Finish Line Acquires Genesco; Too Much Diversity? (GCO, FINL)

It is always a bit puzzling when you see a $600 million company make an acquisition of a company for $1.5 Billion.  This morning, Finish Line (FINL-NASDAQ) has announced that it will acquire Genesco (GCO-NYSE) for $54.50 per share in cash valued at a total $1.5 Billion.  The Finish Line expects the transaction to be accretive to its net income, before consideration of incremental amortization resulting from the transaction, in the first full year after closing.

It will also now move from a sporting apparel company to having positions across multiple footwear and apparel categories, including athletic, sport casual, lifestyle, brown shoe and headwear: Finish Line, Man Alive and Paiva as well as Journeys, Journeys Kids, Shi by Journeys, Underground Station, Jarman, Johnston & Murphy, Hat World, Lids, Hat Shack, Hat Zone, Head Quarters, Cap Connection and Lids Kids.

The Finish Line expects the transaction to be funded through approximately $11 million in cash on hand and up to $1.6 billion in financing provided by UBS, consisting of a Revolving Credit Facility, a Senior Secured Term Loan and a Senior Bridge Facility.

Genesco is up 9% pre-market and Finish Line has not yet traded.  By the looks of the brands involved, it is possible that the company may turn around and sell some of the units to widdle down the debt used to finance the buyout.

Jon C. Ogg
June 18, 2007