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March 4, 2008 (9:45a) - Transaction
Terminated
The companies have announced the termination of
this transaction.
March 3, 2008 (10:55a) - Litigation Settlement
Negotiations Announced
The companies have announced a delay in today's
New York trial as the parties are engaged in negotiations to settle all
litigation issues. According to a GCO press release the proposed terms of the
settlement are anticipated 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 Finish Line
common stock equal to 12.0% of the total post-issuance Finish Line 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.
This is essentially the predicted outcome of this situation
and appears to be the only way the companies will be able to resolve matters in
a timely fashion.
A formal termination agreement is fully expected at some
point this week.
February 29, 2008 (10:55a) - Status
Report
Is is being reported from various sources that
the Tennessee Chancery Court has deny FINL/UBS' appeal motion. Assuming this
has indeed occurred, FINL/UBS' legal options in Tennessee have essentially been
exhausted. This is not a very surprising development based on the Chancery
Court's initial decision, so it should not be considered a major victory for
GCO.
The situation is now likely to center on the case in New
York, which was ultimately the aim of FINL/UBS from the outset of litigation.
However, with precedent firmly established in Tennessee, the chances of
FINL/UBS succeeding in New York must be perceived as relatively small. Based on
that concept, which FINL/UBS is certainly fully aware of at this stage, the
only viable tactic is to continue to take stalling measures in the hopes that
GCO will eventually agree to terminate the deal under mutually agreeable
terms.
The last entry projected an outcome of this nature roughly
within a month's time from now. Given that the New York litigation begins on
March 3, the perception remains that some resolution can be reached outside the
courts within the next several weeks.
January 24, 2008 (9:45a) - Status Report
According to various reports, FINL/UBS will
appeal the Tennessee Chancery Court decision in favor of GCO. This is not at
all surprising given FINL/UBS' obvious intent to delay this transaction by all
means available, for as long as possible.
As noted previously, FINL/UBS are now believed to be
employing a strategy to essentially convince GCO into agreeing to terminate the
transaction out of futility. It must be assumed that the parties are conducting
at least informal discussions regarding a mutually agreeable settlement, as it
is abundantly clear that this situation will not be resolved through legal
means at any time in the near future.
This publication continues to expect a merger termination
within the next two months.
January 15, 2008 (3:35p) - Status Report
According to published reports, UBS has filed an
amended lawsuit against GCO in District Court for the Southern District of New
York. This action, while fully expected in light of the Tennessee Chancery
Court decision in late December, will effectively ensure that the legal battle
will continue into the near future, essentially buying UBS, and FINL,
additional time to assess their options.
The option most likely to prevail here appears to be a
settlement where GCO agrees to terminate the transaction with mutually
acceptable compensation. The Tennessee decision virtually ensures that any
further litigation will ultimately return to the Tennessee, regardless of the
outcome in New York, should it reach that point. Furthermore, all parties must
be acutely aware that the Tennessee precedent will weigh heavily in favor of
GCO's chances in all future litigation, regardless of venue.
In short, UBS' continued legal actions are simply meant to
wear down GCO into coming to the negotiation table sooner, rather than later,
in order to resolve this situation through the path of least resistance. It is
therefore anticipated that the parties will reach a settlement agreement
effectively ending the merger agreement within the next two months.
December 28, 2007 (9:00a) - Tennessee Court
Rules in Favor of GCO
As anticipated, the Chancery Court for the State
of Tennessee has issued a decision in this case that effectively forced FINL to
complete this transaction under the terms of the merger agreement. The ruling,
as distributed via a GCO press release states the following:
"It is therefore ORDERED that the Court
declares that all conditions to the Merger Agreement have been met. The Court
declares that Finish Line has breached the Merger Agreement by not closing and
declares that Finish Line is not entitled to invoke the December 31, 2007
termination procedures of Section 8 of the Merger Agreement. The Court ORDERS
that Finish Line shall specifically perform the terms of the Merger Agreement,
including that it shall close the merger pursuant to section 1.2 of the Merger
Agreement, it shall use its reasonable best efforts to take all actions to
consummate the merger as required by section 6.4(d) of the Merger Agreement,
and it shall use its reasonable best efforts to obtain financing as per section
6.8(a) of the Merger Agreement. Excepted from the provisions of this Order and
Memorandum are issues as to the solvency of the merged entity. That issue is
reserved for determination by a New York Court in a lawsuit filed by
UBS."
