M&A

Wacky Discount-Clothier Combo Talks Come Out Right After All

The deal manages to create solid value for both companies' shareholders, despite a comical series of bumps along the way.
David McCannMarch 12, 2014

Despite having spent months arguing about who should buy whom, The Men’s Wearhouse and Jos. A. Bank Clothiers appear to be made for each other. They announced on Tuesday that the former would acquire its smaller rival for $65 a share.

Other than the fact that they are currently separate companies, there doesn’t seem to be much difference between these two. The combination is a market-share play, pure and simple.

Picture of a Men's Wearhouse location.

A Men’s Wearhouse location in Miamisburg, Ohio

Or … is it so simple? Bloomberg published an article in which columnist Matt Levine wrote about the solid shareholder value the deal creates: “It’s pretty easy to tell a story of two totally engaged public company boards working diligently and creatively to complete a value-enhancing deal in the way that is most favorable to their own shareholders. It’s also easy to tell the opposite story.”

The history behind the deal is fairly amusing. First Jos. A. Bank tried to buy Men’s Wearhouse. But Men’s executives didn’t want to be acquired and, probably, fired. Then Men’s tried to buy Jos. A. Bank with what appeared to be an excellent offer, which Bank nonetheless decried as inadequate. Then Bank threw up a smokescreen in the form of a seemingly puzzling plan to buy Eddie Bauer.

But there was method to the madness, it turned out. Levine’s conclusion: “Shouting that an above-market offer is inadequate and coercive starts to get old if no better deal comes along. Unless a worse deal comes along. It turns out a worse deal, and a plausible threat of doing it, is exactly what Jos. A. Bank needed to get a better deal for its shareholders.”

Getting back to the market-share play, the fact that the two companies are twins, or at least close cousins, may be apparent not only to insightful financial writers.

A casual observer, such as a male buyer of clothes, may easily reach the same conclusion. Surely I’m not the only one to have bought a suit from Men’s Wearhouse that went threadbare after three wearings, nor the only one to have been mesmerized by a typical buy-one-get-eight-free Jos A. Bank deal, to the point where I came home with a bunch of clothes so poorly constructed that I was embarrassed to wear them in public, such was the way the cloth drooped from my frame.

While it’s doubtful that financially secure folks like the average member of CFO’s audience have much occasion to shop in the discount clothing stores, they can still easily see that, despite all the maneuvering, the match-up has created shareholder wealth and may continue so. Jos. A. Bank equity holders received a 65 percent premium over the company’s enterprise value, and Men’s Wearhouse is predicting $100 million to $15o million of run-rate annual synergies over the next three years. 

Jerry Seinfeld may be making jokes, but if men keep buying the clothes and the combined company reaches its milestones, buyer and seller indeed may prove to have been a perfect fit.