On Nov. 15, it was announced that Jos. A. Bank Clothiers (UNKNOWN:JOSB.DL) has withdrawn its offer of $2.3 billion for The Men's Wearhouse (NYSE:TLRD) after its frustration with the retailer's board of directors' inability to communicate effectively. For two months now, Jos. A. Bank has waited anxiously to hear if The Men's Wearhouse has chosen to go through with the merger or not. Frustrated and fed-up, Jos. A. Bank has called it off, at least for the time being, and has stated that it may consider its bid for Men's Wearhouse again in the future if The Men's Wearhouse is willing to cooperate on their terms. This merger would have considerably benefited investors of the two retailers, which both specialize in men's tailored suit collections and casual clothing from dress to casual attire, sportswear, footwear, and accessories. For now, Jos. A. Bank investors should be content with the company's organic growth, while shareholders in Men's Wearhouse should be satisfied with the company's growth strategy, which was its reason for rejecting the buyout.
Original announcement from earlier this fall
Earlier this fall, Jos. A. Bank proposed purchasing its larger competitor Men's Wearhouse for $48 per share. This offer was quickly rejected by Men's Wearhouse who viewed it as insufficient given the company's great potential going forward. Jos. A. Bank continued to strategize other alternatives for possible acquisitions in order to further the company's growth and increase its shareholders' assets. After numerous unanswered emails and calls to Men's Wearhouse during the month of October, Jos. A. Bank publicly announced that if no action had been taken by part of Men's Wearhouse's board of directors, it would withdraw its bid of $2.3 billion by Nov. 14, which is exactly what ended up happening. Jos. A Bank has since withdrawn its offer, and the two companies are likely to remain separate entities for the foreseeable future.
A potential buyout isn't the only reason Men's Wearhouse has been in the news
George Zimmer, founder and former CEO of Men's Wearhouse, was actually fired from the company this past summer. Zimmer founded the company in 1973 and managed its operations for the last 40 years. He stepped down as CEO in 2011 to become the Executive Chairman. Zimmer had difficulty giving up control over Men's Wearhouse to the company's independent board of directors, who constantly clashed with Zimmer over the company's future. Zimmer approached the board earlier this year insisting that they either support the CEO and management team's decisions, or restore his authority as sole decision-maker. The board decided that they were done with Zimmer's unreasonableness and silenced him once and for all.
Recent financials for the two companions
Both Jos. A. Bank and Men's Wearhouse are about neck and neck in terms of earnings per share despite Men's Wearhouse being 2.5 times larger than Jos. A. Bank. Currently, Men's Wearhouse is trading at around $46.50 per share – less than $2 below the proposed buyout price by Jos. A. Bank! On the other hand, shares of Jos. A. Bank are trading at $50.72, despite its much smaller size when compared to Men's Wearhouse. As far as expected earnings goes, Men's Wearhouse expects to earn $2.46 a share this year on revenues of $2.52 billion, and next year, the company expects to earn $2.76 a share on revenues of $2.6 billion. Meanwhile, Jos. A. Bank is expected to earn $2.73 a share on revenues of $1.04 billion this year, and expects to earn $2.87 a share on revenues of $1.11 billion for FY 2015.
Foolish for either company
Wall Street is currently valuing both companies about the same. Men's Warehouse is trading at over 18 times this year's earnings, whereas Jos. A. Bank is trading at just over 18 times its earnings for this year. Based on this information, it may have been wise for Men's Wearhouse to merge with Jos. A. Bank since it appears Jos. A. Bank's growth strategy is clearly working in its favor. However, Men's Wearhouse may turn itself around with its new proposed growth strategy. If Men's Wearhouse can generate continuous growth and increase its earnings, its decision to reject Jos. A. Bank's offer may have been worth it for both companies' shareholders. Time will tell, and Foolish investors should decide if they believe the turnaround plan is fairly valued.
Fool contributor Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.