Men's Wearhouse & Jos. A. Bank Merger Being Discussed
A little after Jos. A. Bank Clothiers' offer of $2.3 billion to acquire Men's Wearhouse was rejected, Men's Wearhouse employed what is known as the Pac-Man defense by offering $1.5 billion to purchase Jos. A. Bank Clothiers.
The Pac-Man defense is a tactic used where one company offers to buy out its rival, and instead of the rival accepting, the rival rejects the offer and attempts to take over the initial company by making a buy-out offer of its own.
Historically, companies that utilize the Pac-Man defense often resulted in benefits for shareholders. One of the major concerns is whether the money spent on the acquisition will negatively affect the business' ability to grow economically. This is because a significant amount of funds that would otherwise be spent on improving the company are instead allocated to lawyers and other professionals.
One thing is certain: both companies believe they have something to gain out of merging with the other. The big question is which company should be running the show. With a market capitalization of $2.4 billion, Men's Wearhouse is larger and is in a stronger position as a result. Because of their size, Men's Wearhouse could complete the transaction on more favorable economic terms. The debt that Jos. A Bank would have needed to take on in order to take over their larger rival would be more costly.
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With a mutual interest in each other, and with shareholders from both companies pressuring both companies to agree to some sort of a deal, there is no risk of a hostile takeover. A hostile takeover occurs when one company is purchased essentially against its will. Men's wearhouse has also taken measures to further prevent a hostile takeover by announcing an adoption of a shareholder rights plan. This is also known as a poison pill.
With two major companies coming together, some have expressed concern regarding antitrust issues. While any deal will endure some amount of regulatory scrutiny, industry observers do not expect any serious complications to arise.
Though it is unclear which management team will come out on top, discussions of a merger have resulted in a stock price increase for both retailers.
In the mean time, Jos. A. Bank has not specified a timeframe on when they expect to come up with an answer.
Mergers and acquisitions have strong pros and cons that should be fully explored before making a final decision. If your business needs corporate law advice, contact a business law attorney in your area today.
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