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FTC keeps Jos. A. Bank on the rack

NEW YORK (The Deal) -- Men's Wearhouse  (MW - Get Report) said Wednesday it received a second request for information from the Federal Trade Commission, extending the antitrust review of the company's $1.6 billion hostile tender offer for rival men's clothing retailer Jos. A. Bank Clothiers (JOSB - Get Report) .

An extension of the review would be the first step by the FTC toward challenging the deal on antitrust grounds, but at this stage merely issuing a second request doesn't indicate the commission staff has concluded the deal will harm competition. The second request in this instance may be nothing more than the FTC needing a few more days to get comfortable with the transaction.

Because the offer is an all-cash tender, the initial waiting period under the Hart-Scott-Rodino Act was only 15 days, half the time antitrust regulatory typically have to clear a deal or issue a second request. Nevertheless, the FTC's move does disprove the contention made by some players in the battle for the retailers that antitrust risks presented by the deal are "virtually non-existent."

Whether a merger of the two companies would face a tough road before antitrust regulators has played a role in the companies' public relations campaigns as they have made subsequent offers for each other.

In the process of successfully fending off Jos. A. Bank's offer last fall, Men's Wearhouse cited antitrust risks as a reason to reject the deal. But the notion that antitrust regulators would block the deal was mocked by an activist investment firm that has been pushing for the two companies to merge.

In November, Eminence Capital wrote that Men's Wearhouse's "alleged concern" that Jos. A. Bank's offer could face antitrust hurdles "is simply not credible" and noted that Men's Wearhouse's own annual report listed a wide range of competitors, including specialty men's clothing stores, traditional department stores, off-price retailers, manufacturer-owned, independently owned outlet stores and tuxedo rental stores, as well as other corporate apparel providers and all these retailers' 
e-commerce channels.

Eminence also said it consulted on its own with antitrust experts and concluded that the antitrust risk of merging the two companies "is virtually non-existent."

When Men's Wearhouse made its counter offer for Jos. A. Bank - the transaction the FTC is reviewing - Jos. A. Bank in its Jan. 17 rejection said its suitor's lack of clarity on the deal's regulatory chances was reason to question the would-be buyer's seriousness about the offer. Jos. A. Bank also noted that Men's Wearhouse's Jan. 6 offer gave the buyer wide berth to back out.

The leeway Men's Wearhouse has given itself, combined with antitrust reservations it expressed when fending off Jos. A. Bank's own offer last year, "create doubt as to [Men's Wearhouse's] intentions and motivations," Jos. A. Bank said as part of its rejection.

The terms of Men's Wearhouse's offer included an antitrust condition that allows it to terminate the offer if any court or government body "in our reasonable judgment" either directly or indirectly delays or prohibits completion of the offer or compels Men's Wearhouse to dispose of or hold separate all or any portion of its business or assets or those of Jos. A. Bank.

If any federal or state antitrust authorities or private parties raise antitrust concerns, Men's Wearhouse said it will engage in negotiations with the relevant government bodies and parties to discuss possible remedies for addressing their concerns at its discretion.

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