Pressured by activist investors to pursue growth, Men’s Wearhouse is the story of a clothing retailer that undertook an expensive and ultimately value-destroying acquisition. The firm had a history of growth and of making intelligent (value-enhancing) acquisitions, such as tuxedo rental business After Hours Formal Wear (later renamed Tux). Completed in 2006, the acquisition allowed Men’s Wearhouse to tap additional customers in an era of declining brick and mortar retail sales.

From 2009 to 2013, revenue and profitability at Men’s Wearhouse showed continuous improvement.

However, in 2013, the firm’s financial performance foundered.

To restore growth in revenue and profitability, the firm acquired competitor Jos. A. Bank in late 2014 for \($1.8\) billion after a heated bidding war. The final bid of \($65\) in cash for each Jos. A. Bank’s share represented a 56% premium to the closing price in early October 2013.The combined company had annual revenue of \($3.5\) billion and projected annual savings of \($100–150\) million consisting of lower overhead, more efficient marketing, and improved customer service. The combination of Jos. A. Bank, a seller of men’s tailored and casual clothing, US retail operations seemed to line up geographically with the larger Men’s Wearhouse, which operated in the United States, Canada, and Puerto Rico. The potential for substantial cost savings through elimination of overhead, redundant stores, and economies of scale and purchasing appeared substantial. But actually realizing these potential savings would be challenging.

The animosity that had been created between the management groups of both firms made collaborative premerger integration planning for the culturally disparate organizations difficult. Instead, closing occurred in an atmosphere of mistrust and insecurity among employees, as well as confusion and uncertainty among suppliers and customers. During the following 24 months, Men’s Wearhouse stock fell 70% from its level at closing reflecting investor concern about the long-term viability of the merger.

A specialty retailer of men’s suits and a provider of tuxedo rental in the United States and Canada, the new Men’s Wearhouse Inc. operates in two segments: retail and corporate apparel. The retail operation offers its products and services through its four retail merchandising brands and Internet Websites. The firm’s corporate segment provides corporate clothing uniforms and related work apparel.

As of December 2016, the firm operated a total of 1758 retail stores.

Private equity firm, Eminence Capital, which owned a 4.9% stake in Jos. A. Bank and a 10% position in Men’s Wearhouse prior to the takeover, had been pushing Jos. A. Bank to make a deal for months. In fact, both Men’s Wearhouse and Jos. A. Bank’s management teams had clung stubbornly to their desire to remain independent. Expressing growing impatience, Eminence Capital unsuccessfully took Jos. A. Bank to court to try to force the retailer to negotiate exclusively with Men’s Wearhouse....

Discussion Questions:

1. H ow does the size of the premium paid for Jos. A. Bank affect the pace and extent of postmerger integration?
2. H ow did private equity investments in both firms affect the size of the premium paid for Jos.
A. Bank? Were the Private equity firms simply interested in getting a deal since it boosted the value of their investment? Explain your answer.
3. What key external and internal factors affected postmerger integration?
4. H ow does a hostile takeover impact the likelihood of a successful integration?
5. What is the key premise underlying Men’s Wearhouse’s belief that the two firms can be successfully integrated? Was the premise correct? Be specific.
6. What is the fatal flaw in the integration effort?
7. G eorge Zimmer, the founder of Men’s Wearhouse, argued that the integration was too fast. Why would his argument to slow the integration make sense only if the premium paid had been smaller?