Jos. A. agrees to buy Eddie Bauer for $827M

Jos. A. Bank, the men's clothing retailer, said Friday it has agreed to buy Eddie Bauer for $827 million, a move to ward off a takeover bid from a competitor and to diversify its product lines beyond suits, tuxedos and work attire.

Jos. A. will pay $564 million in cash and about 4.7 million new shares of Jos. A. common stock to the owner of Eddie Bauer - Golden Gate Capital, a private equity firm - at $56 per share.

The share price represents a premium to Jos. A.'s Thursday closing price of $54.92

Shares of Jos. A. fell 1.9% Friday morning to $53.89.

Jos. A.'s future is also in flux and could be a target of acquisition itself. Men's Wearhouse offered last month a $1.61 billion bid to merge the two men's clothing retailers despite Jos. A.'s resistance. With the popularity of suits waning, investors of Men's Wearhouse have been clamoring for consolidation through mergers.

Jos. A. can walk away from the Eddie Bauer deal if its board of directors agrees to accept any unsolicited offer to buy Jos. A.

The Eddie Bauer deal "is intended to make the Men's Wearhouse hostile takeover of Jos. A. Bank more expensive for Men's Wearhouse and deter it in its attempt to take over Jos. A. Bank," said Jerry Reisman, a mergers expert at law firm Reisman, Peirez, Reisman and Capobianco.

But Jos. A. said it has been eyeing Eddie Bauer for months as a growth prospect to broaden its product lines. Starting early 2012, Jos. A. contacted Golden Gate on several occasions to discuss a deal.

"Eddie Bauer was one of the first acquisition candidates considered by Jos. A. Bank," the company said Friday. It "adds new categories such as women's apparel and footwear."

With new management installed by Golden Gate in mid-2012, Eddie Bauer generated about $895 million revenue last year and earnings of about $61 million before interest, taxes and other items.

Following the closing of the acquisition, Everest Topco, a Golden Gate corporate entity that owns Eddie Bauer, will own about ! 16.6% of Jos. A. and will have the right to name two directors to Jos. A. board.

Jos. A. said it'll buy back 4.6 million of its common shares, or 16.4%, at $65 per share if it completes the Eddie Bauer acquisition.

By adding more stores and product categories and expanding globally, the combined company is expected to generate more than $2.1 billion in revenue in 2014, Jos. A. estimated.

"We have long admired the Eddie Bauer brand and its widespread appeal among those with active lifestyles," said Jos. A. Chairman Robert N. Wildrick, in a statement.

Wildrick didn't comment specifically about Men's Wearhouse's most recent bid. But the company's board has reviewed "a number of strategic alternatives," including a possible acquisition of Men's Wearhouse and selling Jos. A. to Men's Wearhouse, he said.

While Jos. A.'s plan for now is to proceed with the Eddie Bauer acquisition, it "has preserved the ability to enter into an alternative transaction that creates greater value for our shareholders," he said.

The wiggle room that Jos. A.'s management kept for itself underscores the possible continuation of its "Pac-Man" battles with Men's Wearhouse, Reisman said.

In 2013, Jos. A. offered to buy the larger rival Men's Wearhouse, setting off a we-buy-you-before-you-buy-us fight between the companies' management teams.

By adding Eddie Bauer, Jos. A.'s valuation ostensibly increases and it may prompt Men's Wearhouse to reconsider its decision to bid for Jos. A. again. "Jos. A. has been a formidable foe against takeover," Reisman said.

Is Now The Time For Ross Stores?

Hot Low Price Stocks To Invest In Right Now

As of November 2013, Ross Stores (ROST) operated 1,285 off-price retail stores offering various apparel, accessories, footwear, and home furnishings items under the names Ross and dd's DISCOUNTS. Both of these chains primarily target 25 to 54 year-old value-conscious men and women in middle to moderate income households. Ross stores, the company's primary name, average 29,300 square feet of selling space and are located in 33 states, as well as the District of Columbia and Guam. dd's DISCOUNTS store average 23,800 square feet in 10 states. Almost all of the stores currently occupy leased facilities and are in neighborhood shopping centers. The stores are primarily located in heavily populated urban and suburban areas.

Ross Stores believes that it maintains a large competitive advantage by offering a varied assortment of quality brand name and fashion merchandise, with prices 20% to 60% lower than most department and specialty stores, all while being in an easy-to-shop environment. The vendors that company deals with are never ending. Ross Stores currently deals with more than 7,900 vendors and manufacturers. They are able to offer their extremely low prices by taking advantage of supply and demand imbalances, and making their purchases later in the buying cycle than most major retailers. Many purchases of cancellations and overruns are purchased, providing perfect opportunity. The majority of orders exclude promotional and markdown allowances, as well as return privileges. Again, more reasons as to why buyers are able to obtain significant discounts on the current-season purchases.

Financial Concepts

Ross increases sales by opening new stores and retail concepts, as well as same-store sales increases. Comps increased 6% in fiscal year 2013, and 5% in fiscal year 2012. Store sales were broken down as follows: children's 8%, shoes 13%, accessories, lingerie, fine jewelry and fragrances 13%, men's 13%, home, bed, and bath 24%, and ladies' 29%.

