Jos. A. Bank, the men's clothing retailer, said Friday it has agreed to buy Eddie Bauer for $827 million, a move to ward off a takeover bid from a competitor and diversify its product lines beyond suits, tuxedos and work attire.
Jos. A. will pay $564 million in cash and about 4.7 million new shares of Jos. A. common stock to the owner of Eddie Bauer -- Golden Gate Capital, a private equity firm -- at $56 per share.
The share price represents a premium to Jos. A.'s Thursday closing price of $54.92
Shares of Jos. A. fell 1.9% Friday morning to $53.89.
Following the closing of the proposed deal, Golden Gate will own about 16.6% of Jos. A. and will have the right to name two directors to Jos. A. board.
Jos. A.'s future is also in flux and could be a target of acquisition itself. Men's Wearhouse offered last month a $1.61 billion bid to merge the two men's clothing retailers despite Jos. A.'s resistance.
Jos. A. can walk away from the Eddie Bauer deal if its board of directors agrees to accept any unsolicited offer to buy Jos. A.
The Eddie Bauer deal "is intended to make the Men's Wearhouse hostile takeover of Jos. A. Bank more expensive," said Jerry Reisman, a mergers lawyer at law firm Reisman, Peirez, Reisman and Capobianco.
But Jos. A. said it has been eyeing Eddie Bauer for months as a growth prospect to broaden its product lines. Starting early 2012, Jos. A.'s management has contacted Golden Gate on several occasions to discuss a deal.
"Eddie Bauer was one of the first acquisition candidates considered by Jos. A. Bank," the company said Friday. It "adds new categories such as women's apparel and footwear."
Eddie Bauer has struggled for years with brand identity, shifting from its heritage of outdoor and sportswear to dressier products and home-care goods like table linens. It switched its focus back to outdoor wear in the early 2000s but lost momentum and sales to competitors like Land's End, L.L. Bean and J. Crew.
The Seattle-based retailer declared bankruptcy in 2009 and was eventually purchased by Golden Gate. In 2012, Golden Gate appointed new management, and sales began to improve with a more disciplined approach to products and merchandising. Last year, revenue totaled about $895 million, while the company earned about $61 million in earnings before interest, taxes and other items.
With plans to add stores and expand globally, the combined company is expected to generate more than $2.1 billion in revenue in 2014, Jos. A. estimated.
"We have long admired the Eddie Bauer brand and its widespread appeal among those with active lifestyles," said Jos. A. Chairman Robert N. Wildrick, in a statement.
Jos. A. said it'll buy back 4.6 million of its common shares, or 16.4%, at $65 per share if it completes the Eddie Bauer acquisition. An effort to prevent the dilution of its stock, Jos. A.'s buyback -- along with having to raise the cash to pay for Eddie Bauer -- will increase the company's debt, Reisman said.
Wildrick didn't comment specifically about Men's Wearhouse's most recent bid. But the company's board has reviewed "a number of strategic alternatives," including a possible acquisition of Men's Wearhouse and selling Jos. A. to Men's Wearhouse, he said.
While Jos. A.'s plan for now is to proceed with the Eddie Bauer acquisition, it "has preserved the ability to enter into an alternative transaction that creates greater value for our shareholders," he said.
The wiggle room that Jos. A.'s management kept for itself underscores the possible continuation of its battles with Men's Wearhouse. Last year, Jos. A. offered to buy the larger rival Men's Wearhouse, setting off a we-buy-you-before-you-buy-us fight between the companies' management teams.
Men's Wearhouse retaliated with a "Pac-Man" defense tactic by offering a bid of its own to buy Jos. A., Reisman said.
By buying Eddie Bauer, Jos. A.'s valuation ostensibly increases and it may prompt Men's Wearhouse to reconsider its decision to bid for Jos. A. again.