The Hampstead, Md.-based retailer, which rebuffed an unsolicited $1.6 billion offer from Men's last month, said it would pay $564 million in cash and issue about 4.7 million new shares for Bauer, which is currently owned by Golden Gate Capital. Post-deal Everest Topco LLC, a Golden Gate portfolio company, would own about 16.6% of the combination and have the right to designate two directors to the company's board.
The deal is the latest chapter in a now nearly year-long consolidation battle. Jos. A. Bank last year offered $2.3 billion for Men's Wearhouse but walked away after the bid failed to spark negotiations. Men's Wearhouse returned later in the year with an offer Jos. A. Bank has called "inadequate and opportunistic."
Along with the Bauer purchase, Jos. A. Bank said that it would commence a $300 million tender offer to buy back 4.6 million shares at $65 apiece, a premium of 18.4% to the company's Thursday close. The tender represents about 16.4% of the company's shares outstanding.
The company, which estimates it can extract about $25 million in annual synergies from Bauer, in a statement said it believes the combination with Bauer is in the best interest of shareholders.
"The addition of Eddie Bauer provides us with clear avenues for strong growth and expansion for both of our businesses now and in the years ahead, in terms of product offering, store count, global distribution and direct sales," said Jos. A. Bank CEO Neal Black. "In short, we believe a diversified portfolio in specialty retail is a winning formula for investors and we are eager to start our work together."
Jos. A. Bank chairman Robert Wildrick said that the board considered a number of alternatives, including a deal with Men's Wearhouse, and said "we are convinced that our transaction with Eddie Bauer and the issuer tender offer provide the greatest value creation opportunity for Jos. A. Bank shareholders."
But the move carries significant risk. Not only is Jos. A. Bank paying more than 12 times estimated 2013 adjusted Ebitda for Eddie Bauer, the company is also issuing shares at $56 apiece to pay for the deal while buying it back from shareholders at $65 per share. Eddie Bauer for the year end 2013 had estimated adjusted Ebitda of between $61 million and $65 million on sales of between $885 million and $895 million.
The company did give itself an out should Men's Wearhouse return with a significantly sweetened bid. Jos. A. Bank said that under the terms of the deal it would have the right to terminate the agreement in the event of an unsolicited offer to buy Jos. A. Bank that the company's board determined would create greater value for shareholders.
Jos. A. Bank's right to terminate the deal is subject to a 3% termination fee.
Men's Wearhouse said Friday that in light of Jos. A. Bank's move for Eddie Bauer, it would evaluate its options with respect to the company and its plan to nominate two directors to the Jos. A. Bank board.
Golden Gate acquired Eddie Bauer out of bankruptcy in 2010 for nearly $290 million. Josh Olshansky, a managing director at the firm, called Eddie Bauer "a clear success story, with the potential for significant growth as part of a larger enterprise."
Goldman, Sachs & Co. and Financo LLC are serving as financial advisers to Jos. A. Bank, with Skadden, Arps, Slate, Meagher & Flom LLP and Guilfoil Petzall & Shoemake LLC acting as legal advisers.
Kirkland & Ellis LLP is providing legal counsel to Golden Gate Capital and Eddie Bauer.