Men's Wearhouse said it had entered into a non-disclosure agreement with Jos. A. Bank Clothiers Inc and received a draft merger agreement from the smaller company.
The two men's apparel retailers, leaders in a mature market, have bid and counterbid for each other since October.
Jos. A. Bank rejected Men's Wearhouse's revised $1.78 billion takeover offer last week, but said it would be willing to discuss a higher bid.
Men's Wearhouse raised its cash tender offer to Jos. A. Bank shareholders to $63.50 per share from $57.50, and said it could increase the offer to $65 if it was allowed limited due diligence.
(Read more: Jos A Bank's cash hoard trips up Men's Wearhouse)
The two companies have agreed to exchange certain confidential information and to work in good faith to evaluate a potential combination, Men's Wearhouse said on Monday.
Jos. A. Bank started the bidding with an offer to buy Men's Wearhouse in October. Men's Wearhouse turned the tables with its own offer and then, in January, went hostile by taking its offer to Jos. A. Bank's shareholders.
Jos. A. Bank offered to buy outdoor clothing retailer Eddie Bauer in February in an effort to remain independent.
(Read more: Men'sWearhouse raises offer for Jos A Bank)
The company's shares were up slightly in premarket trading. They have gained about 50 percent in the year to their Friday close of $62.08 on the Nasdaq. (Click here for the latest quote.)
Men's Wearhouse shares have risen about 91 percent to Friday's close of $53.79 on the New York Stock Exchange. (Click here for the latest quote.)