There's a reason the warning to "let sleeping dogs lie" has been passed down through the ages. Once they're roused, you might not like how they turn on you, and that's what Jos. A. Bank (UNKNOWN:JOSB.DL) is discovering now as its onetime prey turns predator.
Men's Wearhouse (NYSE:TLRD) announced this morning it was pushing forward with a hostile bid to acquire Jos. A. Bank for $57.50 a share, taking the battle directly to the clothier's shareholders with a tender offer that runs through March 28 and an intention to nominate two directors to Bank's board.
Jos. A. Bank got into this dogfight last October by making an unsolicited $2.3 billion bid for Men's Wearhouse that was resoundingly rejected by its rival's board. So complete was the snub that Men's Wearhouse wouldn't condescend to engage in good faith negotiations, even when prodded by top shareholder Eminence Capital to pick up the phone and start negotiating. After months of fruitless drama, Jos. A. Bank withdrew its offer, saying it would look elsewhere for deals to make, but if Men's Wearhouse ever wanted to talk, it could pick up the phone.
Instead, Men's Wearhouse deployed the so-called "Pac-Man defense," turning the tables on its competitor. In November, Men's Wearhouse announced it wanted to acquire Jos. A. Bank for $55 a share, or $1.5 billion. Bank rejected that offer, but Men's Wearhouse just raised the ante to $1.6 billion, a 4.5% increase over the original bid. That is going much further than Jos. A. Bank ever thought its rival would go, putting it on the defensive and forcing it to lower from 20% to 10% the percentage of outstanding shares one investor can hold before the company's poison pill defense is triggered.
The tenacity with which Men's Wearhouse is pursuing its rival likely is related to the fact that Eminence Capital is also a large shareholder of Bank's stock. Other big shareholders in Bank's stock, like Fidelity and Wellington Management, hold significant stakes in Men's Wearhouse as well, and they will undoubtedly push for a deal to be made.
If a tie-up of the two clothiers is such a good idea, then Men's Wearhouse being the acquirer shouldn't be a problem -- unless corporate pride is getting in the way. In many respects, the Men's Wearhouse offer is superior because it doesn't require new debt or outside financing, as Jos. A. Bank's proposal did.
Having rattled the cage, Bank is quickly learning that while barking dogs seldom bite, sometimes they do.