Jos A Bank is fighting off the advances of Mens Wearhouse

Jos A Bank is fighting off the advances of Men's Wearhouse

Jos A Bank Clothiers last week revealed its plans to acquire outdoor wear brand Eddie Bauer in deal worth $825m. Coming amid an onging buyout battle with rival Men's Wearhouse, some industry observers suggest the move was made to ensure the US men's apparel and footwear business remains independent. Michelle Russell takes a closer look.

Amid its ongoing ownership tussle with Men's Wearhouse, Jos A Bank played what could be its ace card on Friday (14 February) when it revealed it had struck an US$825m deal to buy Eddie Bauer from private equity firm Golden Gate Capital.

Under the deal, Jos A Bank will pay $564m in cash and issue around 4.7m new shares to Everest Topco, the parent company of Eddie Bauer and a portfolio company of Golden Gate. Upon closure, it will own 16.6% of the company.

Mis-matched partnership
While a deal between the two was rumoured earlier this month, the acquisition may still come as a surprise to many in the industry, given Eddie Bauer is seen by some as a company a little past its prime.

Both companies target a similar customer base: 35-55 year olds with annual incomes of $100k-$150k.

However, they offer a different product portfolio. Eddie Bauer sells rugged outerwear for men and women, while Jos A Bank is better known for renting and selling men's suits.

Jos A Bank and Men's Wearhouse, on the other hand, who have made and rejected a series of offers for each other over the past few months, appear a better fit. While they two have different target markets, they offer similar types of clothing: suits and sports coats.

Neil Stern, a retail analyst at McMillan Doolittle, tells just-style there is some "potential synergy" between Jos A Bank and Eddie Bauer when it comes to cross pollination of merchandise, co-branded stores and location swaps, in addition to "potential back-office leverage to save some costs".

However, he adds: "It is certainly not apples to apples. The two companies operate in fairly distinct spaces."

An independent company
In its announcement, Jos A Bank suggested it had pursued Eddie Bauer for two years. The move will give the company its first foray into women's apparel and footwear and it will be able to take advantage of Bauer's experience in international markets. At present, it is reaping success in Germany and Japan, as well as having recently entered the Middle East.

As well as the obvious advantages, many have noted that the deal adds strength to Jos A Bank's armour as it fights off the advances of Men's Wearhouse, which appears relentless in its pursuit of the firm.

The two companies have been battling to buy each other for a number of months, and some industry observers see this deal as a move by Jos A Bank to make itself too expensive for Men's Wearhouse to acquire.

Stern says: "Whether it acts as a deterrent to the Men's Wearhouse bid is interesting. It does muddy the waters and it has never been a certainty that Men's Wearhouse and Banks belong together, and if so, who should control the company."

Jos A Bank made the first move in October last year when it bid $2.3bn for Men's Wearhouse in a deal that would create the leading men's apparel and sportswear designer, manufacturer and retailer in the US.

This was subsequently rejected, and Men's Wearhouse adopted a so-called "poison pill" stockholder rights plan. It then turned the tables on Jos A Bank a month later, and offered to acquire the men's apparel business for $1.2bn.

This too was rejected, and Men's Wearhouse submitted a second offer of $57.50 per share, higher than its November offer of $55. This was again rebuffed by Jos A Bank.

Last month Men's Wearhouse said it could be willing to increase its bid, but Jos A Bank has stood firm on its stance, adding that it sees no benefit in entering into discussions with Men's Wearhouse over the offer.

Mergers attorney Jerry Reisman told the Washington Post that the Eddie Bauer acquisition is "a strategy move, not necessarily economic".

"Jos A Bank's management and board of directors want to continue to remain independent," he told the publication. He added that the deal "is intended to make the Men's Wearhouse hostile takeover of Jos A Bank more expensive for Men's Wearhouse and deter it".

Open to offers
But while the acquisition may be a step forward for Jos A Bank in protecting itself from a takeover, the company hasn't completely closed the door.

Jos A Bank has the right to terminate its agreement to buy Eddie Bauer if it receives an acquisition offer that the board deems would create "greater value for Jos A Bank's shareholders than the Eddie Bauer transaction and issuer tender offer".

Jos A Bank chief executive Neal Black told the Washington Post: "If another deal comes along, whether it's with Men's Wearhouse or anyone else, our board would consider it. It would be up to Men's Wearhouse to take a look at this and decide if they want to increase the price or not."

The deal with Eddie Bauer may have been dealt a blow, however, by Eminence Capital, a major shareholder in Jos A Bank, which describes the acquisition as a "poor strategic decision" that "destroys shareholder value".

In a letter to the board yesterday (18 February), Eminence, which owns a 4.9% stake in Jos A Bank, accused the company of issuing "suspect and misleading financial guidance" in a bid to justify its decision.

It also suggested the price paid for Eddie Bauer was too high. The firm said intends to "hold the board accountable for its actions both through the upcoming proxy vote and through direct actions in court".

Whatever Jos A Bank's reasons for the Eddie Bauer transaction, it appears steadfast in its efforts to remain independent.

If the deal does go through, the two brands plan to run independent of each other. Jos A Bank expects it to create a company with annual revenue of more than $2.1bn, to immediately add to earnings.

Eddie Bauer anticipates 2013 revenue at between $885m and $895m. Analysts are expecting Jos A Bank revenues of around $1.05bn in 2013.

While much still remains uncertain, the one thing that looks clear is that the Jos A Bank/Men's Wearhouse tussle is likely to continue to play out for some time to come.