c.2013 New York Times News Service

c.2013 New York Times News Service

Menís Wearhouse didnít like the feeling of being up for sale.

The discount retailer had recently rebuffed takeover efforts by a smaller rival, Jos. A. Bank, arguing that the timing was opportunistic and the offer insufficient. But it turns out Menís Wearhouse is interested in doing a deal after all. It just wants to be the one writing the check.

On Tuesday, Menís Wearhouse abruptly turned the tables on Jos. A. Bank and bid $55 a share in cash to acquire its one-time suitor.

It is rare for the prey to become the predator, a strategy that harks back to a 1980s corporate maneuver known as the Pac-Man defense.

ďThe stars have to align in a way thatís rather rare for this to even be considered,Ē said Robert A. Profusek, head of mergers and acquisitions at the law firm Jones Day, who is not involved in the deal. ďYou have to have two companies in more or less the same business and more or less the same size, so you donít see it so frequently.Ē

There have been fewer than 20 Pac-Man deals over the past three decades, according to Thomson Reuters. The first came in 1982 when Martin Marietta began a retaliatory bid for Bendix, which was trying to buy it.

Only six of those deals succeeded, with the most recent in 1999 when TotalFina of France bid for Elf Aquitaine. Elf made its own bid for TotalFina, and after a contentious dispute, the two companies merged to create Total S.A.

The Menís Wearhouse offer values Jos. A. Bank at $1.5 billion, an 8.7 percent premium over its closing stock price Monday and 32 percent above its price in October, when Jos. A. Bank bid for its rival.

Jos. A. Bank acknowledged the proposal from Menís Wearhouse on Tuesday but did not say if it was inclined to do a deal. People close to the matter said the company only learned about the Menís Wearhouse offer Tuesday morning.

Yet with both sides acknowledging the merits of a deal, there is reason to believe Menís Wearhouse now has the upper hand. Jos. A. Bank shareholders will expect management to engage in discussions, and Eminence Capital, a hedge fund that owns 10 percent of Menís Wearhouse shares, cheered the offer.

Shares of the companies surged Tuesday, with Menís Wearhouse stock rising more than 7 percent to a five-year high, and Jos. A. Bank stock leaping more than 11 percent.

Jos. A. Bank shares closed at $56.29, a price that suggests investors believe a deal will get done, possibly at a higher price than $55 per share.

Menís Wearhouse was never opposed to a combination of the two companies, according to people briefed on the matter. But Jos. A. Bankís offer came shortly after Menís Wearhouse stock fell after disappointing quarterly earnings, timing that rankled the companyís management.

Instead, Menís Wearhouse contends that it is Jos. A. Bank that needs turning around. In a presentation that outlines its strategy for a merger, Menís Wearhouse suggests that it could find synergies through purchasing efficiencies, and improve customer service and marketing at Jos. A. Bank.

Should Menís Wearhouse succeed, however, it would most likely mean the exit of Jos. A. Bankís senior management, which could be a sticking point. Relations between the two companies frayed in recent weeks, and in its investor presentation, Menís Wearhouse complimented middle management but made no mention of senior executives.

Menís Wearhouse also said it would be able to do an all-cash deal without involving any third parties or taking on much debt. The Jos. A. Bank offer for Menís Wearhouse would have added substantial leverage to the combined company and was made in connection with Golden Gate Capital, a private equity firm.

ďWe believe we are the right acquirer for this combination and that our experienced management team is best positioned to execute the integration of our companies and achieve the synergies that would result,Ē William Sechrest, lead director of the board of Menís Wearhouse, said in a statement. ďWe are ready to engage with the Jos. A. Bankís board immediately.Ē


The twists and turns in this courtship began in early October when Jos. A. Bank made an unsolicited $2.3 billion bid for Menís Wearhouse, which rejected the offer and said it believed that its own turnaround plan would be better for shareholders.

Jos. A. Bank indicated later that it would consider raising its $48-a-share offer if it were allowed confidential access to Menís Wearhouseís books. Menís Wearhouse again rejected the offer, and Jos. A. Bank withdrew its bid this month, leaving the door open for talks in the future.

Bank of America and JPMorgan Chase are advising Menís Wearhouse, and Willkie Farr & Gallagher is providing legal advice.

Despite the patchy history of Pac-Man deals, experts say that in this case, given the appetite for a deal on both sides and the relatively similar size of each business, there is a greater likelihood of success.

ďThe minnow canít usually swallow the whale,Ē said Profusek of Jones Day. ďBut when itís two similarly sized fish, itís something you think about.Ē