BREAKING: Finish Line bankers threaten to back out

September 14, 2007

Finish Line Inc. disclosed this afternoon that its bankers are considering withdrawing the financing that the Indianapolis company needs to complete its $1.5 billion cash purchase of Tennessee-based Genesco Inc.

If New York-based UBS Securities LLC is able to back out of a "commitment letter" it signed in June, that may provide financial relief to Finish Line. Analysts have said in recent days that the Indianapolis company would want to pull out of the purchase, or at least negotiate a lower price, but probably lacked legal grounds to do so.

UBS had said it would provide up to $1.6 billion in financing. But it now says that it has the right to pull the commitment if Genesco has had a "material adverse" change in its performance, which it contends may have occurred.

"While we continue to pursue this matter in good faith, we are extremely concerned about the apparent deteriorating financial condition of [Genesco]," UBS said in a letter to Finish Line.

UBS says it wants permission to scour Genesco's books to gain a better understanding of its financial condition.

Analysts say Finish Line may be overextending itself with the purchase of Genesco, which operates the shoe retailer Journeys, Hat World and other mall chains.

It agreed in June to pay a rich price for Genesco to outduel New York-based Foot Locker, which also was trying to buy it.

Since then, credit markets have slid into disarray, stock markets have tumbled, and both Genesco and Finish Line have reported surprisingly bad summer sales.

Before today's development, analysts had said both Finish Line and UBS appeared trapped into going forward with the purchase at the original price.

"As far as we can determine, the deal [Finish Line] signed with Genesco is pretty iron-clad," New York analyst John Shanley told IBJ.

If UBS takes the position that it can back out, it may be in for a fight with Genesco. In a recent conference call with analysts, Genesco officials denied that the company's $4.2 million quarterly loss qualified as a material adverse change.

Finish Line shares this afternoon were trading at $5.43, up 49 cents. Genesco shares were trading at $46.29, up 47 cents.

Genesco shareholders are set to vote on their company's sale on Monday.

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