Corporate & Securities Law

Genesco Delays Trial Ahead of (Costly) Settlement

By broc

Genesco Delays Trial Ahead of (Costly) Settlement

Below is an article that recently ran in the NY Time's DealBook (here is the Genesco press release):

Genesco and Finish Line appear to have reached an armistice in their battle over a failed $1.5 billion deal. But the news propelled Genesco’s stock down drastically, while it lifted Finish Line’s by just as much.

The two shoe retailers said on Monday that they are working on a settlement in which Genesco would drop its lawsuit against Finish Line and its financing bank, UBS. In return, the latter two would pay Genesco, which owns the Journeys chain and the Johnston & Murphy brand of shoes, $175 million in cash and 12 percent of Finish Line’s outstanding stock. The announcement also led to a one-day postponement of a trial in Manhattan federal district court.

Shares in Genesco plunged more than 20 percent in mid-afternoon trading Monday, to $23.94. Finish Line’s stock jumped 32.5 percent to $3.75 a share after spiking even higher earlier in the day.

If the two companies agree to the settlement — the boards of both are meeting separately on Monday to vote on the proposal — it will end one of the most acrimonious deal fights still outstanding today.

The deal was one of several to collapse amid the crumbling of the credit markets last summer, as Finish Line tried to back out of a deal it struck last June. But it was notable because nearly every other deal that has collapsed has been a private equity transaction. Finish Line, on the other hand, is a corporate buyer, albeit one dependent on the same cheap debt as most private equity firms. (It is also nearly a fifth of the size of Genesco.)

Genesco’s spat with Finish Line was also notable for its complexity: It involved courts in two different states and drew in the bank financing the deal as well as the buyer and the seller.

Finish Line has argued that Genesco failed to provide certain necessary financial statements, allowing it to walk away. Genesco sued in a Tennessee court late last year, and a judge in that case ruled in its favor.

UBS, meanwhile, has argued that a combined Finish Line-Genesco would be insolvent and urged the dissolution of the proposed merger. It sued in Manhattan federal court to prevent the deal from bring competed.

Genesco has argued that a $4 million loss in its second quarter was not a material event, meaning that it would potentially be grounds to dissolve the deal. Instead, Genesco pointed to similar slides in its industry, including at Finish Line.

MAC Clauses: All the Rage

We have posted the transcript from our recent webcast: "MAC Clauses: All the Rage."

Full post as published by DealLawyers.com Blog on March 05, 2008 (boomark / email).