Back in the 1980s, it was called the Pac-Man defense: a company under attack decides to turn the tables and try to acquire its suitor.
This is what the Men’s Wearhouse decided to do Tuesday when it offered to buy Jos. A. Bank Clothiers for about $1.54 billion in cash and debt.
“Following Jos. A. Bank’s unsolicited public proposal to acquire Men’s Wearhouse, our board of directors evaluated a number of alternatives to deliver value to our shareholders,” said William Sechrest, lead director of the board of the Men’s Wearhouse, in a press release, adding that an acquisition of Jos. A. Bank “has strategic logic and the potential to deliver substantial benefits” to shareholders, employees and customers.
“We believe we are the right acquiror 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,” he added.
This was sort of what Ricky Sandler of the New York hedge fund firm Eminence Capital had in mind when he initially lambasted the Men’s Wearhouse last week for turning down the earlier takeover offer from Jos. A. Bank Clothiers and made public a detailed presentation describing how shareholders can unlock as much as $2 billion in value. He did make the case that a merger between the two companies was one option, stressing in a CNBC interview last week that he would have no problem with Men’s Wearhouse being the buyer. “There are multiple ways for this to work out,” he said in the rare TV interview.
In a statement issued Tuesday, Sandler said, “We are pleased to see that the board of Men’s Wearhouse agrees with us and recognizes the substantial benefits of merging with Jos. A. Bank.”
Seeing the target buy its would-be acquirer is a rare occurrence — and very nostalgic. In fact, you have to go back to the early 1980s to remember when this strategy was first deployed and succeeded for the first time.
Back then, activists were called corporate raiders and tried to buy companies, bust them up and sell different parts of them. Some of them would hold out for greenmail — payoffs to go away — before the tactic was banned by some states and generally frowned upon in many circles.
In any case, M&A-philes may recall the headline-grabbing drama that played out in 1982 when Bendix Corp., an engineering company headed by celebrated CEO William Agee, made a hostile takeover offer for defense giant Martin Marietta Corp. However, before Agee could take full control of the company, Martin Marietta started shedding assets — known then as the scorched-earth defense (and you thought today’s activists invented corporate drama). Martin Marietta then started buying up shares of Bendix and made its own bid for the company, with United Technologies Corp. coming in and teaming up with Martin Marietta. Alas, Allied Corp., then a huge chemical company, suddenly swooped in and bought Bendix in 1983 and Martin Marietta remained independent.
In the late 1980s the Pac-Man defense actually worked. In 1987, E-II Holdings — part of the former Beatrice Companies controlled by Donald Kelly and including businesses such as Samsonite luggage and Culligan water softener — bought a sizable stake in tobacco giant American Brands and threatened to make an unsolicited takeover offer. American Brands instead wound up acquiring E-II for $1.1 billion.
The Men’s Wearhouse and Jos. A Bank are much smaller companies than those pugilistic giants of the 1980s. But it is fun to relive the old days, when corporate raiders were glamorized by the financial media — much as today’s activist hedge funds are.
Most important: Shareholders of both companies are benefiting. Shares of the Men’s Wearhouse jumped more than 5 percent Tuesday morning, while Jos. A. Bank surged more than 10 percent.
