Nearly nine months after saying they would merge, mall-based retailers Genesco Inc. and The Finish Line Inc. scuttled their ill-fated $1.5 billion merger and the biggest deal to come out of the mall in 2007.


On March 3, the two companies approved a definitive agreement to terminate their merger agreement and all related litigation in a settlement that essentially paid Genesco a $208 million break-up fee.

 
The settlement agreement requires that the $1.5 billion merger agreement between Genesco and The Finish Line be terminated; Swiss bank UBS’ commitment to finance the bulk of that sum be terminated; and UBS and FINL pay $136 million and $39 million in cash, respectively, to Genesco by close of business Friday.


Additionally, FINL will issue Genesco 6.5 million shares of to-be-issued Class A shares of its common stock, or what will be a 12.0% stake in the company, by close of day Friday, which GCO will in turn distribute to its shareholders with a value of roughly $28 million.

 
Finally, Genesco and The Finish Line must not seek to acquire ownership interest, or to otherwise try to influence the management, boards of directors or policies of the other party for the next three years.


The settlement was announced Monday morning as UBS’ suit in federal court in the Southern District of New York was scheduled to go to trail.

 

A Tennessee Chancery Court judge ruled in late December that Genesco had not misled UBS or FINL about its finances and therefore both UBS and FINL were obligated to complete the merger. However, the judge in Tennessee left room for the New York judge to kill the deal by ruling that it would create an insolvent company. In the end, none of the parties were willing to risk a negative ruling and settled.


The $175 million in cash leaves Genesco better positioned to expand its successful Journeys chain and to make its way through the tough times the market seems to think are on the near horizon. To put that sum in perspective, it is roughly 2.5 times the cash on hand and the cash flow from operations Genesco reported for the fiscal year ended Feb. 3, 2007.