In a ruling issued late Thursday afternoon, the Chancery Court for the State of Tennessee declared Finish Line Inc. to be in breach of contract under the terms of a .5 billion merger agreement it signed with Genesco Inc. in June of this year. The court ordered Finish Line to complete the merger, saying that the company must make every effort to meet the terms of the agreement, including obtaining financing for the deal.
In litigation with Genesco, Finish Line — along with its lender and co-defendant UBS — argued that a material adverse change had occurred in Genesco’s financial earnings, thereby giving it and UBS the right to terminate the deal. Finish Line and UBS also accused Genesco of fraud, charging that the company had withheld important performance numbers for the month of May indicative of decreased earnings.
During his testimony in the case brought before Chancellor Lyle, Finish Line CEO Alan Cohen stated, “I do not have .5 billion to close this deal without financing.” But in her ruling, Chancellor Ellen Hobbs Lyle left issues concerning the merger’s solvency to the United States District Court for the Southern District of New York, where a lawsuit has been filed by UBS over its obligation to finance the transaction.
In regard to yesterday’s decision, Cohen said in a press release, “While litigation proceeds, we are continuing to operate our business in the ordinary course and are focused on implementing our product and branding strategies.”
Finish Line also stated that it was examining its legal options and might consider an appeal of the decision.
In his statements to the press, Genesco Chairman and CEO Hal Pennington was more direct, as well as more effusive in his praise for Chancellor Lyle. Thanking the chancellor for her “detailed findings of fact and conclusions of law,” he said she had “meted out justice by dismissing the baseless fraud claims made by UBS and Finish Line.”
Addressing the court’s ruling specifically, he said, “We look forward to working with Finish Line to consummate the merger expeditiously. Although the chancellor left open the issue of solvency … she nevertheless noted ‘from the proof presented to it, this court concludes that the combined entity can succeed.’ We agree.”
Wall Street responded quickly to the court’s decision. At midday Friday, Genesco’s stock price had risen 15 percent from the prior day to .08. Meanwhile, shares of Finish Line fell 25 percent to .30.
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