In response, FINL has indicated that it is considering
appealing the Tennessee decision. While it remains perceived as extremely
unlikely that FINL/UBS will prevail in the Tennessee courts, it would not be
surprising if the companies continued to pursue this case in New York, thereby
delaying the actions ordered by the Tennessee Chancery Court for several
months.
At this point, particularly with the Tennessee decision
serving as valid precedent, FINL/UBS would be best served to simply complete
the merger as quickly as possible and move forward. However, FINL's current
posture suggests this will not occur in the immediate future.
December 19, 2007 (10:35a) - Litigation
Status
The trial phase of this case before the
Tennessee Chancery Court ended yesterday (12/18). Chancellor Lyle has not
provided any sort of decision time frame as of this update, although a lengthy
delay is certainly not expected. Due to the magnitude of this case, it would
not be surprising to see Chancellor Lyle take the rest of this week and the
weekend to deliberate.
Coverage of the trial from various sources describes
compelling arguments from both sides, with the critical point now appearing to
be the question of GCO providing false or fraudulent data to FINL during the
course of the merger. This seems to be a logical, albeit suspect, claim by
FINL/UBS and one that is clearly a last-ditch effort to discredit GCO in light
of the flimsy MAC clause claim.
Although there is no indication either way, and ample
speculation that favors FINL/UBS in this case, this publication continues to
view GCO's case as valid and FINL/UBS' case as essentially lacking merit under
the merger agreement. Therefore, a ruling in favor of GCO is the current
expectation.
December 11, 2007 (2:40p) - Litigation
Status
This update will simply acknowledge that
litigation in this case started yesterday and, more importantly, that is
publication continues to perceive FINL/UBS' arguments as wholly lacking merit
with respect to this merger transaction.
While this publication is very clearly not
litigation-focused, this case appears to be one of the more transparent to
surface in recent history. UBS, via FINL, is very obviously drawing upon its
vast resources to both stall and end a transaction in which matters outside the
transaction itself created an immediate and acute buyers remorse. It is
extremely difficult to foresee the Tennessee Chancery Court siding with
FINL/UBS in this case, although again, we have very little frame of reference
for proceedings in this jurisdiction.
We will make every effort to monitor and assess the
litigation proceedings as they continue.
November 30, 2007 (9:15a) - FINL Receives
Subpoena
FINL yesterday disclosed the receipt of a grand
jury subpoena from the Office of the U.S. Attorney for Southern District of New
York in relation to the pending lawsuit in this transaction. AN FINL filing on
this matter states the following:
"The Company also stated in the notice that
these violations, either individually or together with other occurrences
specified in prior notices to Genesco, constitute a Company Material Adverse
Effect and, unless cured in accordance with the terms of the Agreement, will
cause a condition precedent to the Company's obligation to close the Merger to
fail."
November 27, 2007 (9:40a) - GCO Receives
Subpoena
GCO yesterday announced the receipt of a
subpoena from the Office of the U.S. Attorney for the Southern District of New
York for documentation related to the negotiations in this transaction. GCO
issued the following statement in response:
"The U.S. Attorney subpoena comes on the
heels of the baseless fraud allegations made by UBS ten days ago. These
allegations are completely without merit and are simply part of UBS' litigation
tactics to avoid their contractual obligations; we will fully cooperate with
the U.S. Attorney in connection with their inquiry. Most importantly, we will
not be deterred from enforcing our rights under the merger
agreement."
Although GCO's assessment of this development is essentially
accurate in our opinion, it does not take away from the fact that UBS has the
means and determination to turn this situation into a legal quagmire that may
eventually force GCO to abandon its fight to save this transaction.
The subpoena development is the first major step in
establishing legal jurisdiction in New York, which will ultimately supercede
any final decision reached in the Tennessee Chancery Court. In short, the
litigation in this situation is essentially just beginning and, assuming
FINL/UBS succeeds, will continue far into 2008 as the New York Courts become
involved.
November 19, 2007 (10:05a) - Status
Report
As widely reported on Friday (11/16), UBS has
filed a counterclaim against GCO with the Tennessee Chancery Court. UBS'
counterclaim seeks the Tennessee Court's authorization to terminate the merger
agreement.
In response, GCO issued a press release
"categorically" denying all claims made in the UBS counterclaim and
stated the following:
"It is sad when a major international
financial institution resorts to this sort of mudslinging in an attempt to get
out of its contractual obligations and survive the meltdown in the credit
markets."
