Men's Wearhouse has resorted to the Pac-Man defense and made a counteroffer to Jos. A. Bank Clothiers, the same company which had first offered to purchase Men's Wearhouse this year.
A report on The New York Times said the Pac-Man defense first came to the fore in the Marin Marietta-Bendix battle in the 1980s. It is a tactic used in hostile takeovers and was last utilized in 2000 when Chesapeake Corporation made a counteroffer for Shorewood Packaging. The year before that, Elf Aquitaine also made a counteroffer for Total Fina. The usual result of a Pac-Man defense is that the two battling firms end up combining with each other. When this happens, the question becomes, who will manage the combined firm and which stakeholders will get a premium from the merger.
According to the report, the offer from Men's Wearhouse shows that the company acknowledges that it should be merged with Jos. A. Bank Clothiers. It also cited the sentiment given by Jos. A. Bank Chairman Robert Wildrick who said that his company would be receptive to being acquired by Men's Wearhouse provided that the latter would still pay the same premium of 42% that Jos. A. Bank Clothier offered. Shareholders of both firms seem to support the deal as evidenced by the rise of close to 10% of Men's Wearhouse shares and 11% increase of shares of Jos. A. Bank. Eminence Capital CEO Ricky Sandler is also itching for a deal. Sandler said the combined firms could create a value of as much as USD 2 billion. Eminence Capital is a 9.8% owner of Men's Wearhouse.
The report said that Men's Wearhouse is in a better position to acquire the firm because of its higher market capitalization. In addition, its bid does not contingent on financing. However, the negotiations between the two firms will now center on who the better acquirer is, which team will ultimately run the combined company and how premium will be allocated.
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