Struggling shoe retailers Finish Line and Genesco agreed to scrap a merger that was to be financed by Swiss bank UBS, ending a closely watched legal battle on Wall Street.
The proposed settlement, slated for a federal court hearing in New York today, requires Finish Line and UBS to pay Genesco $175 million in cash plus 12 percent of Finish Line’s outstanding common stock, which as of yesterday’s close amounted to less than $25 million.
Genesco shareholders, who had hoped for a court-ordered, $1.5 billion buyout bonanza, weren’t happy.
Shares of the Nashville-based retailer – which had sued to force Finish Line to honor a takeover offer of $54.50 a share it had made last summer – plunged $5.18, or 17 percent, to $24.77. Finish Line shares surged $1.14, or 40 percent, to $3.97.
Indianapolis-based Finish Line and UBS had tried to wiggle out of the deal, claiming that Genesco hadn’t been forthcoming about its finances prior to a worse-than-expected earnings report. Genesco, which argued that its slumped profits were in line with those of competitors including Finish Line, won a Tennessee court battle on that question in December.
But court developments in recent weeks on another key issue – whether the merged company would go insolvent – didn’t appear to be going Genesco’s way, said Antony Page, a law professor at Indiana University.
In a federal suit filed in New York that had been slated for trial this week, UBS had argued that the merged companies, which would be saddled with debt amid a broad consumer slowdown, couldn’t avoid bankruptcy.
UBS last summer had pledged to finance nearly all of the proposed buyout, requiring Finish Line to provide just $11 million in equity.
“In the end, the market had more faith in Genesco’s case than Genesco did,” said Steven Davidoff, a law professor at Wayne State University.
Genesco’s biggest investor, New York hedge fund QVT Financial, said it “strenuously opposes” the settlement and that it wants to “meet immediately” with the board.
“Approval by the board of the settlement would be a breach of the directors’ fiduciary duties to shareholders,” QVT said in a statement.james.covert@nypost.com