It is this very concept which will very likely result in the
Chancery Court denying UBS's request to terminate the merger agreement and
proceed to the December 10, 2007 trial date. The counterclaim by UBS is an
obvious last-ditch effort to delay the Tennessee proceedings, while
simultaneously attempting to change venues to the New York District Court
system.
The Tennessee Chancery Court is fully expected to rule
against UBS within the next few days.
November 1, 2007 (12:10p) - Status
Report
Yesterday's Tennessee Chancery Court discovery
hearing reportedly yielded one notable moment when GCO Counsel stated:
"(GCO's) worse-than-expected quarterly
earnings were a 'short-term hiccup' that isn't uncommon in the fashion retail
industry."
This is precisely the opinion stated by this publication on
numerous occasion, as it is an extremely obvious aspect in this situation.
Presumably, GCO will maintain this basic argument throughout the pre-trial
proceedings, and into the trial if necessary, and present decisive evidence to
show that both its and FINL's earnings encounter "short-term-hiccups"
as retailers.
It is currently expected that if FINL and UBS fail to delay
the trial date into next year or obtain a change of venue, they will ultimately
seek to settle this case on terms favorable to GCO. The Tennessee Chancery
Court does not currently seem inclined to delay the proceeding, so it will not
be surprising to see FINL counsel re-direct efforts into changing the venue to
New York.
October 30, 2007 (5:45p) - Status Report
Pre-trial proceedings are under way in this
case, with GCO already providing reportedly more than 1.5 million pages of
material to FINL as part of the Tennessee Chancery Court discovery proceedings.
According to
one report:
"This has two advantages. First, Genesco
can portray itself as fully responding to Finish Line's claim that it has
breached the disclosure provisions of the merger agreement -- "Look we
didn't even object to your over-broad discovery request and gave you over one
million documents -- now close this transaction". Second, this document
dump will swamp Finish Line's attorneys with needless and mostly irrelevant
documents; presumably Genesco's hope is that it will also distract Finish
Line/UBS and their attorneys from their case and/or cause them to miss more
important documents."
The above assessment seems more than logical and
encapsulates GCO's overall posture and strategy where this situation is
concerned: the company does not intend to back down at all as the Tennessee
process moves forward. In the opinion of this publication, the company is fully
justified in facing FINL (and UBS) head-on here as the both the case and timing
of the proceedings are clearly in GCO's favor at this point.
Tomorrow is the Tennessee Chancery Court's discovery
hearing, and it will be futile for FINL's counsel to claim that GCO has failed
to fulfill its obligations under discovery and/or seek further delays. This in
itself should prove to be significant victory for GCO, as delaying this case is
clearly the goal of FINL and UBS. The Tennessee Court shows no signs of
postponing the current December 10 trial date, and tomorrow's discovery hearing
will most likely solidify the timing of the litigation proceedings.
October 12, 2007 (9:00a) - Status Report
Chancellor Ellen Hobbes has determined that the
trial proceedings for this case in the Tennessee Chancery Court will be held
during the week of December 10, 2007. A specific start date has not been
established as of this entry. Chancellor Hobbes has acknowledged that further
delaying the proceedings will likely have an adverse affect on GCO.
Additionally, FINL has announced that UBS has extended it
financing commitment from December 31, 2007 to April 30, 2008. This action does
not extend the December 31, 2007 termination date under the current
merger agreement. This actions essentially assures the FINL will retain UBS as
it primary financier if the litigation against GCO fails and/or if a revised
merger agreement is negotiated in the near future. It also serves to prevent
any legal action by FINL against UBS as a result of the current
situation.
October 11, 2007 (8:25a) - Tennessee Chancery
Court Status
The preliminary hearing proceeded as scheduled
yesterday in front of the Tennessee Chancery Court.
According to reports, FINL argued that GCO is attempting to
force the close in order to protect the financial interests of corporate
executives, rather than shareholder interests. Other details of the hearing
have not been released as of yet.
If FINL's sole tactic is to claim GCO is simply protecting
financial interests, its case should be quite literally laughed out of court,
regardless of jurisdiction. Even a court with limited experience in these
situation will see the inherent weakness and transparency in short
order.
It must be assumed that FINL is simply going through the
litigation mechanics at this point, rather than actually offering its best
argument -- assuming it has one -- in the Tennessee court. Again, the goal of
FINL, and UBS, is to delay the proceedings into December which will presumably
be done by attempting to move the case into New York.
