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posted: 2/14/2014 5:01 PM

Jos. A. Bank to Buy Eddie Bauer in Blow to Men's Wearhouse (1)c.2014 Bloomberg News(Updates with chairman's comments in 14th paragraph.)

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  • Pedestrians carrying umbrellas walk past a Jos. A. Bank Clothiers Inc. store in Washington, D.C., U.S., on Tuesday, Nov. 26, 2013. Men's Wearhouse Inc., which less than two weeks ago let a takeover bid from Jos. A. Bank Clothiers expire without entering discussions, today offered to buy its smaller rival for about $1.54 billion. Photographer: Andrew Harrer/Bloomberg

      Pedestrians carrying umbrellas walk past a Jos. A. Bank Clothiers Inc. store in Washington, D.C., U.S., on Tuesday, Nov. 26, 2013. Men's Wearhouse Inc., which less than two weeks ago let a takeover bid from Jos. A. Bank Clothiers expire without entering discussions, today offered to buy its smaller rival for about $1.54 billion. Photographer: Andrew Harrer/Bloomberg

 
By Lindsey Rupp

Feb. 14 (Bloomberg) -- Jos. A. Bank Clothiers Inc. agreed buy the Eddie Bauer brand in deal valued at about $825 million, potentially thwarting Men's Wearhouse Inc.'s pursuit of its rival suit retailer.

The Eddie Bauer purchase includes $564 million in cash and 4.7 million new shares of common stock issued at $56 apiece, Hampstead, Maryland-based Jos. A. Bank said today in a statement. The retailer also may pay an additional $50 million based on Eddie Bauer's 2014 earnings.

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The agreement to buy Eddie Bauer, best known for its clothing for outdoor enthusiasts, threatens to make Jos. A. Bank too big for a deal with Men's Wearhouse, which has offered to buy its smaller competitor for $1.6 billion. While Men's Wearhouse has said it's willing to raise the bid, Jos. A. Bank has resisted the overtures, and the stock has fallen from the offer price, signaling investors don't expect the companies to work out a deal.

"The Men's Wearhouse deal is over," Mark Montagna, a Nashville, Tennessee-based analyst at Avondale Partners, said in a phone interview. "The animosity between the two companies is so great that this gives Men's Wearhouse an opportunity to just walk away and avoid what could potentially be a big quagmire."

Men's Wearhouse said in a statement today that it will evaluate its options on Jos. A. Bank. The retailer's tender offer for Jos. A. Bank expires March 28.

Jos. A. Bank rose 0.4 percent to $55.12 at the close in New York. Houston-based Men's Wearhouse declined 5.3 percent to $44.07.

Iconic Brands

The purchase of Eddie Bauer, founded in 1920 and based in Bellevue, Washington, will create a company that may generate more than $2.1 billion in revenue this year, according to Jos. A. Bank. That's more than double Jos. A. Bank's $1.05 billion in sales in the year ended Feb. 2, 2013.

The acquisition may add to earnings per share immediately, with the potential for "substantial" increases in 2015 and beyond, Jos. A. Bank said.

Golden Gate Capital Corp., the San Francisco-based private- equity firm that owns Eddie Bauer, will become a "significant" shareholder in Jos. A. Bank. Depending on Eddie Bauer's 2014 earnings, Golden Gate's Everest Topco LLC, the subsidiary that holds Eddie Bauer, may get as much as $50 million more in cash.

Jos. A. Bank said it first contacted Golden Gate in early 2012 and has been conducting an intensive process in the last two years to identify and review acquisition candidates.

The combination faces several obstacles, including an inexperienced management team and limited product overlaps, Avondale's Montagna said.

Tough Integration

"Nobody on the Jos. A. Bank team has any experience with integrating an acquisition, and that is tough," Montagna said. "There'll be synergies on certain product lines like khaki pants, but what synergies are there on women's? And on the true outdoor stuff and footwear, there are no synergies," Montagna said.

Jos. A. Bank said the purchase price represents a multiple of 9.5 times 2013 estimated adjusted earnings before interest, taxes, depreciation and amortization, including $25 million of potential synergies. Everest Topco will own about 17 percent of Jos. A. Bank's shares upon completion and will have the right to appoint two directors.

Working Together

Jos. A. Bank Chairman Robert Wildrick said in a phone interview today that he will "come out of retirement" to work with his company's chief executive officer, Neal Black, and with Eddie Bauer CEO Mike Egeck to help them achieve the synergies, improve profit margins and select locations.

"We know real estate, and we see there's an opportunity to open 145 to 150 stores in pretty much slam-dunk locations," Wildrick said.

Jos. A. Bank also said it's starting a self-tender offer for as much as 16.4 percent of its outstanding shares at $65 a share. The stock closed yesterday at $54.92. The total value of the stock purchase will be as much as $300 million.

The deal with Eddie Bauer includes a clause that stipulates Jos. A. Bank can terminate its agreement if it receives an offer that would "create greater value" for Jos. A. Bank shareholders. Wildrick declined to say what size bid the company would accept if Men's Wearhouse raised its offer.

"The price is far too low, but we're not entrenched," Wildrick said. "We think we've come across something that's great for everybody."

Pac-Man Defense

Men's Wearhouse and Jos. A. Bank had been in conflict since October, when Men's Wearhouse spurned an unsolicited bid from Jos. A. Bank. A month later, Men's Wearhouse offered to buy the smaller chain for $55 a share in a tactic known as a Pac-Man defense, where a target thwarts being taken over by instead bidding for its suitor.

Jos. A. Bank said today in a separate statement that fiscal fourth-quarter adjusted earnings per share were about $1.04 to $1.10, compared with 98 cents a year earlier. That missed analysts' average estimate of $1.25, according to data compiled by Bloomberg. Sales rose 0.4 percent.

"Throughout the critical holiday selling season our business was robust," Black said in the statement. "Unfortunately, our post-Christmas clearance sales started slowly and then the snowstorms and nationwide deep freeze significantly impacted our business in the final days of December and the first week of January."

--With assistance from David Risser in London. Editors: Kevin Orland, John Lear

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajellobloomberg.net

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