Jos. A. Bank and Men's Wearhouse: You Need Each Other
This story has been updated from 9:52 am ET with new information.
NEW YORK ( TheStreet) -- Jos. A. Bank
While Men's Wearhouse has rejected Jos. A. Bank initial $2.3 billion cash takeover offer, investors applauded the proposed merger as a cunning solution to the struggles of two menswear retailer struggling for customers.
At present, though, Men's Wearhouse isn't interested in a marriage. The Houston-based retailer said the bid "significantly undervalues" the company and "is not in the best interests of Men's Wearhouse or its shareholders."
But maybe Men's Wearhouse can be convinced to come to the party.
Shares of both companies were surging on the news. Men's Wearhouse was up a whopping 29% to $45.32, reaching a six-year high while Jos. A. Bank shares were gaining 7.7% to $44.88. The market apparently envisions that this deal will eventually be approved, and Stifel Nicolaus analyst Richard Jaffe agrees.
"We believe this is a favorable deal," for Men's Wearhouse, Jaffe, who rates the company a "buy," said in an investor report. "The all-cash proposal should deliver a substantial premium to MW shareholders while creating the leading men's apparel and sportswear designer, manufacturer and retailer in the U.S."
It's not just Men's Wearhouse shareholders that could win. Jos. A. Banks arguably needs Men's Wearhouse.
The combination would create "significant operational synergies while increasing the scale with over 1,700 stores in North America," Jaffe writes. "In addition, both stores combined would offer compelling product and great brands across various price points."
Jos. A. Bank would benefit from Men's Wearhouse's strong tuxedo rental business, "a business JOSB has tried to enter, but we believe has been difficult for them," Jaffe writes. It could also benefit from "the more trend-right, branded merchandise offerings, including MW's recent Joseph Abboud acquisition."
Men's Wearhouse, on the other hand, would benefit from Jos. A. Bank's "strong omnichannel business," Jaffe writes, adding that Men's Wearhouse CEO Doug Ewert, "with his extensive expertise in merchandising and operations, would be an asset to the combined company."
The powerhouse men's suit wear business could eventually start buying up more specialized menswear retailers. One target could be Destination XL
"We believe the combination of all three companies would lead to an even more dominant player in men's retail as it would not only offer various price points, but also every size," Jaffe writes.
Both Men's Wearhouse, with roughly 1,100 stores , and Jos. A. Banks, with roughly 600 stores, sell suits, sport coats and sportswear and accessories. Both have been struggling this year, along with the larger apparel industry, as consumers spend their money elsewhere.