Updated, 8:35 p.m. | The man who inadvertently lit the fuse that led to the hottest takeover battle in years was left unmentioned in the announcement of a $1.8 billion merger of two once-warring men’s suits chains.
Despite repeated inquiries from reporters, George Zimmer, the genial, bearded founder of Men’s Wearhouse, has been almost entirely absent from public view during six months of bids, counter bids, lawsuits and invective that were furiously lobbed back and forth by his former company and Jos. A. Bank Clothiers. Ending the hostilities, Men’s Wearhouse agreed on Tuesday to buy its rival for $65 a share in cash.
Yet the origins of the deal stretch back nearly a year to when Mr. Zimmer, known for television spots with his tagline, “You’re gonna like the way you look — I guarantee it,” surreptitiously began contemplating taking the company private.
After installing his chosen successor as chief executive, Mr. Zimmer stepped down in 2011, becoming chairman of the board. At first, Mr. Zimmer was supportive of the new chief, Douglas S. Ewert, deferring to him in board meetings and endorsing his strategy. But by early last year, Mr. Zimmer’s opinion of Mr. Ewert had soured.
Related Links
Document: News ReleaseHe disagreed with Mr. Ewert’s efforts to sell a subsidiary, protested ballooning pay packages for Mr. Ewert and other executives, and wanted veto power over other matters typically left to management.
“I began to lose confidence in him,” Mr. Zimmer said in a rare interview with Fortune last year.
Then in April, Mr. Zimmer was in San Francisco attending the Conscious Capitalism meeting, a conference of progressive business leaders led by John Mackey, chief executive of Whole Foods.
Mr. Zimmer had a penchant for the New Age, inviting Deepak Chopra, the author and holistic guru, to join the Men’s Wearhouse board, and supporting efforts to legalize marijuana. And between panels on “The Conscious Leader’s Journey” and “An Expanded Perspective on the Bottom Line,” Mr. Zimmer talked with investment bankers who advocated taking Men’s Wearhouse private.
The company’s stock had come down from its record highs, debt was cheap and going private might allow Mr. Zimmer to reassert his influence. After the conference, Mr. Zimmer called the board to discuss the idea.
For Mr. Ewert, that was the final straw. The company founder could not let go and had become too meddlesome, he contended. In June, Mr. Zimmer was fired as chairman.
Almost accidentally, Mr. Zimmer had slapped a red-letter “Sale” sign on the company he founded.
Thousands of miles away from the Men’s Wearhouse headquarters in Houston, investment bankers at Goldman Sachs and Financo in New York were watching the boardroom drama with interest. In late summer, they suggested that their client, Jos. A. Bank, bid for Men’s Wearhouse.
“We were aware that some private equity firms were interested, and that piqued our interest,” Robert N. Wildrick, the chairman of Jos. A. Bank, said in an interview on Tuesday. “We thought maybe they were interested in selling.”
It was an audacious move. Jos. A. Bank was the smaller company, and Men’s Wearhouse had not signaled any appetite for a deal. Nonetheless, in October, Jos. A. Bank offered $48 a share, or $2.3 billion, for Men’s Wearhouse, setting off one of the most convoluted deal processes in recent years.
A merger had an inescapable logic.
The two companies have been fierce competitors in men’s apparel, often battling directly with each other to hit the lowest possible price. Nonetheless, they also have a somewhat different core customer, with Jos. A. Bank selling its own label and Men’s Wearhouse aiming for a younger audience more concerned with fashion.
Yet the surprising initial offer was swiftly rejected by Men’s Wearhouse, which said that it “could raise significant antitrust concerns.” The company adopted a poison pill, and soon began exploring an acquisition of the shoemaker Allen Edmonds in a deal some viewed as a defensive move.
By late October, pressure for Men’s Wearhouse to engage in deal talks was increasing. Jos. A. Bank offered to raise its bid if it gained access to Men’s Wearhouse’s books, and the hedge fund Eminence Capital called for Men’s Wearhouse to engage in talks.
Men’s Wearhouse had other plans, however. After Jos. A. Banks terminated its offer, Men’s Wearhouse waited less than two weeks before turning the tables and making a $1.5 billion offer for its former suitor.
The so-called Pac-Man defense, in which prey turns predator, was nearly as bold as Jos. A. Banks’s minnow-swallowing-the-whale play. First used in the 1980s, Pac-Man defenses have rarely worked.
But there was reason to think this one might. Mr. Wildrick told The Wall Street Journal that his company was “receptive to being bought instead,” and both companies’ stocks rose on hopes of a deal. Nonetheless, a few days before Christmas, Jos. A. Bank rejected the offer from Men’s Wearhouse, calling it inadequate.
Men’s Wearhouse was undeterred. In the first days of the year, it went hostile, raising its bid to $1.6 billion and stating its intention to nominate new directors to the Jos. A. Bank board.
The offer was again rejected. But soon Eminence, which had previously pressed Men’s Wearhouse to talk, was doing the same to Jos. A. Bank.
Ricky Sandler, founder of Eminence, accused Mr. Wildrick and other board members of being “more interested in protecting your own lucrative and prestigious board seats than in delivering value for your shareholders.” He sued Jos. A. Bank in Delaware court.
Still, Jos. A. Bank stood fast. And by February, it had agreed to buy the outdoors apparel maker Eddie Bauer for just less than $1 billion from Golden Gate Capital, a private equity firm that had agreed to help finance its initial bid for Men’s Wearhouse.
While Jos. A. Bank made the argument that diversifying was a prudent strategy, the move to buy Eddie Bauer was seen by some as a defensive strategy, intended to make it harder for Men’s Wearhouse to succeed, but also as a tactic that could draw out a higher bid. What is more, Jos. A. Bank agreed to pay Golden Gate a break fee of $48 million if the deal for Eddie Bauer fell apart.
Late last month, Men’s Wearhouse raised its bid for Jos. A. Bank, offering $63.50 a share, or almost $1.8 billion, and signaled it would pay as much as $65 a share if it could conduct limited due diligence. Soon the companies had agreed to meet.
Negotiations continued through the weekend, and Men’s Wearhouse agreed to increase its bid to the final price of $65 a share only in recent days, as Mr. Wildrick and the Jos. A. Bank board and advisers continued to press their case from Palm Beach, Fla.
The agreed offer of $65 a share in cash represents a 56 percent premium to where Jos. A. Bank’s stock price was before it made its first move. Among the terms of the deal, Jos. A. Bank will terminate its agreement to acquire Eddie Bauer.
The combined company expects to have annual revenue of about $3.5 billion. Improved purchasing power, lower overhead, and more efficient marketing and customer service should save at least $100 million a year.
“There is room for both brands,” said Marshal Cohen, chief industry analyst at NPD Group, a retail research company.
Left out is Mr. Zimmer, who founded Men’s Wearhouse in 1973 in Houston, selling $25 polyester sports coats. The first cash register was a cigar box, and Mr. Zimmer drove the company van everywhere he went.
Despite briefly flirting with the idea of a private equity-backed takeover, Mr. Zimmer acknowledged in the Fortune interview last year that his time had passed.
“I’m not really thinking about being involved in the Men’s Wearhouse anymore,” he said.
Elizabeth Harris and Michael J. de la Merced contributed reporting.