Finish Line, Better Lucky Than Good (FINL, GCO, UBS)

If there is one company that needed to get out of its crazy merger, it was Finish Line. Inc. (NASDAQ: FINL).  The company last year made a greatly leveraged buyout offer to acquire Genesco Inc. (NYSE: GCO) for terms that were maybe too high in general but that were definitely too high for what Finish Line could afford.  Despite a high fee having to paid, Finish Line is one lucky company today.  The two companies have settled after a long legal fight over this merger, Finish Line will give Genesco a stake in the company and pay a termination fee, and get out of its obligation to complete the buyout of Genesco.

We recently covered Finish Line in our weekly “10 Stocks Under $10” newsletter with the note that if the company could not wiggle out of that merger that it was going to implode from the leverage and financing.  We had noted this one being in trouble even last year.  The worst part for common shareholders in this company is that the dual-class of shares keeps the bulk of the votes and control in hands of management.

We have even named its CEO Alan Cohen as one of our ten CEO’s that need to go.  This merger should never have been ventured into in the first place.  Even with Finish Line shares up more than 30% at $3.73, its 52-week high is $13.86.  Finish Line stock was north of $10.00 before its mouth became hungrier than its pockets could afford.

Genesco is the real winner here, although you wouldn’t know it if you look at the stock today with shares down nearly 20% at $24.50.  UBS (NYSE: 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% of the total post-issuance Finish Line outstanding shares of common stock.  If the financial markets were not in disarray for deal financing, we’d probably be noting how the valuations of Genesco are compelling.

Jon C. Ogg
March 3, 2008

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