A contest of offer and counter-offers emerged between Men's Wearhouse and JoS. A. Bank. This started when JoS. A. Bank offered to buy Men's Wearhouse. The latter though did not accept the offer. Instead, it submitted a counter-offer as a Pac-man defense. The offeror responded with an announcement of the planned acquisition of Eddie Bauer, another apparel retail company. The largest shareholder in both firms, Eminence Capital, is in a quandary on how to react to the situation.
Emir Hrnjic, David Reeb, Wee Yong Yeo
Harvard Business Review (W15079-PDF-ENG)
March 31, 2015
Case questions answered:
- What is the business of Men's Wearhouse and JoS. A. Bank, and what are the synergies between them?
- What kind of synergies, and their magnitude, do you expect in this merger?
- Why did Men's Wearhouse and later JoS. A. Bank resist the offer? How did they do it?
- What should Eminence Capital do at this juncture in the case?
- How should the offer be financed -- cash or stock (and why)? What is the impact on share accretion/dilution?
- If Men's Wearhouse decides to pay by cash, how will it obtain $2 billion to pay for the merger? Are there sufficient projected cash flows to pay off the debt?
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Suit Wars: Men's Wearhouse versus JoS. A. Bank Case Answers
1. What is the business of Men’s Wearhouse and JoS. A. Bank, and what are the synergies between them?
Both Men’s Wearhouse and JoS. A. Bank are in the apparel and clothing business. Men’s Wearhouse sells style-conscious and contemporary men suits and provides tuxedo rental in both the United States and Canada. It offers a wide range of classic styles and modern fits. JoS. A. Bank, on the other hand, utilizes a traditional and conservative preference in classic men styling and specializes in products for the more affluent customers offering a full selection of men’s tailored and casual clothing, footwear, and accessories.
The synergies that exist between them are the revenue and expense synergies. Revenue synergies incur in terms of expanded customer base boosting sales while expenses synergies occur in reduced rental, transportation, and administration expenses.
Synergies would be fully achieved by capitalizing on JoS. A. Bank’s strength in e-commerce and direct selling and Men’s Wearhouse’s leadership position in the tuxedo rental business.
2. What kind of synergies, and their magnitude, do you expect in this merger?
One main synergy that will result from merging is cost-cutting as both companies utilize a joint effort in purchasing materials, warehousing, administration, and advertising of the products. Through merging, the number of warehouses required will reduce, and so will the administration costs in terms of executives, inventory control, etc.
Also, advertising costs will drastically reduce as the tough competitive advertising will be diverted into a milder informative type of advertising as the companies now act together rather than trying to outdo each other. Men’s Wearhouse announced in 2014 that it would save $100m to $150m in synergies from the collaboration with JoS A. Bank functions.
Another synergy that the companies will mutually share are the financial and revenue synergies by combining its exclusive brand businesses and leveraging on Jos. A. Bank’s strength in e-commerce and direct selling and Men’s Wearhouse’s leadership position in the tuxedo rental business. Complementing one another will enable the businesses to enjoy a wider customer base and an increased depth in products offered while also enlarging the capital base of the merger.
Marriage between Men’s Wearhouse and JoS. A. Bank could bring in benefits of around $2 billion that would come in terms of cost savings in purchasing, distribution and logistics; advertising and marketing; general administration; and store optimization.
Earnings per share for the Men’s Wearhouse jumped by 4.8% while JoS. A. Bank’s increased by 3.9% on the announcement of the merger deal in 2014, which set a precedent for incrementally increasing synergies in the coming years.
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