M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, September 19, 2007

Genesco: All the Right Moves

Just as I was getting depressed about Accredited Home Lenders/Lone Star settling, the Genesco MAC case is heating up.  Below is the letter Genesco sent to Finish Line earlier today.   Genesco is making the right move here.  Based on public information, Genesco appears to have a strong case that a material adverse change has not occurred, and instead Finish Line simply has buyer’s remorse.  Finish Line has suddenly realized, along with its bank UBS, that they are taking on too much leverage on this deal.  But it is a bit too late.  By Genesco sending this letter they are putting Finish Line on notice that Finish Line is going to have to face litigation if they want completely out of this deal; in other words unlike the Radian/MGIC MAC case this deal will likely not be resolved with the parties simply terminating the merger agreement and walking away.  Clearly Finish Line is angling for a price cut – Genesco may well still agree to that but they are going to put up some fight before they compromise. In addition, Genesco’s move here expedites the time table and is a reply to UBS’s request last week for further information – it prevents UBS from going on a fishing expedition and again shifts the burden to Finish Line to make their case publicly for a MAC.  Also remember that any litigation in this case between Finish Line and Genesco must to be brought in Tennessee under the merger agreement and will be governed by Tennessee law. This gives an advantage to Genesco in that they can fight this dispute out in their home court (although the lack of case-law on this point creates uncertainty and will encourage the parties to settle).  In the end we are largely seeing the AHL deal play out all over again though perhaps with some politer discourse.  Hopefully, all of the parties have read that playbook. 

Genesco Sends Letter Regarding Merger Agreement Obligations to The Finish Line

NASHVILLE, Tenn., Sept. 19 /PRNewswire-FirstCall/ -- Hal N. Pennington, Chairman and Chief Executive Officer of Genesco Inc. (NYSE: GCO), today sent the following letter to Alan H. Cohen, Chairman of the Board and Chief Executive Officer of The Finish Line, Inc.:

Dear Alan: I am writing this letter to respond to Gary's letter of September 17 as well as to set forth our view of what The Finish Line needs to do to move toward closing. First, let me reiterate that combining our businesses makes great strategic sense. Our team still looks forward to joining with yours.

On an ongoing basis, we have routinely shared detailed financial and operational information with The Finish Line and with UBS, and have responded promptly to numerous requests for specific information. We understand that you need certain information in order to be able to obtain the financing that you need to consummate the transaction, and there are detailed provisions in the Merger Agreement that provide how that cooperative process works. Clearly, UBS' most recent request comes within neither the spirit nor letter of our agreement. It is clear from their own statements that they are looking for a way out of their commitment -- in our view, not because of Genesco's results but because the upheaval in the credit markets makes this deal less profitable for them. We are not going to allow the litigation consulting firm they have hired to go on a fishing expedition. We will, however, continue to provide both The Finish Line and UBS with information related to Genesco in accordance with the detailed processes set forth in the Merger Agreement. As you know, as recently as yesterday, we provided additional information required by UBS for inclusion in your offering memorandum.

The Merger Agreement generally provides that the closing of the merger shall be on a date no later than the second business day after the closing conditions to the merger have been satisfied. Our shareholders met Monday and voted overwhelmingly in favor of the transaction and we have satisfied all our conditions to closing. However, both The Finish Line and UBS have continually failed to meet deadlines that they established for their own actions relative to obtaining the financing to consummate the transaction. Consequently, Genesco hereby makes the following demands:

*that The Finish Line immediately consummate the merger with Genesco; and

*that The Finish Line immediately deliver a substantially completed draft offering memorandum relating to its proposed financing to UBS;

that UBS confirm that such substantially completed draft offering memorandum complies with the terms of the Commitment Letter;

that The Finish Line immediately schedule presentations to the rating agencies for the purpose of obtaining expedited ratings of The Finish Line's securities; and

that The Finish Line enforce all its rights under the Commitment Letter.

I am sure you can appreciate the obligation we have to our shareholders to ensure that The Finish Line complies with its obligations under the Merger Agreement. Alan, I understand that your probable response is going to be to send me a long letter drafted by your lawyers telling me why you can't do the things we have demanded or why you need more time or why things are out of your control. Before you make that response, I encourage you to think about your obligations under the Merger Agreement, to think about the risks to your Company if you fail to comply with your obligations under the Merger Agreement, and whether you are going to continue to stall us or proceed to enforce your rights against UBS under the Commitment Letter. I look forward to hearing from you and working with you to expeditiously consummate the transaction.

Very truly yours, Hal N. Pennington, Chairman and Chief Executive Officer About Genesco Inc.


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