Men's Wearhouse Attempts an End Run Around Jos. A. Bank

In the long-running, never-ending, and increasingly hositle saga that is the takeover attempt between Men's Wearhouse and Jos. A. Bank , the former has decided to try an end run around its rival's intractable management by going over their head and appealing to the company's biggest shareholders.

In a letter to Jos. A. Bank's board of directors, Men's Wearhouse said it might be willing to raise its offer for the men's clothier if it could just get a peek at its books, and recommended its rival's independent directors form a special committee to reconsider its bid. The escalation in tactics is really an attempt to put pressure on the company by those who would stand to gain most from having the deal go through.

Ever since Bank first made the pitch to buy Men's Wearhouse last year, the two clothiers have piqued the interest of private equity investors who are acquiring growing stakes in the two firms. Eminence Capital, which has been leading the charge to have one company or the other to acquire its rival, has a 4.9% stake in Bank and a 9.8% position in Men's Wearhouse. BlackRock recently increased its holdings in both retailers, now holding a 8.7% stake in Men's Wearhouse and 9.4% in Jos. A. Bank.

Yet institutional shareholders have sizable positions as well. Some of the largest in Jos. A. Bank include Royce & Associates, with a near-10% position, one Fidelity mutual fund holds a similar sized stake, Manufacturers Life Insurance, controls 6.5% of stock, and Vanguard has 6% of the shares, while likewise holding a near-6% tranche in Men's Wearhouse. That makes it among the largest behind BlackRock.

Because large investors typically can sway management opinion, it's a smart move for Men's Wearhouse to take. It recently upped its original bid to $57.50 a stub and yesterday indicated that it could increase it beyond the $1.6 billion valuation it's already assigned the deal. It's why it believes the independent directors ought to huddle and reach a decision on their own, with, no doubt, a little encouragement from the institutional shareholders.

The Federal Trade Commission is snooping around the deal, asking for more information and seemingly validating the antitrust concerns Men's Wearhouse expressed when Jos. A. Bank was the pursuer. But because men's clothing is such a diverse and fragmented business, it's hard to believe there can be any real opposition to an acquisition. There are literally dozens of rival retailers and department-store chains that compete in the space, and one can even point to online shops for another layer of rivalry.

Jos. A. Bank has previously noted Macy's  sold about $5 billion worth of suits annually, while Nordstrom  sold $1.9 billion worth of men's apparel in 2012. This past quarter it said that despite an otherwise weak retail environment, men's apparel was a bright spot. Saks, which was recently acquired by Canada's Hudson Bay, also sold about $500 million worth of menswear. 

It's why analysts are fairly certain a merger of the two companies will go through, but it comes down to which retailer will be in control. At this point it appears Men's Wearhouse has momentum behind it, not least because it's adding the weight of large investors to its efforts. Yet if Jos. A. Bank can turn in some decent fourth-quarter numbers, it just might wrangle an even better deal for them in the end.