October 10, 2007 (9:30a) - Tennessee Chancery
Court Status
A preliminary hearing scheduled yesterday in the
Tennessee Chancery Court was postponed due to jurisdictional issues involving
UBS. The hearing is now scheduled for tomorrow (10/10).
As discussed yesterday, stalling tactics are fully expected
to continue from the FINL/UBS side, with the ultimate goal being to delay
proceedings well into December. Along these lines, it is very likely that FINL
will attempt to dispute Tennessee Court's jurisdiction in this case and make
every effort to change venues over next several weeks.
October 8, 2007 (8:30a) - Tennessee Chancery
Court Status
According to published reports, the Judge
assigned to this case in the Tennessee Chancery Court (Chancellor Ellen Hobbes
Lyle) intends to schedule the trial for this case on November 5, 2007.
The trial date has apparently not been finalized as of this entry.
There is now speculation the FINL (and UBS) will employ
delaying tactics in the legal processes in order to reach the December 31, 2007
merger agreement termination date. Also at issues are jurisdictional concerns,
where the Tennessee Chancery Court may not the authority to actually rule on
this case, as FINL has made filings in New York. The jurisdictional issue will
very likely prove effective in delaying proceeding well beyond Tennessee's
early-November time frame.
The overall impression at this point is that FINL (driven by
UBS) fully understands its weak "Material Adverse Effects" claims
against GCO and is simply making efforts to extend the litigations processes
beyond December in order to terminate the transaction. FINL and UBS must be
fully aware that they have little chance of actually winning in the Tennessee,
or New York, courts, but at the same time seem to have little interest in -- at
least publicly -- in reaching moving forward with the transaction.
This situation is deteriorating quickly into one in which a
very confident outcome prediction can not be offered, by this publication or
any other. It remains assumed by this publication that the parties are working
at some level to reach an agreement for revised terms, or termination of the
deal on mutually acceptable terms.
Obviously, the chances of this deal being successfully
completed under the current terms are extremely low at this point. The only way
this deal will get done is if the terms are renegotiated to level acceptable by
UBS, and this also does not seem likely at this point in time.
October 1, 2007 (9:50a) - FINL Files
Counterclaim Against GCO
FINL has announced the filing of a
"Counterclaim and Third-Party Claim for Declaratory Judgment" with
the Tennessee Chancery Court in response to GCO's lawsuit filed on September
21. An FINL press release states the following:
"The Finish Line is seeking an order that
Genesco provide all requested financial data and access to personnel, and that
its failure to do so in a timely manner is a breach of the merger agreement.
"In addition, The Finish Line is seeking a declaratory
judgment of whether a 'Company Material Adverse Effect' has occurred under the
merger agreement, as UBS questions and Genesco denies."
This action effectively signals the end to any chance of a
quick, amicable settlement and, more importantly, indicates that FINL (under
UBS's guidance) has no intention of re-negotiating the merger agreement at the
current time.
Unfortunately, there is virtually precedent for particular
scenario, particularly within the Tennessee Chancery Court system. Had this
been Delaware's jurisdiction, it is very likely that FINL/UBS would have taken
another tact. This looks to be a case of FINL taking a chance that the
Tennessee Courts will look favorably on this particular brand of 'buyers
remorse', although the likelihood of this does not seem very high, regardless
of jurisdiction. But again, there is really no way to confidently assess this
situation if it continues to litigation.
GCO continues to viewed by this publication as legally and
ethically on superior ground, and is justified in pursuing this case via the
courts. If this is indeed an accurate assessment of this debacle, FINL and UBS
will ultimately be forced to consummate this transaction at the original offer
price under the merger agreement. Because of this, it is expected that FINL
will soon attempt settle this out of court via a renegotiated offer price.
September 28, 2007 (11:05a) - FINL Q2 Results
Announced
FINL has announced what are fully anticipated
second quarter losses, generating the obligatory additional concerns for this
transaction's successful completion.
At this point, the retail realities of this merger go beyond
obvious, yet will continue to serve as UBS' excuse for withholding its
financial obligations for the foreseeable future. If nothing else, FINL's
numbers will probably force the company to now focus entirely on dealing
directly with UBS and solving this rather bizarre situation.
