The Men’s Wearhouse, Inc. (NYSE:MW) turned the tables on Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) on Tuesday by offering to acquire the company. Analysts at Stifel say the likelihood of the offer being accepted is very high and that there are plenty of benefits for Men’s Wearhouse investors if the deal should go through. However, they have kept their Hold rating on the company.
How Men’s Wearhouse shareholders benefit
The proposal from The Men’s Wearhouse, Inc. (NYSE:MW) is worth $55 per share for Jos. A. Bank Clothiers Inc (NASDAQ:JOSB). This would be a $1.2 billion enterprise value and represents 9.1 times EV / EBITDA and a premium to Jos. A. Bank’s bid for Men’s Wearhouse, which was about 8.3 times. The company said it would finance the transaction through cash on hand and debt financing.
Stifel analysts Richard E. Jaffe and his team say if the acquisition happens, shareholders of The Men’s Wearhouse, Inc. (NYSE:MW) would benefit from about $100 million to $150 million in run-rate annual synergies over the next three years. The retail chain would enjoy better purchase efficiencies, better customer service and marketing and streamlined corporate functions. They did a full rundown of estimates for the company’s combined numbers here:
Some other benefits they see for The Men’s Wearhouse, Inc. (NYSE:MW) and Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) include the rollout of Men’s Wearhouse tux rental business, which could increase Jos. A. Bank’s sales by 10 to 15% in their view. And then there’s the fact that The Men’s Wearhouse, Inc. (NYSE:MW) would be taking over what many consider to be its biggest rival and then becoming the biggest “specialty retail channel for men’s clothing” and fourth biggest overall, according to estimates from Men’s Wearhouse.
The analysts used the merger of Macy’s and TJ Maxx as an example of the potential benefits both companies would receive.
Did Men’s Wearhouse have a change of heart?
The Men’s Wearhouse, Inc. (NYSE:MW) rejected an offer from Jos. A. Bank Clothiers Inc (NASDAQ:JOSB) earlier this year, and activist investment firm Eminence Capital got involved. Jos. A. Bank has said in the past that it would be willing in being acquired by Men’s Wearhouse, so Stifel analysts believe the deal will likely happen. They said they didn’t think the company was interested in buying Jos. A. Bank or that it looked upon the promotional model used by Jos. A. Bank too highly.
However, they say the situation has changed and that they believe “a large shareholder” pressured the board into examining the potential of a merger with Jos. A. Bank more closely. I’d say there’s a good chance Eminence Capital is the “large shareholder” they are referring to.