Zimmer Legacy Is Windfall for Men’s Wearhouse: Real M&A
George Zimmer set the stage for a $1 billion-plus payday for shareholders of Men’s Wearhouse Inc. and Jos. A. Bank Clothiers Inc. -- and he wasn’t even there to toast the merger.
Men’s Wearhouse, which Zimmer founded 40 years ago, said yesterday it will pay $65 a share for Jos. A. Bank, a deal that would value the combined company at $4.5 billion, according to data compiled by Bloomberg. The agreement ends a takeover tussle that began in October, about four months after Zimmer put his own company in play by encouraging it to consider going private.
Zimmer’s disagreements with management led to his ouster, which Oscar Gruss & Son Inc. said may have removed an obstacle to Men’s Wearhouse merging with its rival. In the time it took the company and Jos. A. Bank to settle on a price they both could agree on, shareholders became $1.7 billion richer as the stocks soared, data compiled by Bloomberg show.
“The clear winners are definitely the shareholders,” Betty Chen, a San Francisco-based analyst at Mizuho Securities USA Inc., said in a phone interview. “Jos. A. Bank holders benefit from a higher offer price, and Men’s Wearhouse holders benefit from a much stronger company with better accretion. This is a rare deal scenario where it’s a win-win.”
Zimmer was fired in June after disagreements with management over strategy, including his desire to consider taking Men’s Wearhouse private. Zimmer, the former face of Men’s Wearhouse in TV commercials, still owned about 3.5 percent of the company, according to an August filing.
“That’s really his brand, and he’s probably been spending a lot of his career competing against the likes of a Jos. A. Bank,” Louis Meyer, a special situations analyst at Oscar Gruss in New York, said in a phone interview. As the founder, he may have been a “roadblock” to a merger, Meyer said.
It didn’t take long for Jos. A. Bank to step in with a bid after Zimmer left. Men’s Wearhouse turned down the offer and began its pursuit to buy Jos. A. Bank instead. The back and forth over which retailer would be the target and at what price continued into the new year.
Zimmer’s ouster “stirred the pot,” Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor, said in a phone interview. “Jos. A. Bank looked over there and said, ‘This is a good time to pounce.’ It wasn’t predictable who would actually win the battle, but they were going to combine. It made too much sense for them not to.”
Both stocks have risen more than 50 percent since they started offering to buy each other five months ago, boosting their market values by a collective $1.7 billion through yesterday, data compiled by Bloomberg show. The 62 percent rally in Men’s Wearhouse since Oct. 8 lifted its market capitalization to $2.7 billion, while shares of Jos. A. Bank gained 54 percent to value the company at $1.8 billion, data compiled by Bloomberg show.
Today, Men’s Wearhouse fell 2.5 percent to $55.69, while Jos. A. Bank rose 2 cents to $64.24.
Men’s Wearhouse is valuing its competitor at about 11 times trailing 12-month earnings before interest, taxes, depreciation and amortization. North American apparel retailers have sold for a median of 9.1 times Ebitda, data compiled by Bloomberg show.
“It’s probably at the top end of the range,” Jason Ronovech, a fund manager at Sentinel Investments, which oversees about $27 billion and owned Men’s Wearhouse shares as of Dec. 31, said in a phone interview. “But when you look at the synergies they’ve laid out and then you factor in what might be the synergies just around a better competitive environment longer term, I think that the multiple probably makes sense.”
Men’s Wearhouse estimates the deal will result in $100 million to $150 million of annual savings and increase earnings in the first full year.
There is “a lot to be said for scale and it might have some very real benefits,” Josh Lerner, an investment banking professor at Harvard Business School, said in a phone interview. “I think it comes down to synergies. I think what the market is telling us is there is essentially a lot of value to be created from putting these two companies together.”
Next, Men’s Wearhouse has some work to do in consolidating and streamlining the two businesses, said Richard Jaffe, a New York-based analyst at Stifel Financial Corp. Men’s Wearhouse is headquartered in Houston, while Jos. A. Bank’s offices are more than 1,000 miles (1,600 kilometers) away in Hampstead, Maryland.
“Shareholders prevail,” he said. But “now the work begins. Men’s Wearhouse’s management has a large task ahead of them.”
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