Jos. A. Bank Clothiers Inc., the retailer resisting a merger with Men's Wearhouse Inc., said it will buy the Eddie Bauer brand for cash and new shares, and buy some of its own stock at an 18 percent premium to reward shareholders.
Jos. A. Bank's purchase of Eddie Bauer is based on an enterprise value of $825 million, including $564 million in cash, the Hampstead, Maryland-based company said today in a statement. The retailer may pay an "earn-out" of $50 million based on Eddie Bauer's 2014 earnings. Eddie Bauer, founded in 1920 and based in Bellevue, Washington, is best known for its clothing for outdoor enthusiasts.
The combination will create "substantial opportunities for growth and synergies while allowing two iconic American brands to share core competencies and demographically similar customer bases," 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.
The purchase will probably add to Jos. A. Bank's earnings per share immediately, with a "potential for substantial accretion in 2015 and beyond," the company said. Jos. A. Bank has a definitive agreement to acquire Everest Holdings LLC, parent company of the Eddie Bauer brand, it said.
"Eddie Bauer has long been of interest," the company said. The buyer "has been engaged in an intensive process over the last two years to identify and review high-potential acquisition candidates." Jos. A. Bank first contacted Golden Gate in early 2012, it said.
The combined company is expected to generate more than $2.1 billion in revenue this year, according to Jos. A. Bank, which had $1.05 billion in sales in the year ended Feb. 2, 2013.
To reach the deal, Jos. A. Bank agreed to issue about 4.7 million new shares to Everest Topco at $56 per share, it said. Everest Topco may get the additional $50 million based on Eddie Bauer's earnings before interest, taxes, depreciation and amortization for fiscal year 2014.
Jos. A. Bank said the purchase price represents a multiple of 9.5 times 2013 estimated adjusted Ebitda, including $25 million of potential synergies. Everest Topco will own about 16.6 percent of Jos. A. Bank's shares upon completion and will have the right to appoint two directors.
Eddie Bauer is "the largest vertically integrated U.S. retailer dedicated to the outdoor enthusiast," Jos. A. Bank said.
Jos. A. Bank Chairman Robert Wildrick said he looks forward to working with his company's chief executive officer, Neal Black, and with Eddie Bauer CEO Mike Egeck "to capitalize on the combined strengths of the businesses."
Jos. A. Bank is also starting a self-tender offer for as much as 16.4 percent of its outstanding shares at $65 a share, it said. The stock closed yesterday at $54.92. The total value of the stock purchase will be as much as $300 million.
Men's Wearhouse has approached Jos. A. Bank with an offer of $57.50 a share, which Jos. A. Bank says is too low. The stock has fallen from that price, signaling investors don't expect the companies to work out a deal, even though Men's Wearhouse has said it may be willing to increase the offer.
The two retailers have 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 will be 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," CEO Black said. "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."
Link to Statement:NSN N0ZFWB3PWT1C --Editors: Robert Valpuesta, David Risser
To contact the reporter on this story: David Risser in London at drisserbloomberg.net