Genesco, Inc. won the first battle of what many believe will be a long, drawn out war in its legal fight with The Finish Line, Inc. to complete the merger first announced in June of this year. The judge in the Chancery Court in Nashville, the venue where Genesco filed its suit to force The Finish Line and financial backer UBS to complete their $1.5 billion buy-out of Genesco, issued a ruling on Thursday that The Finish Line, Inc. must complete the merger deal.

Chancellor Ellen Hobbs Lyle dismissed Finish Line's claims that Genesco executives withheld key financial information that could have forewarned FINL and UBS of impending sales and earnings issues after the deal closed. Her ruling effectively holds that GCO executives did not commit fraud during merger negotiations.  Lyle said The Finish Line and Swiss investment bank UBS AG were sophisticated enough to know what they were getting into with the $54.50-per-share purchase.  The deal was conducted by “teams of lawyers, advisers and handlers being paid enormous sums to orchestrate the procedure for obtaining information” she wrote in her ruling.

“This milieu is UBS' home territory,” she said.   

The Finish Line, Inc. said it is disappointed with the ruling issued by the Court, and issued a release saying it is studying the Court's decision and is considering its options, including the possibility of an appeal.

This is just round one of this fight.  The litigation concerning the commitment made by UBS Securities LLC and UBS Loan Finance LLC to finance the Genesco transaction is still pending in the U.S. District Court for the Southern District of New York.  The Finish Line’s take on the Nashville ruling is that the Court “expressly reserved for determination by the New York Court whether the merged entity would be insolvent. If the New York Court so holds, the merger will be halted.”  UBS also issued a statement Thursday, saying it disagrees with the court and believes “there are material issues in our client's and UBS' favor in this matter.”

The New York case has yet to go to court, but Lyle disagreed that the combined company would be doomed.

“The merger has a reasonable chance of succeeding,” she said.

She directed The Finish Line to “use its reasonable best efforts” to find the money to buy Genesco and close on the merger.