A large proponent to margins has been the opportunistic purchasing of end-of-season items that are being held for sale the following year. The company believes that these purchases are an effective way to increase the amount of national brands in its assortments.

The company has massive potential for growth, currently only being in 33 states. During fiscal year 2013, Ross opened 62 new stores, including the entrance into three new states: Kansas, Kentucky, and Indiana. The company also opened 20 new dd's stores. Ross believes that its long-term store potential is 2,500 locations in the U.S.

Ross has more current assets than they do total liabilities. Total assets rest at roughly $4 billion with total liabilities at $2 billion. The company's dividend yield is close to a 3-year high and the P/B ratio is close to a 2-year low. The company's operating margin is expanding over time, and the per share revenue indicates consistent growth for the company.

Valuation

Utilizing GuruFocus.com's DCF Calculator tool, we are able to see a fair value for Ross Stores of $100.49. This gives us a margin of safety of 31%, right where we want to be. This calculation uses an estimated 20% growth rate over the next 10 years, with a terminal growth rate of 4% and a discount rate of 12%.

According to Peter Lynch's calculation of fair value (PEG * 5-Year EBITDA Growth Rate * Earnings per Share), the company is currently worth $98.10 per share. This also gives us a comfortable margin of safety.

End Notes

Disclosure: No current position held at the time of writing.

Disclaimer: The opinions and ideas in this article are for informational and educational purposes only. They are not a recommendation to buy or sell any stock at any given time. As always, it is imperative for each individual investor to do their own due diligence and perform their own research on any and all stocks before making an investment decision.

About the author:David KerrPreviously licensed to sell securities, David now utilizes his knowledge and experience solely for the purpose of growing his own personal portfolio and educating those around him.

Currently 5.00/512345 Rating: 5.0/5 (2 votes)

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Why You Shouldn't Overlook Amgen, Inc.

Fourth-quarter results released by Amgen (NASDAQ: AMGN  ) were roughly in line with Wall Street estimates. So, while shares didn't react particularly strongly (and have pretty much tracked the wider Nasdaq index since their release), there were a number of positives in the results that investors should be happy to hear about.

Fourth quarter 2013
Indeed, total revenues in the fourth quarter increased by 13% to just over $5 billion, with product sales growing by 11%. This was despite the end of the Enbrel profit share, making the top-line figures arguably more impressive than at first glance. Furthermore, adjusted earnings per share grew by 30% to $1.82 in the fourth quarter, although a lower tax rate and the inclusion of Onyx Pharmaceuticals (which was acquired in October) help to sweeten this figure somewhat, while increased research and development expenses pinned back earnings growth to an extent.

Product sales growth
Key products that contributed to fourth-quarter sales growth included combined Neulasta and Neupogen sales, which increased by 8%, and Xgeva sales, which increased by 33% in the fourth quarter (versus the fourth quarter of 2012) as a result of higher unit demand. This makes Xgeva the seventh best-selling drug in Amgen's stable.

Interestingly, most of the drugs that experienced significantly higher sales volumes in the quarter were a result of higher demand, as opposed to higher prices. This could be good news for Amgen's medium- to long-term outlook, as it isn't generating higher sales simply from raising prices. Therefore, it could be argued that the current levels of sales growth could be more sustainable than if they had been a result of simply increasing prices.

The pipeline
Looking ahead, Amgen has multiple projected milestones for its late-stage pipeline in 2014. Phase 3 data from Evolocumab, whose lead indication is Dyslipidemia, is expected in Q1 2014, while a U.S. filing for chronic heart-failure drug, Ivabradine, is expected this side of July. In all, there are six different drugs for which phase 3 data is due to be received in 2014, with a phase 2 trial also set to be completed for Blinatumomab, whose lead indication is relapsed/refractory acute lymphoblastic leukaemia, in the first half of the year, too.

An exciting sector?
Amgen's results paint an exciting picture for drug development in 2014, with the company having a relatively strong pipeline -- especially in later-stage assets. As sector peer Alexion (NASDAQ: ALXN  ) reported in its fourth-quarter update, the biotechnology space seems to be gathering momentum in 2014.

Indeed, Alexion is seeking further marketing approvals, particularly for its Soliris drug, which was originally approved in 2007 for the treatment of a life-threatening condition called paroxysmal nocturnal hemoglobinuria. These additional approvals (which include the use of Soliris as an orphan treatment for the prevention of delayed graft function -- granted just last month) caused Alexion to increase its own sales guidance for 2014.

In addition, sector peer Biogen (NASDAQ: BIIB  ) has received European Commission aproval for its new multiple sclerosis drug, Tecfidera, and will launch the product in H1 2014. The potential in Europe for the drug seems vast, since it has become the most prescribed pill for the treatment of multiple sclerosis in the U.S. since Biogen gained approval for it in 2013.

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Amgen in 2014
Overall, Amgen delivered an impressive set of fourth-quarter results, where it posted double-digit sales and profit growth. This, allied to the relative strength of its product pipeline and multiple regulatory milestones expected this year, means that 2014 could be another exciting year for investors.

Two game-changing biotechs
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