Jos. A. Bank to acquire Eddie Bauer in deal worth $825 million

The move further complicates a hostile takeover bid by Men's Wearhouse

February 14, 2014|By Natalie Sherman and Lorraine Mirabella, The Baltimore Sun

Jos. A. Bank Clothiers said Friday it plans to buy outdoor retailer Eddie Bauer, a move the company said sets a path for long-term growth and analysts said increases Bank's options as it faces a hostile takeover bid by rival Men's Wearhouse.

The $825 million cash-and-stock deal would give Hampstead-based Bank a once-proud brand that, under a series of owners and through two bankruptcies, has struggled to evolve from an outfitter to a lifestyle apparel retailer.

While Bank seems intent on buying Bauer and remaining independent, some analysts wondered if the proposed deal isn't more about leveraging a larger offer out of Men's Wearhouse.

"Taking over a troubled retailer is a challenging way to think about diversification," said Karyl Leggio, dean of Loyola University's Sellinger School of Business and Management. "My money is still on the fact that Men's Wearhouse is going to acquire Jos. A. Bank."

The agreement calls for Bank to buy Bauer from Golden Gate Capital for $564 million in cash and about 4.7 million shares of new Bank stock at $56 a share.

Bank also offered to buy back 4.6 million of its shares for $65 each, in a deal that would only be consummated if it buys Bauer. The premium buyback is meant to mollify restive shareholders pushing for the $1.6 billion Men's Wearhouse deal.

Bank shareholders are weighing a pending takeover bid by Men's Wearhouse, which last month offered to buy all Bank's outstanding shares for $57.50 each.

"The Jos. A. Bank board of directors reviewed very carefully a number of strategic alternatives in addition to the Eddie Bauer transaction, including a possible acquisition of Men's Wearhouse and the sale of the company to Men's Wearhouse," said Bank Chairman Robert N. Wildrick. "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."

While the Bauer deal might make Bank too expensive for Men's Wearhouse, it includes an escape hatch that allows Bank to terminate the deal, for a fee, if it receives a better, unsolicited alternative.

Men's Wearhouse said Friday it is still reviewing its options.

"They're giving [Men's Wearhouse] an idea of how much more they think it's worth," said Steven Isberg, a finance professor at the University of Baltimore's Merrick School of Business. " 'If you bump up to $65 [a share], maybe we can talk.' "

The back and forth between Bank and Men's Wearhouse started last year, when Bank tried to buy the larger Houston-based retailer. At the time, Golden Gate offered to invest $250 million in Bank to help finance the deal.

Men's Wearhouse rejected the offer and made a counterproposal, which turned hostile last month when it offered to buy shares directly from Bank's stockholders.

In the cutthroat men's suit market, some analysts said, it doesn't make sense for Bank shareholders to pass up the chance to combine forces with Men's Wearhouse in favor of taking on debt to branch out into casual clothing and acquire Bauer, which only recently came out of bankruptcy.

Bank, which on Feb. 1 had about $445 million in cash on its balance sheet and no debt, will finance the acquisition and share buyback with $340 million in cash and almost $600 million in debt.

"I can understand that the management of Jos. A. Bank wants to remain an independent company," said Jerry Reisman, a mergers and acquisitions expert and a partner at Garden City, N.Y.-based Reisman, Peirez, Reisman and Capobianco. "They're doing what's best for them and not necessarily what's best for their shareholders."

Company stock typically tumbles about 30 percent after an acquisition is announced, Loyola's Leggio said. But Bank's shares rose Friday, closing up 20 cents at $55.12 each.

That's a sign that Wall Street doesn't believe the Bauer deal will happen, Leggio said.

Also Friday, Bank said its earnings for the fourth quarter of fiscal year 2013 are expected to fall between $1.04 to $1.10 per share, well below the predicted $1.25. Christmas season sales rose 9 percent compared to last year, but the chain was hurt by bad weather in January, said Bank CEO Neal Black. Overall sales for the quarter rose 0.4 percent.

New York hedge fund Eminence Capital, which owns a 10 percent stake in Men's Wearhouse and about 5 percent of Bank's stock, declined to comment Friday.

Eminence had been pushing for a deal and filed a suit in Delaware to force Bank to consider the Men's Wearhouse bid and block Bank from acquiring another retailer to derail the takeover.

Black said Bank has been concerned that Eminence is "trying to play both sides," and is focused on its portfolio, rather than Bank shareholders as a whole.

"We know of no better offers or other potential transactions that would be better for our shareholders today," Black said. "If something better does appear, the board will do its fiduciary responsibility to consider that."

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