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.


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.


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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information