October 10, 2007
Genesco/Finish Line -- All About UBS
Today, the discovery hearing in Genesco's suit against Finish Line will reconvene in Tennessee Chancery Court. On Monday it was delayed because UBS has yet to agree to try the case in Nashville. At the time, Finish Line requested a two-day delay in order to attempt to obtain UBS's permission to waive the provisions of UBS's financing letter which set New York as the forum and governing law for any litigation between it and Finish Line. Conversely, the merger agreement between Finish Line and Genesco has a choice of forum of Tennessee and selects Tennessee law to govern the merger agreement. In a post a number of weeks ago I criticized Finish Line's lawyers for agreeing to such provisions:
The MAC clause in the financing commitment letter for Finish Line issued by UBS is identical to the one in the merger agreement with one critical exception. The commitment letter is governed by New York law and chooses New York as its forum for any dispute, the Genesco/Finish Line merger agreement is governed by Tennessee law and selects Tennessee Law. Their choice has now raised the prospect of a court in New York finding a MAC while a court in Tennessee finds the opposite. Now that would be fun (at least from my perspective). This is unlikely from a practical perspective -- who could see courts consciously reaching this result? -- still M&A lawyers in the future would do well to avoid this difficulty.
And I even earlier criticized the lawyers of Genesco and Finish Line for their choice of Tennessee law:
Anyone care to tell me what the law on MACs as applicable to acquisition transactions is in the State of Tennessee? Yeah, that is what I thought you would say -- there is none. Finish Line may be taking a flyer on this uncertainty, although it should be careful as Tennessee is Genesco's home state. This is the second time this week, I have highlighted the importance of choice of law and forum selection clauses in acquisition agreements. Too often they are the product of political negotiations among the parties when they should be negotiating for certainty of law and adjudication. I hate to be a shill for Delaware or New York here, but the alternative result is situations like this.
Finish Line is 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 Finish Line is struggling to keep from fighting lawsuits in two different cities under two different laws to interpret the identical MAC clause. What a mess. Finish Line's lawyers haven't helped it by agreeing to this dichotomous arrangement. I'll say it again: choice of forum and law clauses matter. Remember this M&A lawyers.
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