Analysis: Men's Wearhouse alterations could backfire on retailer

Mon Nov 25, 2013 1:17pm EST
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By Nadia Damouni and Olivia Oran

NEW YORK (Reuters) - If Men's Wearhouse Inc MW.N was hoping that activist shareholder Eminence Capital LLC was going to go away quietly after the retailer boosted its anti-takeover defenses, it's likely to be sorely disappointed.

Although Jos. A. Bank Clothiers Inc JOSB.O walked away from a deal earlier this month after Men's Wearhouse board rebuffed its $48-a-share offer, and prevented it from conducting due diligence, the suitor's language that it still felt a deal was in the best interest of shareholders for both companies has resonated with investors.

Eminence and other hedge funds that hold about 30 percent of Men's Wearhouse shares see the retailer as an undervalued stock that would benefit from striking a deal with its competitor. Some of these new holders have even crept into the top 20 shareholder list, according to sources at the funds.

And over the past week New York-based Eminence has been trying to persuade other hedge funds and investors to go on the offensive to get the reluctant company to accept a takeover from Jos. A. Bank.

"It certainly does add to the pressure if lots of stock is flowing from long-term investors to shorter-term, event-driven investors," said Spencer Klein, a partner at law firm Morrison Foerster.

Eminence, known for investing in deeply undervalued stocks, is waiting for regulators to approve a consent solicitation that allows investors holding a combined 10 percent stake in Men's Wearhouse to call a special shareholder meeting by February 14 of next year.

At that meeting, Eminence will try to overturn a company requirement for two-thirds of shareholders, or a "supermajority," to amend the bylaws instead of a majority or 51 percent. If that passes, then a second special meeting would be called to vote on replacing Men's Wearhouse board of directors.

"This is a provision that will strike a chord in both sets of investors. Probably more so with the long-only investors who, quite frankly, want to be long-term investors. They support a company for a number of years, they have a stock price that has underperformed," Eminence's Sandler told Reuters Wednesday.   Continued...

The Men's Wearhouse sign is seen outside its store in Westminster, Colorado September 11, 2013. REUTERS/Rick Wilking