Few things are more fun than a hostile takeover battle but actually a lot of things are. I mean, it is people typing hurtful things on their computers, mostly, and then releasing those things publicly, like a billion-dollar internet comment section. Sometimes they take a break to stare forlornly at their spreadsheets and say, well, I know we said that was our absolute maximum best and final price, but if we just, like, looked really hard for more synergies, we could probably find them, I don't know, they're just synergies, okay let's raise our bid by 10 percent.
Also, usually there's some suing because how can you have fun without suing?
The Men's Wearhouse/Jos. A. Bank takeover battle is shaping up to be a classic of the form, and what I especially like about it is how fully it embraces the boredom. You have seen the commercials, these are dowdy companies. And Men's Wearhouse's strike back at Jos. A. Bank today -- raising its hostile tender offer price to $63.50 and filing a lawsuit seeking to enjoin Jos. A. Bank's deal with Eddie Bauer -- is both a bold swashbuckling piece of takeover warfare and also a curiously trivial compilation of Palm Beach gossip.
Men's Wearhouse seems particularly unimpressed by Robert Wildrick, the chairman and former chief executive of Jos. A. Bank, and a current Palm Beach, Florida, town council member, which is somehow relevant.1 Wildrick had previously wanted to buy Men's Wearhouse but changed his mind about the benefits of the combination when Men's Wearhouse offered to buy Jos. A. Bank instead:
Now that Mr. Wildrick and his cronies on the JOSB Board, comprised principally of Mr. Wildrick’s longtime friends from Palm Beach and people who have worked for him for decades, face the prospect of losing their lucrative positions on the JOSB Board, and being thrown out of their jobs, the shoe is on the other foot.2 Mr. Wildrick and his Board members have quickly changed their minds about the positive value of a combination and have embarked on a brazen entrenchment campaign using company resources, no matter what the cost or harm to JOSB stockholders.
Men's Wearhouse's main contention is that Jos. A. Bank's agreement to buy Eddie Bauer is part of that entrenchment campaign: that it's "an economically irrational transaction" and "a thinly-veiled defensive recapitalization hatched to thwart TMW’s bid for JOSB and interfere with the voting rights of JOSB stockholders." That seems not wrong! When we talked about the Eddie Bauer deal earlier, we talked about how economically irrational it was, and how it was just designed to avoid the Men's Wearhouse offer. To recap:
- By issuing Jos. A. Bank stock to Golden Gate Capital, which owns Eddie Bauer, at a price of $56 per share, and then buying back almost the same amount of stock from the market at $65 a share, Jos. A. Bank has wasted $39 million for reasons that are hard to understand.
- Unless, of course, you understand those reasons as "thwarting the Men's Wearhouse bid," in which case they're easy to understand: Jos. A. Bank puts a big block of stock in the hands of sympathetic holders, gets rid of shareholders who would otherwise be happy to sell to Men's Wearhouse, and sets a price of $65 on its shares, well above Men's Wearhouse's offer of $57.50 at the time.
- The economic logic of buying Eddie Bauer in the first place was a little suspect -- analysts and shareholders have questioned it, and the fact that Jos. A. Bank felt compelled to point out that "Eddie Bauer Has Long Been of Interest to Jos. A. Bank" in the press release announcing the deal suggests that this long-standing interest was not, you know, all that strong.3
So I guess I am on Men's Wearhouse's side here. So, it appears, is the market; Jos. A. Bank's stock is trading at around $60 this morning, $5 above Friday's $55.05 close. And even Men's Wearhouse is up: The market seems to like this combination, even if Men's Wearhouse needs to pay more to make it happen.
The problem for Men's Wearhouse, and the market, is that Men's Wearhouse's tender offer remains mostly fictitious. It is conditioned on Jos. A. Bank's board cancelling the Eddie Bauer agreement (at a price of $48 million, or about $1.71 a share), redeeming its poison pill, and generally cooperating with Men's Wearhouse. And so far, it doesn't look like Jos. A. Bank's board wants to cooperate.
