The Deal: Men's Wearhouse Rejects Jos. A Bank Bid

NEW YORK ( TheStreet) -- Men's Wearhouse ( MW) on Wednesday rejected a $2.3 billion approach from smaller rival Jos. A. Bank Clothiers ( JOSB) saying the unsolicited approach "significantly undervalues" the company.

Hampstead, Md.-based Jos. A. Bank earlier Monday morning confirmed its non-binding proposal combine the two men's apparel retailers and create a chain with more than 1,700 stores.

Jos. A. Bank in late September proposed to acquire Men's Wearhouse shares for $48 apiece, a premium of 36% to the target's Tuesday close. The deal would be funded via cash on hand, new debt and a $250 million equity infusion to be provided by Golden Gate Capital.

Jos. A Bank said that the deal values Houston-based Men's Wearhouse at 8.4 times twelve-month EBITDA.

"We believe Jos. A. Bank's unsolicited proposal is opportunistic, subject to unacceptable risks and contingencies, and would deprive our shareholders of the value inherent in Men's Wearhouse for inadequate consideration," Men's Wearhouse lead director Bill Sechrest said.

In June, after founder George Zimmer was ousted from Men's Wearhouse, its board said "now is not the time to sell the company."

Jos. A Bank said its offer would give Men's Wearhouse holders a significant premium, while creating a larger platform in which to sell from.

"We believe Men's Wearhouse's shareholders would want their board to explore with us the immediate and certain value they would receive in a transaction," Jos. A. Bank chairman Robert N. Wildrick said in a statement. "We have always admired Men's Wearhouse and believe these two great companies, when combined, will create continued growth and sustainable value for our shareholders, greatly enhanced benefits for our customers, and exciting opportunities for our employees."

Jos. A Bank is a smaller company than Men's Wearhouse, with 600 retail locations compared to Men's Wearhouse's 1,137 locations. The market values Jos. A. Bank at $1.2 billion, about $500 million less than Men's Wearhouse's market capitalization.

Both companies have been active in M&A discussions of late. Men's Wearhouse in July announced plans to acquire JA Holding, parent of Joseph Abboud, from private equity firm J.W. Childs Associates for $97.5 million.

Jos. A. Bank, meanwhile, in June said it intends to build shareholder value through "strategic opportunities" including "the on-going consideration of potential acquisitions."

Jack Levy at Goldman Sachs and Financo's's Gilbert Harrison are serving as financial advisers to Jos. A Bank, with Skadden, Arps, Slate, Meagher & Flom's Paul Schnell, Jeremy London, William Frank and Allison Schiffman and Guilfoil Petzall & Shoemake acting as legal advisers.

A Willkie Farr & Gallagher team led by Steven Seidman and including Michael Schwartz, Laura Delanoy, Jeffrey Hochman and Laura Acker are legal advisers to Men's Wearhouse.

Goldman will also handle the debt financing, informing Jos. A. Bank it is highly confident the borrowings can be obtained.

-- Written by Lou Whiteman in New York

More from Mergers and Acquisitions

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

AT&T-Time Warner Ruling Could Usher in More Healthcare Deals

AT&T-Time Warner Ruling Could Usher in More Healthcare Deals

Dropbox Soars in Third-Straight Record-Setting Session

Dropbox Soars in Third-Straight Record-Setting Session

Decision on AT&T's Merger With Time Warner Marks a Monumental Week for M&A

Decision on AT&T's Merger With Time Warner Marks a Monumental Week for M&A

JPM's Head of North America M&A Wants to Super-Charge M&A and Hire More Women

JPM's Head of North America M&A Wants to Super-Charge M&A and Hire More Women