Men's Wearhouse has rebuffed a $2.3 billion acquisition offer from Joseph A. Bank Clothiers, dismissing the proposal as "inadequate" and saying it could do better on its own.
After the bid Wednesday, Men's Wearhouse adopted a poison pill, or shareholder rights plan, that would be triggered if an outside investor acquires 10 percent or more of its common stock, or if an institutional investor takes a 15 percent stake.
The poison pill, a device used by companies to prevent hostile takeovers, expires Sept. 30, 2014, though Men's Wearhouse could end it earlier.
The $48 per share cash offer, which would create a menswear heavyweight with more than 1,700 stores in North America, is a 36 percent premium to the closing price of Men's Wearhouse shares Tuesday.
Men's Wearhouse shares closed Wednesday up 27.8 percent, at $45.03. Jos. A. Bank closed up 6.4 percent, at $44.33, on the Nasdaq. After the poison pill was announced, its shares fell 0.5 percent in after-hours trading.
(Read more: Retail softening, but online sales up: MasterCard)
Men's Wearhouse said the nonbinding offer undervalued the company and its growth prospects.
"We are confident that we can achieve total shareholder returns well in excess of what can be derived from Jos. A. Bank's unsolicited and inadequate proposal,'' Men's Wearhouse CEO Doug Ewert said in a statement.
In a statement late Wednesday, Jos. A. Bank said it would continue to pursue the deal at its initial $48 per share offer.
"The formulaic, knee-jerk rejection by Men's Wearhouse, and their refusal to even discuss our proposal, do not serve the interests of their shareholders or their customers,'' the company said in a statement.
Men's Wearhouse bought designer brand Joseph Abboud last month for about $97.5 million. The company said that deal, along with its expansion of full-service and outlet stores and its share of the formalwear market would push its stock higher than being bought by Jos. A. Bank.
Jos. A. Bank said the offer would be funded with a combination of cash-on-hand, debt and new equity, including a $250 million investment by private equity firm Golden Gate Capital.
Stifel Nicolaus analyst Richard Jaffe said in a note that the offer was probably too low compared with other recent specialty-apparel deals, where enterprise value was typically nine times earnings before EBITA.
By that measure, Jos. A. Bank should be proposing about $52 per share, Jaffe wrote, saying he expects the company to make a higher offer. But that would require the smaller company to take on more debt or to obtain more equity from Golden Gate, making the deal harder to carry off.
(Related video: People are bored with fashion cycle: Tamara Mellon)
As of Tuesday's close, Men's Wearhouse, based in Fremont, Calif., had a market value of about $1.68 billion and Jos. A. Bank $1.17 billion.
The company sells discount suits through 1,137 stores, according to its website.
Jos. A. Bank, with more than 600 stores, is a century-old seller of men's tailored and casual clothing, according to its website.
'I guarantee it'
Men's Wearhouse was founded in 1973 by George Zimmer, who appeared in the company's TV ads and always uttered the tagline, "I guarantee it." The company fired Zimmer in June, saying he had pushed to take it private.
Zimmer denied that he had agitated for a sale, insisting that he had only suggested it to the board as an option. He owned about 3.7 percent of Men's Wearhouse as of July 22, making him the eighth-biggest shareholder, according to Thomson Reuters data.
Net income at Men's Wearhouse more than doubled over the four years to Feb. 2, to $130.4 million; Jos. A. Bank's earnings seesawed over the same period but last year fell 18 percent, to $79.7 million.
Men's Wearhouse cut its full-year earnings forecast last month, saying weak economic conditions were affecting sales.
Jos. A. Bank, which makes heavy use of promotions, also reported a drop in quarterly sales but said it expected results to improve. Its shares have fallen about 2 percent so far this year, while those of Men's Wearhouse have risen about 13 percent.
Hampstead, Md.-based Jos. A. Bank said in June that it was considering opportunities to enhance shareholder value, including acquisitions. The company said a deal with Men's Wearhouse would "immediately and significantly'' add to earnings.
Jos. A. Bank is being advised by Goldman Sachs and Financo. Its legal advisers are Skadden Arps Slate Meagher & Flom and Guilfoil Petzall & Shoemake.