M&A

Next Shoe Drops in Genesco Fiasco

The feds are investigating charges by The Finish Line, which is seeking to back out of a deal to buy the company, and UBS Securities, which was to ...
Stephen TaubNovember 27, 2007

Shoe retailer Genesco Inc. said federal investigators are looking into possible fraud relating to the disputed sale of the company to The Finish Line.

The acknowledgment came 10 days after The Finish Line and UBS Securities, which had agreed to provide $1.6 billion in financing for the deal, accused Genesco of misleading potential buyers about its financial situation. In a federal lawsuit filed in New York in mid-November, UBS said, “Due to Finish Line’s earnings difficulties and Genesco’s disastrous financial condition, the combined Finish Line-Genesco entity would be insolvent.”

Genesco chairman and CEO Hal Pennington said the company has every intention of enforcing its rights under the merger agreement. “These allegations are completely without merit and are simply part of UBS’ litigation tactics to avoid their contractual obligations,” he said.

The Finish Line agreed in June to acquire Genesco for $54.50 per share in cash, or about $1.5 billion. On Sept. 14, The Finish Line said it had received two letters from UBS that raised concerns about Genesco’s financial performance, and that UBS had decided to defer any further work on the closing of the deal pending the results of its analyses of Genesco’s financial condition.

Two weeks later, Genesco filed a suit in Tennessee Chancery Court in Nashville seeking an order requiring The Finish Line to complete its acquisition. “We want a court of competent jurisdiction to enforce our rights under the Merger Agreement and for The Finish Line and UBS to live up to their obligations,” Pennington said at the time.

The Finish Line responded by asserting that it had complied with its obligations under the sale agreement, but that its requests to Genesco for financial and other information and for access to Genesco’s CFO and financial staff had net been met. “These failures constitute a breach of the merger agreement,” The Finish Line said.