Genesco Wins Bid to Force Finish Line to do $1.5 Billion Deal
(Bloomberg) — Genesco Inc., the Nashville, Tennessee-based shoe and clothing retailer, won a bid to force competitor Finish Line Inc. to complete a $1.5 billion acquisition.
Finish Line was barred from walking away from the deal, Tennessee Chancery Court Judge Ellen Hobbs Lyle held yesterday as part of her ruling in state court in Nashville.
Finish Line said in a statement last night on PRNewswire it is disappointed with the ruling and is considering its options, including the possibility of an appeal.
Finish Line agreed in June to acquire Genesco for $54.50 a share in cash. The transaction didn’t close by its September deadline and Genesco sued to force Finish Line to complete the deal. The verdict follows other recently proposed deals that faltered as financial conditions worsened.
On Dec. 21, a Delaware judge threw out a bid by United Rentals Inc., the largest U.S. construction-equipment rental company, to force a $4 billion takeover by Cerberus Capital Management LP. The judge in that case said the terms of the deal allowed Cerberus to withdraw as long as it paid the required fee.
Finish Line, owner of its namesake shoe stores, argued Genesco’s second-quarter loss of $4.17 million, or 19 cents a share, and a government probe of the proposed transaction constituted a “material adverse event'’ under the terms of the agreement, allowing it to back out.
Lawyers for Indianapolis-based Finish Line alleged in closing arguments Dec. 18 that Genesco failed to reveal that it missed its May financial projections.
Documents Subpoenaed
Genesco, which owns the Journeys chain of stores for teens, said Nov. 26 that federal prosecutors in New York are investigating the company’s merger agreement with Finish Line. The government subpoenaed documents in connection with alleged violations of federal fraud statutes. Genesco has denied any wrongdoing.
UBS AG, Europe’s largest bank by assets, asked a New York federal judge in November to let it out of its agreement to finance the acquisition, claiming the combined company will be insolvent and unable to pay off its loans. A condition of UBS’s financing agreement was that the combined company be solvent.
“From the very announcement of the merger, analysts and investors have commented that the combined entity would need to manage its debt burden very carefully,'’ UBS said in the complaint. “Genesco has since experienced a crash in earnings.'’
Finish Line was to fund the Genesco acquisition with $11 million in cash of its own and the rest in debt from Zurich- based UBS, the bank said in its lawsuit, filed Nov. 15.
In the United Rentals case, the judge ruled United Rentals officials should have known that Cerberus executives believed they had a right to pull out of the deal at any time as long as they paid a $100 million fee.
Investors Balking
Other buyouts have collapsed as credit investors balked at buying bonds and loans committed to fund the transactions.
Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc. in October abandoned their $8 billion purchase of Harman International Industries Inc.
Investors led by J.C. Flowers & Co. walked away from their $25.3 billion deal to buy SLM Corp., the biggest U.S. education lender, after the Reston, Virginia-based company refused to consider a lower offer.
A suit over Flowers’ decision to renege on the offer is pending in Delaware Chancery Court.
The case is Genesco Inc. v. Finish Line Inc., 07-2137, Chancery Court for the State of Tennessee (Nashville).