Why not? Well, the entrenchment-and-cronyism theory is obviously one theory. Another would be that the board thinks that remaining independent and owning Eddie Bauer is better for Jos. A. Bank's shareholders, in the long run, than being acquired by Men's Wearhouse for $63.50.
There are some flaws in that story, though. For one thing, Jos. A. Bank's $65 tender offer -- for 16 percent of its shares -- suggests that that's what it thinks the shares are worth. When Men's Wearhouse was offering $57.50, that $65 seemed like a good offer (even though, again: only 16 percent of the company). Now that Men's Wearhouse is offering $63.50, and saying that it "could potentially increase its offer price to $65.00 per share if it is able to conduct limited due diligence (subject to an appropriate confidentiality agreement), with access to Jos. A. Bank’s management team," Jos. A. Bank has considerably less ability to say that Men's Wearhouse's offer is inadequate.4
So what's next? I don't know. It seems unlikely that Jos. A. Bank's board will just cave; they've come this far. And Delaware law is sort of on their side: There is precedent of letting directors choose to do an acquisition rather than let their shareholders vote on being acquired. And for all of the snippiness of Men's Wearhouse's complaint, it doesn't exactly contain any revelations of corruption at Jos. A. Bank. At its core, the complaint is that a Men's Wearhouse/Jos. A. Bank deal is a good deal, and that the Jos. A. Bank/Eddie Bauer deal is a bad deal. Delaware courts tend to leave that to boards to sort out.
On the other hand, the arguments that the two suit sellers belong together, and that Eddie Bauer is less of a fit, seem pretty compelling. And Men's Wearhouse is pretty much offering as much cash for Jos. A. Bank as Jos. A. Bank's board said it was worth. At some point, Jos. A. Bank's refusal to negotiate might start to look silly. This might be that point.
Of course, in a broader sense this has looked silly for months. From the minute that Jos. A. Bank proposed to buy Men's Wearhouse, this deal seemed destined to happen. (Surely I am not the only person who was surprised to learn that Jos. A. Bank and Men's Wearhouse were in fact different companies?) Both sides have talked up the benefits of a combination, just never at the same time. If they can't make it happen, then it's hard to escape the conclusion that one or both managements preferred to keep their jobs than to do what's best for shareholders. And that's not a good look for anyone.
1 From the lawsuit, describing Jos. A. Bank's independent directors:
Each of the outside directors has a strong incentive to act in a manner that pleases Wildrick, in order to keep their lucrative and prestigious positions on the JOSB Board. A number of these directors are also beholden to Wildrick through close personal and professional relationships with Wildrick, apart from shared service on the JOSB Board.
Giordano and Ritman have been close friends and neighbors of Wildrick in Palm Beach for many years.
Giordano has served with Wildrick on the JOSB Board since 1994. Giordano received $253,105 in total compensation for his JOSB Board service in fiscal year 2012.
Ritman, another Palm Beach neighbor and friend of Wildrick, nominated Wildrick to the Palm Beach City Council in 2012, and seconded his nomination to the City Council in 2014.
You can accuse every director of every company of wanting to stay on the board for the money, but I guess the part where this whole board lives together in Palm Beach is sort of novel.
2 More clothing puns, please! All the clothing puns.
3 Men's Wearhouse's lawsuit adds: "Wholly aside from the incompatible nature of JOSB and Eddie Bauer’s businesses, Eddie Bauer as a stand-alone company leaves much to be desired. Eddie Bauer has been in and out of Chapter 11 bankruptcy protection since 2003, and prior to JOSB’s offer, failed twice to sell itself in the past decade. The company has struggled to maintain its identity, oscillating between its core offerings of outdoors wear and casual wear, all the way to home goods such as linens, and back to outdoors wear again."
There is also the fact that Men's Wearhouse is in effect offering more than $65 a share: It's offering $63.50, plus the $48 million ($1.71/share) breakup fee that would have to be paid to Golden Gate to cancel the Eddie Bauer deal, for total value of $65.21. It's just that Jos. A. Bank's board has made the mistake of allocating $63.50 of that value to shareholders and $1.71 to Golden Gate. You can't blame Men's Wearhouse for that.
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