U.S. Jos. A Bank Clothiers to buy Eddie Bauer
Jos. A. Bank Clothiers Inc. announced last Friday that it agreed to buy retailer Eddie Bauer for USD 825 million in cash and stock
The takeover battle is getting more complicated. Men’s Warehouse made a bid to buy Jos. A Bank Clothiers and was turned down. The bid is valid until March 28, 2014 with an offered USD 57.50 a share. Before Jos. A. Bank tried to take over Men’s Wearhouse and the answer was a counter bid.
Eddie Bauer is privately owned (Golden Gate Capital) and the terms of the deal, which also includes a Jos. A. Bank stock buyback, seems to be structured to counter any contention that the suit seller is making the acquisition to thwart Men’s Wearhouse. The agreement contains an unusual clause for buyers lets Jos A. Bank terminate the Eddie Bauer deal if it gets an offer the board thinks will create more value for shareholders than the Eddie Bauer deal coupled with the stock buyback.
It seems that Jos. A. Bank have been looking at and discussing Eddie Bauer for years. At the same time, the purchase price represents a high multiple for a retail deal, and the company is taking on debt to the transaction. It is paying more than 13 times Eddie Bauer’s earnings before interest, taxes, depreciation and amortisation (EBITDA). Typically retail companies sell for around eight times EBITDA.
The deal will put Jos. A. Bank further out of its comfort zone, then if it were to combine with Men’s Wearhouse, which also sells suits and caters to men. Eddie Bauer makes casual clothing, sportswear and outerwear for men, women and children. The retailer owns around 3709 stores in the U.S. and Canada. Jos.A. Bank agreed to pay a “breakup” fee of USD 48 million if the deal were to collapse, meaning to make any takeover by Men’s Wearhouse that much more costly.
The actual owner of Eddie Bauer, Golden Gate Capital will receive USD 564 million in cash and about 4.7 million news shares at USD 56 a share for Eddie Bauer. Golden Gate will own about 16.6 % of Jos. A. Bank’s shares outstanding after the closure of the deal, and will be getting two seats at the board. Jos. A. Bank will finance the deal in part by borrowing up to USD 900 million from Goldman Sachs Group, who also advises the company. The retailer will repurchase up to 4.6 million of its shares at USD 65 a share, or up to USD 300 million, if it completes the Eddie Bauer purchase. This puts Men’s Wearhouse on pressure to put forward a deal that the Jos. A. Bank board would judge as superior to the Eddie Bauer transaction. With other words, the story is not finished yet.