Men’s clothing retailer Jos. A. Bank Clothiers Inc. said it would buy outdoor clothing retailer Eddie Bauer for roughly $825 million. The company will pay $564 million in cash and issue about $4.7 million in new shares, valued at $56 each to an affiliate of Golden Gate Capital. Golden Gate Capital is the ultimate parent of Eddie Bauer. The buying company plans to finance the deal through a combination of cash and financing by Goldman Sachs & Co. Golden Gate Capital will also own part of the company, controlling 16 percent. Protecting itself against recent unwanted takeover bids is a major reason for this move.
The decision comes on the heals of the retailer rejecting a hostile takeover bid by Men’s Wearhouse. Company representatives said they considered selling to Men’s Wearhouse, but that in the end decided that buying Eddie Bauer was a better business decision. According to mergers and acquisitions lawyer Jerry Reisman, the retailer is determined to remain independent. The company believes that buying Eddie Bauer is the best way to do so. Buying Eddie Bauer makes them a more expensive company, and thus less attractive to unwanted takeover.
Jos. A. Bank has a long interest in the Eddie Bauer, and has been trying to buy or merge for roughly two years. Among other benefits, Eddie Bauer helps diversify the offered product line. Eddie Bauer benefits too. The company has struggled with finding truly profitable brand differentiators. Founded in 1920, it focused on outdoor clothing, competing with the likes of L.L. Bean and Lands’ End. In an effort to cover a relatively untouched niche, Eddie Bauer sought buyers of housewares and dressier clothing. Unfortunately, this failed to create a boon for the company. In an effort to protect itself against further losses, Eddie Bauer moved back to its original focus of outdoors clothing. However by this time, its rivals had taken over the gap left by its earlier refocus. The retail chain found it very difficult to recapture what it had lost. The Seattle-based retailer declared bankruptcy in 2009 and was purchased by Golden Gate. In a sense, Eddie Bauer was its own worst enemy.
Eddie Bauer estimates its 2013 revenue to be approximately $890 million. Analysts expect the company to report revenue of about $1.05 billion in 2013. Jos. A. Bank stated that the Eddie Bauer deal would create a company with more than $2.1 billion in revenue. It also expects the new company to immediately generate earnings.
Prior to Men’s Wearhouse offering to buy Jos. A. Bank, the target company made a similar offer to Men’s Wearhouse. Men’s Wearhouse rejected the $2.3 billion offer in October 2013.
Meanwhile, the company still can walk away from the deal if its board of directors agrees to accept any unsolicited offer to buy Jos. A. Bank. Not surprisingly, Golden Gate Capital initially resisted the stipulation, but eventually accepted it. Company president, Robert Wildrick, called it simply “good corporate governance.” However, The New York Times suggested another benefit. Men’s Wearhouse may proactively increase its earlier offer to buy them before the Eddie Bauer purchase drives doing so out of price range.
By buying Eddie Bauer, the retailer will benefit from having a more diversified product line. Meanwhile, Eddie Bauer will enjoy the stability of a longstanding parent company. Internally, Jos. A. Bank marketing managers should help their new associates finally nail down a strong brand identity. If the deal goes through, and is profitable, Men’s Wearhouse better start looking to protect itself against takeover.
By Ian Erickson