There is currently no indication that UBS intends to change
its stance regarding its financial commitments, which also comes as absolutely
no surprise. As FINL continues to the intermediary here, the company is
presumably working with both GCO and UBS to at least open re-negotiation
discussions in order to avoid litigation.
Although this is an extremely fragile situation, this
publication continues to foresee at least a concerted efforts by the companies
-- especially FINL -- to reach some sort of amicable agreement outside of
court.
September 25, 2007 (8:05a) - FINL Response to
GCO Lawsuit
FINL issues the following statement yesterday
(9/24) in response to GCO's lawsuit
"The Finish Line has complied with its
obligations under the merger agreement, and as previously announced, continues
to work on the closing documents. In that regard, The Finish Line has asked
Genesco for certain financial and other information as well as access to
Genesco's Chief Financial Officer and financial staff. However, to date Genesco
has not responded to and has refused to comply with these requests. These
failures constitute a breach of the merger agreement, and The Finish Line is
today notifying Genesco of same."
Nothing surprising in FINL's reaction under the
circumstances. The company at this point has few options as long as UBS
continues to stall the financing completion for the deal. FINL's claim that GCO
has breached the merger agreement is very weak and should be considered nothing
more than rhetoric for the time being.
Although there is certainly no indication of FINL's
intentions regarding UBS or the current terms of the merger agreement, it
continues to be perceived that the company's best option is to take legal
action against UBS to force the financing commitments. While FINL certainly
does not want to see litigation occur -- with GCO or UBS -- the company must
take some sort of aggressive action soon with respect to UBS.
Obviously, this is an extremely complicated scenario which
could play out in any number of ways. The very general sense at this time is
that the deal will eventually be completed within the next several weeks as
litigation will almost certainly go in the favor of GCO. Again, it would not be
surprising if FINL, under UBS pressure, attempts to re-negotiate the terms of
the merger agreement.
September 21, 2007 (12:55p) - GCO Files
Lawsuit
GCO has taken the initiative in this situation
and filed the first lawsuit against FINL in an attempt to force the completion
of this transaction.
A GCO press release states the following:
"We have launched this litigation in an
effort to speed consummation of the merger and to force impartial review of the
aspersions that The Finish Line and its bankers have cast on Genesco's business
and reputation. I, along with other members of the management team and our
Board of Directors, are proud to be the stewards of a company that is a leader
and innovator in its industry with a rich history dating to 1924. I am proud to
be the leader of a group of employees who have helped build a wonderful
business for the benefit of our shareholders."
As of this entry, Neither FINL, nor UBS have issued a
response to GCO's legal action.
This is perceived as an appropriately aggressive move by GCO
to apply both legal and public pressure to FINL, to pressure UBS. The
expediency in which GCO has acted is commendable, if not necessary in this
situation, and it will at least force FINL and UBS to spend the weekend
re-evaluating their respective positions.
Although UBS should in all good conscience continue with the
closing process, the general impression is that it will continue to manipulate
this situation in its favor in the hopes of at least motivating FINL to attempt
to renegotiate the terms of the agreement.
September 20, 2007 (9:50a) - Status
Report
This has become a rare situation wherein the
acquiror now finds itself caught in the middle it financing source and the
target company. Admittedly, this publication has very little frame of reference
for this scenario, so it is extremely difficult to confidently project the
outcome at this point.
First, GCO sent a strongly-worded and direct letter to FINL
yesterday demanding that FINL quickly complete the transaction under the terms
of the merger agreement. The most compelling passage in the letters the
following:
"Clearly, UBS' most recent request comes
within neither the spirit nor letter of our agreement. It is clear from their
own statements that they are looking for a way out of their commitment -- in
our view, not because of Genesco's results but because the upheaval in the
credit markets makes this deal less profitable for them. We are not going to
allow the litigation consulting firm they have hired to go on a fishing
expedition."
While this publication completely agrees with GCO's
assessment of UBS' motives, this does not alter the fact that UBS has the
resources and ability to continue to stall this deal if it wishes to do so. No
amount of complaining and/or threats from GCO can change this basic fact. While
ethically misguided, UBS is certainly not going to sacrifice the profits
alluded to by GCO without taking all the necessary steps available.
Second, UBS has already taken the first and most significant
step in ceasing the closing process by withholding the necessary documentation
from FINL. Although there has been no legitimate indication that UBS is
demanding a renegotiation of the merger agreement, it must be assumed that this
is the ultimate goal, as an attempt to terminate the deal would obviously
result in lawsuits from both GCO and FINL.
