A real life example of Mergers and Acquisitions can be seen in the recent back and forth between Men’s Wearhouse and Jos. A Banks Clothiers Inc. Earlier in the Year Jos. A Banks offered to buy out Men’s Wearhouse only a month ago, yet after declining this deal Men’s Wearhouse turned around and offered to buy Jos A. Banks for 1.54 billion. According to the article investment banks routinely have been pushing for this merger for several years but only until recently has anything actually come from the advice.
The main reason for merging the two companies is due to cost savings and increased sales. -Ed Bosek, a managing member of New York-based hedge fund BeaconLight Capital LLC, which owns shares of both retailers, said in phone interview. “You put these two companies together and you have the biggest publicly listed men’s apparel company with potentially very high margins and a good business.”- This clearly is an economies of scale story. Through combining different administrative departments, costs would decrease and the combined market share would allow for further cost savings. Men’s Wearhouse has the ability to finance the acquisition through cash unlike Jos A Banks.
This scenario shows that there are benefits from merging companies. An interesting follow up question to this article would be what percent of the market do both companies control and how much they would be expected to have after the merger.
http://www.bloomberg.com/news/2013-11-26/men-s-wearhouse-offers-to-buy-jos-a-bank.html
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Do you think that the merger will benefit the new single firm? We learned in class that mergers are often not beneficial, unless the number of firms is being reduced from two to one. Is this a case where the economies of scale will make the merger profitable for both firms?
In the case of Men’s Warehouse and Jos A Banks, it seems that the merger is forming a clearly dominant firm within their particular market, which would make it a compelling deal to execute. It will be interesting to see if there are any unforseen negative synergies, or if management and capital of the two companies come together cohesively.
While a merger may be more profitable for both firms, would this be beneficial to consumers? Determining concentration and their market power would help to determine this. Murmurs of antitrust issues point to a reduced consumer surplyus. Men’s Wearhouse’s turnaround offer has been dubbed the “Pac Man Defense” — meant to give their company the perception of control instead of Jos A Banks.
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