Jos. A. Bank Clothiers Inc. (JOSB)’s directors were sued by a shareholder for rejecting a $1.54 billion bid from Men’s Wearhouse Inc. (MW) and for toughening anti-takeover defenses in the wake of the offer.
The directors are “ignoring the interests” of shareholders by rebuffing Men’s Warehouse in hopes of buying it, Eminence Capital LLC said in a complaint filed today in Delaware Chancery Court in Wilmington. Eminence, a New York-based hedge fund, said it owns about 10 percent of Men’s Wearhouse shares and 5 percent of Jos. A. Bank. Both companies sell men’s clothing.
“Not only has the Jos. A. Bank board refused to negotiate with Men’s Wearhouse,” it has adopted stronger defenses to wrongfully thwart a bid, the hedge fund said in the complaint.
Eminence’s suit is the latest turn in a takeover battle that began in October with Jos. A. Bank’s $2.3 billion bid for Men’s Wearhouse. The target rejected that offer and later bid for its rival. Jos. A. Bank shares have traded above Men’s Wearhouse’s $55-a-share offer since it made the bid on Nov. 26.
Tom Davies, a spokesman for Hampstead, Maryland-based Jos. A. Bank with Kekst & Co. in New York, didn’t immediately return a call seeking comment on the lawsuit.
This month, Jos. A. Bank’s board changed the trigger on its “poison-pill” anti-takeover defense so that it’s activated when someone buys 10 percent of the company’s shares, instead of 20 percent.
The defense also can be triggered if someone gains control of such a stake using derivatives such as options, whereas before they would have had to own the shares. Such defenses make takeover efforts more expensive.
Eminence said Jos. A. Bank’s directors are seeking to entrench themselves by rejecting Men’s Warehouse’s bid to protect their lucrative board pay.
Directors get $150,000 to $250,000 a year for their service, and Chairman Robert Wildrick pulled in $1.1 million for his board duties last year, the hedge fund said in court filings.
Erik Gordon, a professor at the University of Michigan’s business and law schools, said Eminence may have a difficult time convincing a judge the directors wrongfully rebuffed the takeover offer.
“Directors are given wide latitude in exercising their business judgment as to whether to accept a bid or defend against it, especially when the defenses might extract a higher bid out of suitor,” Gordon said in an e-mail.
Both companies have said a combination of the two largest U.S. retailers of their kind would yield savings and boost profit margins. Men’s Wearhouse, based in Houston, also has a lucrative tuxedo-rental business that could be expanded to Jos. A Bank’s more than 600 stores.
Ricky Sandler, the former Mark Asset Management research analyst who founded Eminence in 1998, has pushed for the merger, contending the resulting company could save more than $2 billion in costs and dominate the market for men’s tailored and casual clothing.
The case is Eminence Capital LLC v. Wildrick, CA No. 9241, Delaware Chancery Court (Wilmington).
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