Men's Wearhouse Starts Tailoring Its Merger for Savings

Now that the drama of its $1.8 billion acquisition of Jos. A. Bank (NASDAQ: JOSB  )  is largely behind it, Men's Wearhouse (NYSE: MW  ) is turning to the task of figuring out just how it's going to make good on its promise to eliminate $100 million to $150 million in costs over three years. Although it still has to gain regulatory and shareholder approval before an expected fourth-quarter closing date, effecting the synergies it sold investors on as the plausible reason for paying a high price for its rival remains the largest hurdle ahead.

To help realize those financial goals, Men's Wearhouse announced the other day that it hired the advisory firm AlixPartners to support the integration process. Although this merger is seemingly one of those brain-dead simple combinations, teasing out savings really isn't going to be as clear-cut as it seems.

The combination of the two retailers will create the fourth largest retailer of menswear, behind department-store chains Macy's (NYSE: M  ) , Kohl's (NYSE: KSS  ) , and J.C. Penney (NYSE: JCP  ) with 1,700 stores, 23,000 employees, and pro forma sales of $3.5 billion. Yet Men's Wearhouse has rightly said it's not going to rebrand Bank's stores in recognition of the two companies' separate customer bases and different corporate cultures.

Where Jos. A. Bank retains the more classic lines, Men's Wearhouse revels in its trendier image. Because of that, the ability to cut costs by closing stores won't be readily available to management. While there will be supply-chain efficiencies realized, along with advertising costs and duplicative corporate functions eliminated, because there are different cultures to mesh together, expect there to be friction.

Recently Men's Wearhouse founder and ex-CEO George Zimmer commented that while he's generally supportive of the merger, he also cautioned he's seen too many of them fall apart because of tenacious cost-cutting, giving voice to concerns I've also expressed that this deal may yet come undone.

There are positive outcomes possible and perhaps even probable from this merger. An extension of Men's Wearhouse's profitable tuxedo rental business, for example, could open up for Jos. A. Bank a whole new revenue base. And by not rebranding the stores it won't have to remodel them, either, which should be a cost savings.

There's still a lengthy road ahead, but I'm certain there will be more than a few bumps along the way, which is why I'm not ready to say this matchup will be seamless.

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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.


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