Finish Line Inc. and Foot Locker Inc. aren’t just in the same business; they’re bitter rivals. So you can bet Finish Line executives are savoring the fact that they outmaneuvered the New York company in the battle to buy Genesco Inc.
To be sure, we’re a long way from knowing whether the deal Finish Line negotiated last month to purchase Tennessee-based Genesco for $1.5 billion in cash was a wise one for the Indianapolis-based company.
Investors aren’t exactly slapping CEO Alan Cohen on the back for agreeing to buy a company with twice Finish Line’s stock-market value. In the five weeks since the deal was announced, Finish Line shares have plunged 36 percent. Genesco shares are trading at a 3-percent discount to the $54.50 buyout price, reflecting investor uncertainty over whether the deal will close.
Yet this is beyond dispute: Foot Locker badly wanted Genesco for the same reason as Finish Line-its strong stable of retail chains, especially Journeys and Hat World, would reduce reliance on the topsy-turvy athletic apparel and shoe business.
A new regulatory filing shows Foot Locker’s hardball tactics did nothing to ingratiate the company with Genesco CEO Hal Pennington.
The filing says Foot Locker CEO Matt Serra phoned Pennington in January and February expressing interest in a friendly acquisition.
Serra received a cool reception, with Pennington saying Genesco was committed to making money for its shareholders by remaining independent.
The next major steps Serra took seemed only to widen the gulf. On April 4, Foot Locker submitted a confidential offer to buy Genesco for $46 a share-a price Pennington considered too low and borderline offensive.
Then, on April 19, Serra sent a letter to Pennington expressing disappointment that Genesco had not made a “substantive response” to the offer and threatening to make it public before the markets opened the next day.
Genesco asked Foot Locker to hold off, saying the board was meeting on April 20 and would respond afterward. Yet Foot Locker went forward, anyway.
Later that same day, Cohen slid his foot in the door. He phoned Genesco President Bob Dennis-the former CEO of Indianapolis-based Hat World-and told him Finish Line was interested in making an offer.
Finish Line’s dealings with Genesco were as calm as Foot Locker’s were contentious. On June 11, Finish Line offered $54 a share. It threw in another 50 cents a share before sealing the deal six days later.
Finish Line and Foot Locker don’t typically tangle over takeovers, but they’re used to squaring off in the nation’s shopping malls.
Foot Locker is the nation’s biggest retailer of athletic shoes and apparel in malls, while Finish Line is No. 2. For years, they’ve maneuvered for the upper hand with their most important supplier-Oregon-based Nike Inc.
The competition hasn’t always been gentlemanly. Three years ago, Finish Line sued in an effort to block what it called Foot Locker’s unfair trade practices, including its “deliberate and malicious attempt” to spur a management exodus and obtain confidential sales information.
Foot Locker denied wrongdoing and countered that Finish Line was “engaged in the very same activity.” A federal judge tossed the suit last year, concluding that Finish Line had failed to show that information Foot Locker obtained was confidential.
Documents unearthed during discovery suggest that Serra was nearly obsessed with knocking Finish Line off its stride.
One e-mail summarizes a three-day trip he and other top executives took to visit the company’s stores in Florida.
“Matt discussed the importance of hurting/putting Finish Line out of business with every manager and at least 20 times in the car,” according to the e-mail. “He wanted everyone in all stores working together … toward that goal, whether it was through actively recruiting their best people to moving in the hot product wherever there is a Finish Line.”
Serra has taken shots at Finish Line during conference calls with analysts, as well.
In August 2003, he suggested Finish Line was having to make steep markdowns to move merchandise. Finish Line “seems to promote very aggressively without saying [it] does,” he said.
In a call two years later, he said, “Our competitor in Indianapolis” was selling goods for up to 70 percent off. “So, obviously, they must be having some inventory problems.”
Not so, Finish Line said in a press release issued later that day “in response to misinformation … disseminated by one of our competitors.”