When certain investors say "jump," some boards of directors ask "How high?" Men's Wearhouse (NYSE:TLRD) is apparently breaking out the yardstick to see how far it needs to leap after getting dressed down by its largest shareholder, Eminence Capital, for refusing to even consider as viable the buyout offer made by rival Jos. A. Bank (UNKNOWN:JOSB.DL).
In a letter released publicly yesterday by the hedge fund operator, Eminence CEO Ricky Sandler praised the clothier's board for finally acting on its fiduciary responsibilities to shareholders, and taking the offer under consideration. Sandler had previously threatened to take action against the board if they didn't move off the dime.
Jos. A. Bank has offered $2.3 billion to take over Men's Wearhouse, a bid even Eminence agrees undervalues the retailer by a significant amount. But what got under the financier's collar was Men's Wearhouse's dismissing out of hand that the offer was even made, and going on about its business as though it never happened. Even when Bank said it would raise the offer if it could take a peek at its rival's books -- a move Sandler says could be achieved without disclosing sensitive competitive information -- the board refused.
With the industry seeing something of a renaissance despite an economy that's lost its moorings, there could be some sense to a union of the two leading men's clothing shops. While both focus on tailored men's suits, Men's Wearhouse has a younger target demographic than Jos. A. Bank's clientele, and covering such a broad spectrum of the market would enable them to better challenge department stores such as Macy's, Nordstrom, and Saks, which each account for a large swath of suits sold each year.
Macy's is estimated to sell more than $5 billion worth of suits, Bank's CEO says, while Nordstrom sells another $1.9 billion worth. Although typically not seen as a men's clothier, Saks still racks up a half-billion dollars' worth of suits. Even troubled retailer J.C. Penney, which hasn't broken out numbers yet, says men's apparel saw "significantly improved" sales in October.
In his letter yesterday, Sandler commended Men's Wearhouse's board for finally acting. He then reminded them that time is of the essence, so they should quickly conclude their review of Jos. A. Bank's offer, and promptly inform shareholders of their findings. So it sounds as though he's giving them the benefit of the doubt; but, as a near-10% shareholder in the company paying the piper, he still expects to be able to call the tune.
I don't think the board will really come to a different conclusion than what it's already publicly declared, which is, basically, that it thinks it can do better alone than it can as part of a bigger company. But at least it indicates that the board does listen to shareholders -- at least those who threaten to rattle the cage, and have the wherewithal to do so.
We'll just need to wait and see if Men's Wearhouse is planning to really try the high jump, or if it's just playing hopscotch to placate a few malcontents.