One of the biggest investors in Men’s Wearhouse made clear on Wednesday that it sees no better future for the retailer than a merger with its smaller rival, Jos. A. Bank.
The shareholder, Eminence Capital, unveiled a presentation trumpeting the benefits of a merger of the two men’s suit retailers as it presses for a special meeting of its fellow investors. Eminence, which owns a 9.8 percent stake, plans to call for votes on amendments to the company’s bylaws that would make it easier to remove directors.
The presentation turns up the heat on Men’s Wearhouse less than a week after Jos. A. Bank said that it had withdrawn a $2.3 billion takeover bid for the company. Men’s Wearhouse has steadfastly rebuffed the approaches from its rival for weeks, calling the bid opportunistic and too low and refusing to begin talks.
Eminence agreed that the offer of $48 a share was insufficient. But much of its 20-page presentation promoted the benefits of merging the two retailers and accused Men’s Wearhouse of extreme defenses that do not serve shareholders.
“Men’s Wearhouse’s board erected defensive measures that we believe are against the best interests of shareholders,†the hedge fund wrote.
Eminence pointed out that Jos. A. Bank has left open the possibility of both reopening merger talks and raising its offer if it were allowed to begin due diligence.
According to an analysis by the hedge fund and its bankers at Moelis & Company, a combined retailer could command a total market value of nearly $4.9 billion, thanks to a host of savings that range from procuring garments to backend operations to marketing. A merger would create a powerhouse in men’s suits, drawing on both Jos. A. Bank’s e-commerce operations and stronger business practices and Men’s Wearhouse’s strength in tuxedo rentals and its higher-end Joseph Abboud brand.
The result would be a “must-own†company in the retail industry, Eminence argued in its presentation.
By contrast, Men’s Wearhouse’s standalone plan is highly risky, the hedge fund contended. That plan promises at least 4 percent growth in same-store sales over the next three years and margins of about 35 percent, both of which are significantly higher than what the company has been able to achieve in recent years.
“The strategic plan is not new and therefore was reflected in the unaffected share price,†Eminence wrote.
A representative for Men’s Wearhouse was not immediately available for comment.
Shares in the company were down slightly at $46.63.
