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.