Finally, FINL has not issued any sort of comment at the time
of this entry. This is not surprising given, again, that the company is truly
being pulled in opposite directions. The only statement it can make at this
point is that it is working with both parties to resolve the situation, which
is presumably is.
It will be repeated that GCO's poor Q2 earnings is not a
justification for creating this situation. This much should be obvious. And in
a legal battle, this concept should be obvious as well. For this reason, it is
currently not expected that FINL, under UBS' manipulation, will not
attempt to terminate this merger agreement. Just how FINL will navigate this
situation is unclear, but the best option would be to bring all the parties to
the negotiating table and attempt to reach a revised agreement. If UBS is
confronted with legal actions from both companies, it should be more than
willing to fulfil its financing obligations.
September 18, 2007 (8:35a) - GCO Shareholder
Approval / Status Report
The GCO shareholder meeting did in fact take
place yesterday and GCO shareholders approved the merger.
Neither company has commented further on the UBS financing
situation or prospects of the deal closing at the current exchange rate.
Presumably, FINL will issue some sort of statement before the end of this week,
as it is most likely going over its option with UBS at this point.
Again, it will not be at all surprising if FINL attempts to
re-negotiate the terms of the deal down to the mid/upper-$40 range given the
circumstances. The completion of this transaction is therefore likely to be
delayed into next month, and perhaps beyond if GCO refuses to accept any
revised offer(s).
September 17, 2007 (8:20a) - Status
Report
Last Friday (9/14), FINL announced the receipt
of a letter from its primary lender for this acquisition (UBS), which stated
the following:
"We hereby notify you that we reserve all
rights with respect to our obligation to complete the financings as outlined
under the commitment letter. While we will continue to pursue this matter in
good faith, we are extremely concerned about the apparent deteriorating
financial position of [Genesco]. We are continuing to actively monitor this
situation, and look forward to your continued cooperation.
"[O]ur agreement to perform under the Commitment Letter
may be terminated if a Material Adverse Effect has occurred with respect to
Genesco. As of today, we are not yet satisfied that Genesco has not experienced
a Material Adverse Effect."
It is now abundantly clear that this transaction, at its
current offer price of $54 per GCO share, is now on shaky ground. FINL will
most likely take the necessary steps to force GCO to postpone today's special
shareholder meeting, as it would be pointless to have the shareholder vote move
forward under the current circumstances.
Although the perception remains that both FINL's and UBS'
recent wavering is not so much based on GCO's Q2 numbers as on broader market
concerns, the fact remains that the groundwork has been laid for a reduced
offer. The rationale for the combination has not changed at all, nor has the
fundamental principle that retailers are always subject to seasonal sales
fluctuations. That the buyers in this case are pointing to this aspect as their
primary concern borders on ludicrous.
Nevertheless, a lower offer for GCO now seems inevitable
with the threat of UBS withdrawing its financing. GCO's stock price has been
driven down, artificially, though the FINL/UBS actions, to under $45. Thus, it
seems reasonable to assume FINL will attempt to renegotiate a new offer in the
$46-47 range.
September 6, 2007 (10:55a) - Status
Report
FINL early this morning issued its own Q2
earnings release which, not surprisingly, were very similar to GCO's in general
sales terms.
Of particular interest in the FINL official press release is
this passage:
"The Company has experienced, and expects
to continue to experience, significant variability in net sales and comparable
store net sales from quarter to quarter. Therefore, the results of the periods
presented herein are not necessarily indicative of the results to be expected
for any other future period or year."
This essentially mimics the assessment offered in the
previous update by this publication:
"This 'cold feet' indication is somewhat
perplexing given that the fact that GCO is a retailer, and as such is always
subject to upward and downward seasonal swings."
By its own admission, FINL has virtually eliminated any case
it intends to make in backing out of this deal. It's 'cold feet' as widely
reported just a week ago appear to be as much related to its own sales issues
as to GCO's which is hardly a legitimate reason to reconsider a merger in this
particular industry.
While FINL may make an attempt to re-negotiate the terms of
this deal down in the near future, it clearly has no basis, or legal standing,
to actually attempt to terminate the merger agreement.
