Zimmer Lashes Out at Men's Wearhouse Board in Open Letter

Source: Men's Wearhouse

A week after he was ousted as executive chairman of Men's Wearhouse, George Zimmer on late Wednesday fired off an angry, open letter to the retailer he founded 40 years ago.

Zimmer said the retailer's board has hurt Men's Wearhouse's values, and encouraged the board to consider a full range of possibilities for the men's retailer to maximize shareholder value.

Earlier this year, the executive said he had urged the board to consider strategic alternatives including the possibility of going private.

Zimmer: Board Tried to 'Marginalize,' 'Silence Me'

"Rather than thoughtfully evaluating the idea or even checking the market to see what value might be created through such strategic alternatives, the Board quickly and without the assistance of financial advisors simply rejected the idea, refused to even discuss the topic or permit me to collect and present to the board any information about its possibilities and feasibility, and instead took steps to marginalize and then silence me," said Zimmer in the letter.

"The directors were more concerned with protecting their entrenched views and positions than considering the full range of possibilities that might benefit our shareholders and indeed all our stakeholders," Zimmer said in the letter.

"The reality is that over the past two years, and particularly over recent months, I believe that the board and management have been eroding the principles and values that have made The Men's Wearhouse so successful for all stakeholders," he said in the letter.

Buyout Possibility?

A Men's Wearhouse buyout is not likely, according to an equity research analyst at Stifel.

He recently met with the retailer's newly appointed chief executive Doug Ewert. The analyst Richard Jaffe said in a research note earlier Wednesday that a buyout would also be "highly risky."

"While we have no knowledge of any M&A negotiations or discussions we believe, and recent information supports the idea, that Zimmer is considering a leveraged buyout of MW," according to a Stifel report Wednesday from lead analyst Richard Jaffe. "This has likely fueled recent share appreciation. However, we do not believe that a buyout is likely or that a bid is pending, suggesting that recent [a] share move may prove unwarranted."

Stifel analysts also reiterated the firm's "buy" rating on the Men's Wearhouse shares.

Shares of the retailer have traded higher since former longtime chief Zimmer was terminated last week. He stepped down from the CEO post two years ago.

Zimmer was the company's public face for many consumers. He appeared prominently in TV ads, promising customers that "you'll like the way you look." Men's Wearhouse said last week that he was fired because he was reluctant to give up operational control.

"Mr. Zimmer had difficulty accepting the fact that Men's Wearhouse is a public company with an independent Board of Directors and that he has not been the chief executive officer for two years," the company said in a release Tuesday. "He advocated for significant changes that would enable him to regain control, but ultimately he was unable to convince any of the board members or senior executives that his positions were in the best interests of employees, shareholders or the company's future."

It said that Zimmer had reversed his long-standing position against taking Men's Wearhouse private and argued for its sale to an investment group.

Buyout Roadblock

The board is unanimously opposed to a buyout, according to the company's release. Since Zimmer owns just 3.5 percent of outstanding shares, he would need significant funding for such a move.

In a report issued Tuesday, JPMorgan analysts said Men's Wearhouse's fundamentals will probably take a backseat if Zimmer agitates about a buyout during the coming weeks.

"As the media has noted and we agree, we believe that Mr. Zimmer could look to team up with a number of private equity firms, and he could argue that he is well-positioned to come back to run the company full-time," JPMorgan said. Leveraged buyouts "in the retail space over the past few years have almost all been management-friendly," it added.

If a buyout bid occurs, Stifel analysts anticipated a valuation of about $47 a share. The firm also raised its target price for Men's Wearhouse to $40 from $38 a share.

JPMorgan analysts were even more optimistic and pegged a possible valuation at $50 after accounting for the average leveraged buyouts in the retail space.

Men's Wearhouse shares closed around $37 a share Wednesday, up nearly $2 from the opening price of $35 on June 19, when it announced Zimmer's termination.

—By CNBC.com Katie Little. Follow her on Twitter @KatieLittle