's Wearhouse customer is generally regarded as being younger and more fashion-conscious, while Jos. A. Bank's target demographic is seen as more traditional. While that could mean an expansion of opportunity for the new company, which would have an estimated $3 billion in combined annual sales, it could also be stitching together two different corporate cultures that might not be as seamless as believed.

Images

Source: Wikipedia.

Case in point: Just before the financial markets implosion, office supplies retailer Staples tried to swallow rival Corporate Express and ended up struggling for years to integrate it despite supposed synergies in melding the delivery giant into its operations. It's still stumbling even today, and will shutter as many as 10% of its stores to account for the new retail environment. A similar economic or financial collapse coming soon after Men's Wearhouse gobbles up its rival could spell trouble, even if the deal isn't so large (though it is much pricier).

The real seeds of change in the men's suits war began when Men's Wearhouse founder and then board chairman George Zimmer sought to take the suits seller private after losing confidence in his hand-picked successor as CEO, which ultimately led to Zimmer's ouster. It wasn't long after then that Jos. A. Bank thought it saw an opening to take over a rival it perceived as weakened.

That, of course, led to the tables being turned, and to today's situation, where predator has fallen prey, and will now be subsumed by its one-time foe. With Men's Wearhouse's shares having doubled during the past year, it's agreeing to pay a hefty premium to acquire its rival. With the economic landscape still volatile and unhealthy, investors might use this opportunity to cash out whatever profits they've made, and wait to see whether a case of indigestion sets in, as I believe will happen, or if it can zip this deal up without a hitch.

A buttoned-up opportunity
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of Staples. 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