August 30, 2007 (12:15p) - GCO Q2 Earnings
Release / FINL Response
GCO has issued what is being called a
"disappointing" quarterly (fiscal '08) earnings report, to which FINL
has responded very negatively. FINL has stated the following regarding the GCO
report and the pending merger transaction:
"The Company is disappointed with Genesco's
second quarter fiscal 2008 financial results. Consistent with its
responsibilities to The Finish Line's shareholders, the Company is evaluating
its options in accordance with the terms of the merger agreement. The Company
does not intend to make further comments at this time."
This 'cold feet' indication is somewhat perplexing given
that the fact that GCO is a retailer, and as such is always subject to upward
and downward seasonal swings.
It seems more likely that FINL is essentially taking
advantage of the combined GCO report and broader market concerns to drive GCO's
stock price to a level where a re-negotiation of terms may be feasible. There
is really no legitimate reason to interpret GCO's quarterly losses as an
indication of long-term issues as, once again, retail by nature is a volatile
industry, in terms of short-term earnings.
It will be recalled that only four months ago Foot Locker's
$46 per share offer was universally rejected as inadequate and it was suggested
(by this publication for one) the a $50/share offer would be the starting point
for a legitimate bid. A quarter's worth of declining shoe sales -- during
spring/summer period -- is certainly not the type of development that would
warrant FINL from attempting to terminate the merger agreement, or even
attempting to reduced the current offer for that matter.
Nevertheless, it must be acknowledged that today's events
could very well result in FINL pressuring GCO to enter discussions regarding a
lower offer price. It would be very surprising if GCO agreed to a significantly
lower price (+/- $53) given the circumstances to this point.
August 21, 2007 (3:20p) - Definitive Proxy
Statement Filed
GCO filed the
definitive proxy
statement for this transaction with the SEC on August 13, 2007.
The GCO shareholder meeting remains scheduled for
September 17, 2007.
The transaction remains expected to close on or about that
date, assuming GCO shareholder approval.
August 14, 2007 (11:55a) - HSR Early
Termination
The FTC granted early termination of the HSR
waiting period for this transaction yesterday, August 13.
July 30, 2007 (7:55a) - GCO Shareholder Meeting
Details
GCO has scheduled its special shareholder
meeting associated with this tranaction on September 17, 2007. The
record date is August 6, 2007.
The definitive proxy statement has not been filed as
of this update.
Based on the scheduled GCO shareholder meeting, the
transaction is currently expected to close on or about September 17, 2007, as
no regulatory delays are expected in this deal.
July 18, 2007 (7:15a) - Preliminary Proxy
Statement Filed
GCO filed the
initial proxy statement for this transaction with the SEC on
July 11, 2007.
The regulatory matters section of the document does not
provide the HSR filing date, but the details of the filing will be added to the
document in the future.
As discussed previously, the HSR review will not become a
timing factor here and early termination will most likely be granted in this
case before the end of July.
Since the SEC continues to clear merger proxies at
break-neck speed, there is little reason to expect the proxy review in this
deal to be any different. It is now more likely for the SEC to waive its review
than in any time in recent memory, so even with the summer holiday period this
deal is likely to obtain SEC consent in a late-July / early-August time frame.
Naturally, this would result in a GCO shareholder meeting and close in a
late-August / early-September time frame.
That is the current closing projection for this
transaction.
June 18, 2007 (8:15a) - Formal Agreement
Reached with FINL
GCO and FINL yesterday (6/18) announced a formal
merger agreement in which GCO shareholders will receive $54.50 per share in
cash.
As with virtually every transaction in this industry --
retail or manufacturing of athletic apparel/footwear -- there will be no
interest from the FTC. The combination of these two entities will essentially
establish a diversified retailer, with a strong presence in both brick &
mortar and online distribution. HSR consent can be expected in 30-days or less
in this case.
This also looks like a deal where the SEC review will be
relatively swift. GCO has not had any major issues involving its annual and/or
quarterly reporting since 2003 when a few revisions were required in both
cases. Factoring in the all-cash nature of the deal and the very fast pace of
proxy reviews these days, and this transaction becomes a candidate for an SEC
review waiver. At worst, a 45-day proxy review may occur, which would result in
a GCO shareholder meeting and close in roughly late-September / early-October.
More likely, the companies will be able to obtain SEC consent in time to close
the deal by the first week or two of September -- assuming the first proxy is
filed by mid-July.
June 1, 2007 (8:35a) - Status Report
Not surprisingly, Foot Locker announced late
yesterday that it will no longer pursue a transaction with GCO.
This file will remain open for the time being in expectation
of a GCO transaction with another entity.
