Eminence Backs Men's Wearhouse (MW) in Jos. A. Bank (JOSB) Battle

NEW YORK (TheStreet) -- Will this song and dance never end? After months of will-they-won't-they speculation over a Jos. A. Bank (JOSB) and Men's Wearhouse (MW) partnering, Eminence Capital has stepped in to urge the former to accept the bid.

Eminence, which owns 4.9% in Jos. A. Bank common stock, announced Tuesday it intends to nominate two independent directors to the retailer's board at the company's annual meeting this year.

"Our nominees will be highly-qualified, retail industry experts who will be committed to maximizing shareholder value," said Eminence CEO Ricky C. Sandler. "We feel compelled to submit our own slate at this time to ensure both that JOSB is pursuing the combination with MW as vigorously as possible, and that JOSB directors will be held accountable if they approve an alternative transaction or cause JOSB to take other action before the annual meeting that would frustrate a transaction with MW.

"We continue to urge Jos. A. Bank to sit down with Men's Wearhouse and engage in meaningful, good faith negotiations in pursuit of a business combination on terms that could deliver significant value for Jos. A. Bank shareholders," he continued.

Last week, Men's Wearhouse increased its bid for Jos. A. Bank to $57.50 a share from November's offer of $55 a share. The tender offer will expire on March 28, unless extended. The Houston-based business and larger of the two said it would also put forth two nominees to Jos. A. Bank's board.

On Monday this week, Eminence Capital, which also owns a nearly 10% stake in Men's Wearhouse, said it supports the company's bid and filed a court complaint with the Court of Chancery of the State of Delaware to block Jos. A. Bank from making an offer of its own or engaging in acquisitions or mergers with other retailers.

"Absent this Court's exercise of its equitable powers, the members of the Jos. A. Bank Board will succeed in killing a highly attractive business combination, destroying the value of Jos. A. Bank's shares through an ill-advised acquisition, and entrenching themselves," Eminence noted in the court complaint. "The Men's Wearhouse proposal is highly attractive and offers clear value that the stockholders of both companies would achieve through a combination of these two retailers-a view that is virtually unanimous amongst the investment community."

The prospect of an acquisition began in October last year when Jos. A. Bank made an unsolicited acquisition offer worth $2.3 billion for its larger rival. Shortly after, Men's Wearhouse rejected the bid and made an offer of its own, going from pursued to pursuer.

TheStreet Ratings team rates MENS WEARHOUSE INC as a Buy with a ratings score of A. The team has this to say about their recommendation:

"We rate MENS WEARHOUSE INC (MW) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, MW's share price has jumped by 56.14%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, MW should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.6%. Since the same quarter one year prior, revenues slightly increased by 2.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • MW's debt-to-equity ratio is very low at 0.10 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.41 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • 48.66% is the gross profit margin for MENS WEARHOUSE INC which we consider to be strong. Regardless of MW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.88% trails the industry average.
  • Net operating cash flow has remained constant at $58.14 million with no significant change when compared to the same quarter last year. This quarter, MENS WEARHOUSE INC's cash flow growth rate has remained relatively unchanged and is slightly below the industry average.

TheStreet Ratings team rates JOS A BANK CLOTHIERS INC as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate JOS A BANK CLOTHIERS INC (JOSB) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, expanding profit margins and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.6%. Since the same quarter one year prior, revenues slightly increased by 6.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • JOSB has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, JOSB has a quick ratio of 2.39, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Net operating cash flow has significantly increased by 365.83% to $16.85 million when compared to the same quarter last year. In addition, JOS A BANK CLOTHIERS INC has also vastly surpassed the industry average cash flow growth rate of 3.63%.
  • The gross profit margin for JOS A BANK CLOTHIERS INC is rather high; currently it is at 60.44%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 5.50% trails the industry average.
  • Compared to where it was 12 months ago, this stock has enjoyed a nice rise of 30.50% which was in line with the performance of the S&P 500 Index. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

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