Jos. A. Bank buyout offer rejected by Men's Wearhouse

Nothing like getting the brush-off.

Jos. A. Bank proposed to acquire its bigger rival Men's Wearhouse in a $2.3 billion deal that would create a men's wear juggernaut with close to 2,000 stores.

But the leaders at Men's Wearhouse rejected the offer about two hours after it was publicly disclosed, calling it "opportunistic" and "inadequate."

It later announced it would adopt a shareholder rights plan, also known as a poison pill, designed to thwart anyone who buys a big chunk of its stock without board approval: 10 percent for a person or group, or 15 percent for a passive institutional investor.

Jos. A. Bank Clothiers disclosed Wednesday that it made the unsolicited proposal in September to buy Men'sWearhouse for $48 per share in cash, a 42 percent premium at the time. In rejecting the deal, Men'sWearhouse said it wasn't in the best interest of its shareholders or the company.

The proposal "significantly undervalues Men's Wearhouse and fails to reflect the company's growth strategy and upside potential," Bill Sechrest, Men's Wearhouse's lead director of the board, said in a release.

Sechrest noted that a challenging second quarter led to a 12 percent decline in Men's Wearhouse's stock price, which the company believes doesn't fairly reflect the "intrinsic" value of the shares.

Jos. A. Bank said late Wednesday that it would continue to push for a deal and called the rejection "inexplicable."

Shares in Men's Wearhouse climbed $9.79, or 28 percent, to $45.03 after rising as high as $45.56 earlier in the day, their highest level since February 2007. They had been up 13 percent since the beginning of the year.

Jos. A. Bank's shares rose $2.67, or 6.4 percent, to $44.33. The stock had been down 2.1 percent since the beginning of the year.

Men's Wearhouse, which had revenue of $2.48 billion in the latest fiscal year, had a market value of $1.68 billion as of Tuesday's close, according to research firm FactSet. Jos. A. Bank, which had revenue of $1.05 billion in the latest year, had a market value of $1.17 billion.

Shoppers at both companies have pulled back amid economic uncertainty. Jos. A. Bank's fiscal second-quarter net income fell 39 percent as shoppers didn't respond as well to some of the retailer's marketing campaigns as they did a year ago, while Men's Wearhouse's fiscal second-quarter earnings fell 28 percent due to one-time charges and an early Easter that pushed prom tuxedo rentals earlier than usual. The chain also cut its full-year guidance.

Jos. A. Bank, based in Hampstead, Md., sells men's tailored and casual clothing, sportswear and footwear and operates 623 stores in 44 states and the District of Columbia. While it gears to a more established male professional, it's known for generous promotions like buying one suit or sport coat and getting three for free.

Men's Wearhouse sells men's sportswear and suits through its namesake chain of stores, as well as the Moores and K&G retail chains. It runs more than 1,200 stores and is also in the tuxedo-rental business. Recently, it's been going after younger shoppers with suits with slimmer silhouettes. It's also trying to raise the average ticket price and announced in July that it's buying upscale Joseph Abboud brand for about $97.5 million in cash.

"Men's Wearhouse is the first place you go right out of college to get a suit, " said Brian Sozzi, CEO and Chief Equities Strategies at Belus Capital Advisors. "But Jos. A. Bank's is where you trade up."

In June, Men's Wearhouse ousted its chairman George Zimmer following a dispute over the direction for the company. Zimmer, who founded the company in 1973, appeared in its TV commercials with the slogan, "You're going to like the way you look. I guarantee it."

Jos. A. Bank made its offer Sept. 17, and privately pitched the deal to Men's Wearhouse executives in a phone call and follow-up letter. During a media call on Wednesday before Men's Wearhouse issued the statement rejecting the bid, Robert N. Wildrick, Jos. A. Bank's chairman of the board, described the proposal as a "win-win situation" for shareholders and consumers, noting that each company would benefit from its own expertise.

Tom Murphy contributed to this story from Indianapolis.