This story has been updated from 9:52 am ET with new information.
While Men's Wearhouse has rejected Jos. A. Bank initial $2.3 billion cash takeover offer, investors applauded the proposed merger as a cunning solution to the struggles of two menswear retailer struggling for customers.
At present, though, Men's Wearhouse isn't interested in a marriage. The Houston-based retailer said the bid "significantly undervalues" the company and "is not in the best interests of Men's Wearhouse or its shareholders."
But maybe Men's Wearhouse can be convinced to come to the party.
Shares of both companies were surging on the news. Men's Wearhouse was up a whopping 29% to $45.32, reaching a six-year high while Jos. A. Bank shares were gaining 7.7% to $44.88. The market apparently envisions that this deal will eventually be approved, and Stifel Nicolaus analyst Richard Jaffe agrees.
"We believe this is a favorable deal," for Men's Wearhouse, Jaffe, who rates the company a "buy," said in an investor report. "The all-cash proposal should deliver a substantial premium to MW shareholders while creating the leading men's apparel and sportswear designer, manufacturer and retailer in the U.S."
It's not just Men's Wearhouse shareholders that could win. Jos. A. Banks arguably needs Men's Wearhouse.
The combination would create "significant operational synergies while increasing the scale with over 1,700 stores in North America," Jaffe writes. "In addition, both stores combined would offer compelling product and great brands across various price points."
Jos. A. Bank would benefit from Men's Wearhouse's strong tuxedo rental business, "a business JOSB has tried to enter, but we believe has been difficult for them," Jaffe writes. It could also benefit from "the more trend-right, branded merchandise offerings, including MW's recent Joseph Abboud acquisition."
Men's Wearhouse, on the other hand, would benefit from Jos. A. Bank's "strong omnichannel business," Jaffe writes, adding that Men's Wearhouse CEO Doug Ewert, "with his extensive expertise in merchandising and operations, would be an asset to the combined company."
The powerhouse men's suit wear business could eventually start buying up more specialized menswear retailers. One target could be Destination XL (DXLG ), the largest U.S. destination for men's so-called Big & Tall apparel, Jaffe suggests.
"We believe the combination of all three companies would lead to an even more dominant player in men's retail as it would not only offer various price points, but also every size," Jaffe writes.
Both Men's Wearhouse, with roughly 1,100 stores , and Jos. A. Banks, with roughly 600 stores, sell suits, sport coats and sportswear and accessories. Both have been struggling this year, along with the larger apparel industry, as consumers spend their money elsewhere.
Jos. A. Bank said Wednesday that it made a non-binding proposal to acquire all of the outstanding shares of Men's Wearhouse for $48 a share in cash, representing a total equity value of about $2.3 billion, in a negotiated transaction. The proposal represents an approximate 42% premium to the closing price of Men's Wearhouse common stock on Sept. 17, the day before Jos. A. Bank made the proposal to Men's Wearhouse in a telephone call and follow-up letter, said Jos. A. Bank Chairman Robert Wildrick.
Wildrick told the Wall Street Journal he would continue to press his company's bid, but he was also receptive to a buyout of Jos. A. Bank by Men's Wearhouse with the same 42% proposed premium.
Both companies were in the news this summer after Wall Street chatter pointed to a possible merger between the two competitors in June.
On the one hand, drama ensued at Men's Wearhouse after the company fired its co-founder, executive chairman and brand spokesman George Zimmer, known for his raspy voice on the company's television commercials saying, "You're going to like the way you look," over what the company said was a difference of opinion in strategic vision. Zimmer was rumored to be launching a comeback, possibly by lining up private equity firms to buyout of the company.
For its part, Jos. A. Bank garnered the media spotlight after it said in late June that it was looking at various "opportunities," including selective, long-term accretive acquisitions, despite the fact that it had never done an acquisition before. One skeptical analyst noted that the only reason for the announcement was to justify Wildrick, its former CEO and current non-executive chairman's, exorbitant annual consulting fee of $825,000 for providing strategic acquisition advice.
-- Written by Laurie Kulikowski in New York.
To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.
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