Blog: Leonie BarrieFinish Line making a run?

Leonie Barrie | 3 September 2007

What a difference a week makes. Seven days ago, the pending $1.5bn buyout of Genesco by The Finish Line seemed to be sprinting towards its autumn deadline. Then came Genesco’s swing to a second quarter loss of $4.2m, swiftly followed by a statement from Finish Line saying the clothing and hat retailer’s disappointing performance meant it was “evaluating its options” around the deal.

There is still market optimism that the Genesco buyout is on track, but that Finish Line is now pulling out all the stops to renegotiate the deal for a lower price. After all, its bid for Genesco was widely criticised at the time for being too high and the $1.6bn debt needed to pay for the deal was slammed as too much in a weak business climate. It’s also unlikely that any other competitors will challenge Finish Line either, since a hefty $46m break up fee is at stake.

Excuses about soft trading at Genesco surely couldn’t have caught Finish Line off-guard to such an extent as to put the merger in jeopardy? After all, the poor results haven’t come out of the blue. In fact, there were warning signs just a couple of months ago when Genesco announced plans to shutter up to 57 underperforming stores and posted a 79% slump in first quarter profit.

And Finish Line itself cited a “competitive retail environment” when it reported a net loss in its first quarter as same-store sales fell 4%. Furthermore, the retailer’s notice that it is reconsidering the Genesco deal came just four days after it decided to close its own chain of 15 Paiva upscale women's wear chain just 16 months after their launch.

But further twists can’t be eliminated. In less than three weeks’ time, Genesco shareholders are due to vote on the buyout. Having rejected two earlier takeover offers from Foot Locker for being too low, I can’t see them being too impressed by Finish Line’s latest manoeuvre.

Finish Line reconsiders $1.5bn Genesco buy


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