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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.
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.