Men's Wearhouse to Come Up Short in Merger Savings

Men's Wearhouse (NYSE: MW  ) ought to save $30 million right off the bat from its acquisition of Jos. A. Bank (NASDAQ: JOSB  ) by cutting the time and frequency of the ads it runs, but the rest of the savings the clothiers promised in selling the deal to investors might not be so easy to come by. 

According to the Houston Business Journal, a research note published by Stifel Nicolaus says a "high degree of uncertainty" exists over whether Men's Wearhouse can achieve the $150 million worth of savings that it touted. The most its analysts can come up with is $100 million, which is at the low end of what Men's Wearhouse suggested was doable.

Last month, the two men's clothing leaders finally agreed to a deal valued at $1.8 billion in which Men's Wearhouse would acquire Jos. A. Bank, ending a months-long drama with several twists and turns and increasingly vituperative remarks cast on both sides. Although it creates the fourth-largest retailer of menswear, which will have $3.5 billion in pro forma sales, the premium Men's Wearhouse finally agreed to pay means it becomes essential that it wring out all the savings it can.

Stifel Nicolaus says in addition to advertising budget savings, another $10 million can be realized from streamlining the two accounting departments and initiating a round of job cuts for a total of $40 million in the first year. After meeting with the management teams last week, the best it can come up with for second- and third-year savings are some $60 million that would be achieved in part from unified sourcing and IT consolidation. Those, however, are the easy coins found in the sofa cushion. It's going to be much harder coming up with the additional $50 million management says could be possible.

Men's Wearhouse founder and former CEO George Zimmer recently expressed concern that the companies would become too aggressive in making cuts that it ultimately impedes the progress of their integration, and I've noted a concern about getting the two corporate cultures to meld smoothly, particularly after the nasty battles engaged in leading up to the merger agreement. While there doesn't appear to be any serious shareholder opposition to the deal going through -- and because the industry is so fragmented, there shouldn't be any antitrust concerns regarding it -- it doesn't mean the transitions will be smooth.

Having hit almost $59 a share in the aftermath of winning the game, Men's Wearhouse's stock has peeled back nearly 20% from those highs and I see nothing on the horizon indicating there will be a surge in sales coming that would justify a higher valuation at the moment.

The joining of Men's Wearhouse and Jos. A. Bank may be tailored for long-term growth when the economy once again shakes off its lethargy, but that time isn't now and investors would be wise to put the stock on layaway.

Tailor these winning stocks to your portfolio
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal "The Motley Fool's 3 Stocks to Own Forever." These picks are free today! Just click here now to uncover the three companies we love. 

Read/Post Comments (0) | Recommend This Article (3)

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: 2926293, ~/Articles/ArticleHandler.aspx, 8/29/2015 3:24:06 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 6 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

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

8/28/2015 4:01 PM
MW $56.60 Down -0.30 -0.53%
The Men's Wearhous… CAPS Rating: **
JOSB $0.00 Down +0.00 +0.00%
Jos. A. Bank Cloth… CAPS Rating: ***