Private equity firm Eminence Capital gave Men's Wearhouse (NYSE:TLRD) a bit of a tongue-lashing for failing to even entertain the takeover bid by its rival, saying that by neglecting to even pick up the phone to negotiate, it was abrogating its fiduciary responsibilities to shareholders. Now that the men's clothier has turned the tables on its rival by becoming the hunter instead of the prey, Eminence is giving Jos. A. Bank (UNKNOWN:JOSB.DL) a good old case of what-for, too.
By saying Bank also has a responsibility to negotiate on the merger offer, and with the P/E firm ready to go to court to force the men's clothing retailer to act, the takeover proposal is about to get even more hostile than when Men's Wearhouse launched its tender offer last week.
As Eminence is a large shareholder in both companies -- it owns just under 10% of Men's Wearhouse stock and just under 5% of Jos. A. Bank -- its CEO, Ricky Sandler, has been actively campaigning for a deal to get done. In papers filed with the Delaware Court of Chancery, he gave Jos. A. Bank a dressing-down, saying the only reason that can be drawn from its refusal to negotiate is a desire more to protect its "own lucrative and prestigious board seats than [to deliver] value for your shareholders."
Sandler's got a point. As he notes, when it was Bank in pursuit, Chairman Robert Wildrick chastised his rival for not picking up the phone and going so far as to say they'd even entertain a buyout offer in return if Men's Wearhouse would proffer a 42% premium as it had (he's since tried to walk that back). While Pac-Man defense also gives the lie to Men's Wearhouse's claim that a merger would have invited antitrust scrutiny, the $57.50-per-share bid now on the table does amount to a 38% premium to where Bank's stock traded before the buyout bid tit-for-tat began, so there's no reason Wildrick and the board shouldn't be negotiating a final price. The failure, though, has lead Sandler to file a lawsuit against Bank's board for breaching their fiduciary obligations.
At this point, it really does seem to come down to brass tacks. As the biggest shareholders of both companies are on board in wanting to get it done, it seems likely it will happen, meaning Jos. A. Bank's intransigence is unseemly and does seem to give weight to Sandler's accusations and the fear the retailer will "unleash a scorched earth campaign to protect its positions and those of management."
Jos. A. Bank is much smaller, with more than 600 stores compared to Men's Wearhouse's better than 1,100 store count, and without a need to resort to outside financing to get it done, the latter's offer appears to be the preferred choice.
Whichever company ends up making the buy, though, investors are going to like the way it looks. I guarantee it.