Genesco Inc. and The Finish Line, Inc. have reached a tentative agreement to terminate their merger agreement and settle all litigation between them and UBS, who had agreed to finance the deal, but sued to stop it when earnings at Genesco tumbled in the second quarter of 2007.


GCO and FINL issued a joint statement just before a U.S. District Court judge in the Southern District of New York was scheduled to start a trial that would determine whether the merger would create an insolvent company, as alleged by UBS. The statement said GCO and FINL had jointly requested a one-day delay in the solvency trial in anticipation of reaching an agreement for the settlement of all litigation among the parties relating to the proposed merger of Finish Line and Genesco and UBS's financing therefor.

 

The terms of the settlement are expected to be as follows:


  • The merger agreement between Genesco and Finish Line will be terminated; the financing commitment from UBS to Finish Line will be terminated; and
  • UBS and Finish Line will pay to Genesco an aggregate of $175 million in cash along with a number of Class A shares of common stock that Finish Line will issue. That newly issued stock will be equal to 12.0% of Finish Line's outstanding shares of common stock. It is contemplated that Genesco and The Finish Line will enter into a mutual standstill agreement.  It is also contemplated that The Finish Line will pay its portion of the cash payment from cash reserves.

Genesco's largest shareholder opposes settlement


Consummation of the settlement is subject to negotiation and execution of a definitive settlement agreement and approval of the boards of directors of Genesco and Finish Line.

Genesco's largest investor, QVT Financial LP, has already opposed the settlement.


“QVT Financial LP strenuously opposes the proposed settlement between Genesco, The Finish Line and UBS and urges Genesco's board of directors to reject the settlement,” the company said in a statement issued Monday. “QVT believes that the settlement is not in the best interests of Genesco's shareholders and that approval by the board of the settlement would be a breach of the directors' fiduciary duties to shareholders.”


QVT urged Genesco's board to take no action on the settlement until QVT can meet with them and Genesco management to explain its views.

 

GCO shares closed at $24.77, down $5.15 per share, or 17.3% Monday. FINL shares rose $1.14, or by 40.3%, to $3.97.