Men’s Wearhouse Plays Defense

On September 18, 2013 men’s clothing retailer Jos. A. Bank (ticker JOSB) made a $2.3 billion unsolicited offer to acquire larger rival Men’s Wearhouse (ticker MW). JOSB was seeking to take advantage of MW during a vulnerable time for the company. The MW Board of Directors had dismissed its founder, public spokesman and executive chairman George Zimmerman in June due to disagreements over company strategy. Shortly afterwards, the company announced a cut in its expected profit forecast. Even though the offer price was a substantial premium to MW’s market price, the MW Board considered it below the intrinsic value of the company. After rejecting the offer, the Board implemented a flip-in poison pill that would allow existing shareholders to acquire stock at a discount if a third party acquires more than 10% of the company in a transaction not approved by the Board. In November, MW went a step further by undertaking a Pac Man strategy, launching its own $1.5 billion unsolicited offer to acquire the smaller JOSB. The JOSB Board rejected the unsolicited offer, declaring it too low and not in the best interest of shareholders. MW vowed to continue its pursuit of JOSB, possibly by nominating its own directors at the next JOSB shareholder meeting. On January 6, 2014, MW further increased the pressure on JOSB by increasing its bid from $55.00 per share to $57.50 per share, placing a value of $1.6 billion on the company. There is still a chance the two companies will combine their operations, as most analysts believe it makes strategic and financial sense. But who will play the role of acquirer and who...

Character is Destiny — Especially on the Downside

What do Calisto Tanzi, Bernie Ebbers, and Edward Groves have in common? Several things, actually.   For one, they all ran major companies. Tanzi was CEO of Parmalat, an Italian food company; Ebbers was CEO of WorldCom, an American telecommunications firm; and Groves was CEO of ABC Learning Centres, an Australian day care provider.   For another, each was a hard-driver who started small and made it very big. Tanzi built a global company from one pasteurization plant. Ebbers turned a rural telephone exchange into the third largest telecommunications company in the United States. Groves began with a single childcare center and grew it into the largest day care company in the world.   Another thing was they all owned professional sports teams. Tanzi had a Serie A football team, Parma F.C.; Ebbers had a minor league hockey team, the Jackson Bandits; and Groves had a basketball team, the Brisbane Bullets.   Yet another common point is that all of them were involved in massive misstatements of their companies’ finances. Tanzi kept enormous amounts of debt off Parmalat’s balance sheet, while Ebbers and Groves kept tremendous amounts of costs off their companies’ income statements.   The final thing they have in common is prison. Tanzi has been sentenced to ten years, and Ebbers is serving a 25-year sentence. Groves has yet to face criminal charges, but he may end up in jail yet.   So what does all this mean? Is owning a professional sports team an early warning sign of financial fraud? Not really. But it does mean Tanzi, Ebbers, and Groves shared traits that led to their...