Monday, October 1, 2007
Finish Line's answer is accessible here. My reaction: wow. In its answer, Finish Line does not even assert that a material adverse change to Genesco has occurred or even set out facts substantiating a MAC claim. In paragraph 72 Finish Line states:
Defendants are without sufficient knowledge or information at this time to know if there has been a "Material Adverse Effect" in Genesco's business and deny that Finish Line has ever stated or taken the position that there has been a "Material Adverse Effect" in Genesco's business.
It now clearly appears that UBS is driving Finish Line's hesitance. Finish Line confirms this by stating in the answer that:
UBS has indicated it believes a Material Adverse Effect may have occurred; Genesco denies this, and, thus, an actual case or controversy exists. A resolution of this issue is a prerequisite to the closing of the merger.
Notice Finish Line is absent from this above statement. And since it is UBS who is claiming the MAC, Finish Line, as I predicted it would do last week, attempts in the answer to join UBS as a party. Finish Line also pursues its prior counter-claim that Genesco breached the merger agreement by failing to provide the information requested by UBS.
Finish Line's answer shows that it is caught flailing between UBS and Genesco. The Genesco merger agreement contains no financing out, but If UBS does succeed in ending its financing commitment, Finish Line will likely be unable to secure financing and complete the acquisition sending it into insolvency. Now we wait for UBS's response. One option is for them to bring litigation in New York against Finish Line to terminate its obligations (see my post on this here). Another is that they answer the complaint and fight this case out in Tennessee. In either case, UBS is likely to also claim that they need further information to determine if a MAC occurred. To reword an overly used adage "you know a MAC when you see it". If UBS needs to look this hard perhaps it isn't there. But what is there is UBS's $3.4 billion write-down announced today, which is likely driving this case to a large extent. UBS is seeking to cut its losses, but it still appears to have a weak hand. Finish Line may be the one to suffer.