May 31, 2007 (9:55a) - Second FL Offer
Rejected
GCO has announced the receipt and rejection of a
second unsolicited $51 per share offer from Foot Locker. Although this is a
significant increase from the original $46/share offer, it falls well short of
what will be necessary for FL to even obtain GCO's attention. FL will need to
bump the offer to the mid-50's in order to accomplish this.
GCO has also announce that it is "exploring strategic
alternatives," which is assumed to mean discussions with third parties
regarding a transaction.
As discussed previously, FL is essentially in no position to
offer an adequate price for GCO, let alone enter a serious bidding war. It
would be terribly surprising if FL continued to pursue a transaction from this
point forward.
May 25, 2007 (10:45a) - Status Report
The last two weeks have seen the likelihood of a
GCO-FL deal become increasingly weaker. GCO recently announced a strategic plan
to close nearly 60 "under-performing" stores and has seen its share
price climb over the $50 level as result of this action, as well as continued
takeover speculation. Not surprisingly, it is now private equity that is
rumored to be interested in GCO -- Kohlberg Kravis Roberts being mentioned in
several reports.
Regardless, with Foot Locker's recent struggles and GCO's
apparent move in a positive direction, FL is very clearly not in a position to
raise its offer to an acceptable level.
It will be assumed at this point that FL will not attempt
any further efforts at reaching an agreement with GCO. If a third-party enters
the picture, coverage will be continued using this file.
May 14, 2007 (5:10p) - Status Report
Foot Locker's disappointing Q1 earnings have
raised speculation that the company may no longer be in a position to continue
its pursuit of GCO. Given the fact that FL's position was tenuous, to put it
mildly, from the outset certainly lends some validity to the issues surrounding
the company's weak first quarter numbers.
FL has given no indication at this point as to its current
intentions with respect to GCO. However the bizarre and unfortunate 'Of course,
we can go higher' comment now seems to wishful thinking and hardly likely to
occur at any time in the near future, as originally anticipated.
As discussed previously, FL will need to increase its offer
to around the $50 just to obtain GCO's interest. Given the current
circumstances, it seems more likely that FL will abandon its efforts for the
time being.
April 23, 2007 (10:10a) - FL Offer
Rejected
Not surprisingly, GCO has summarily rejected
Foot Locker's $46/share offer as inadequate.
In the formal rejection letter, GCO provides the following
details related to transaction discussions:
"I note that on two prior occasions when
you discussed with me (GCO CEO Hal N. Pennington) your interest in Genesco, I
indicated that our Company's Board and management believed in the value that
could be created for our shareholders by executing our business plan. In the
first discussion, you indicated an interest in making a proposal to buy the
Company for $48-$50 per share in cash. Further, I note that when you called to
inform me of your April 4 letter, you said, 'Of course, we can go
higher.'"
This is quite obviously a direct invitation to FL to
increase its offer to at least the $50 level if the company expects to
be taken seriously by GCO. It is not often that such a statement is made in a
rejection press release, as it instantly leaves the potential acquiror in an
awkward position: it can either follow up on its claims of a higher offer, or
quietly walk away knowing that a hostile offer at the current level would be
scoffed at by virtually every shareholder.
If FL is in fact motivated to reach an agreement with GCO,
it must begin its bid at the $50 level at this point. It would therefore
not be surprising at all to see FL take this step within the next few days.
April 20, 2007 (1:25p) - General Comment
The consensus seems to be that GCO will
summarily reject FL's current offer of $46 per share. This seems like a fairly
reasonable prediction given that GCO is currently trading at closer to $50 per
share, and has been over the $40 level for the greater portion of this year.
FL's offer might have more relevance had it started at the $50 level, if for
nothing else than for the symbolic impact of that amount.
If a formal agreement is reached in the near future, the
companies will have absolutely no trouble clearing the regulatory obstacles.
Although both companies are retailers of footwear and accessories --
particularly hats -- there is virtually no competitive issues associated with
the potential combination. It almost goes without saying that shoes and hats,
of any kind, can be purchased at any number of locations. In short, this would
be a no-brainer for the FTC and/or any non-U.S. competition regulator.
Assuming the potential deal is structured as a cash tender
offer, FL can be expected to complete the transaction in 45 to 60 days from the
announcement. This, of course, assumes GCO will be persuaded into entering a
formal agreement.
April 20, 2007 (12:40p) - Timelines - Recent
Related Transactions (Retail/Apparel)
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