INDIANAPOLIS-The Finish Line Inc.’s June 17 agreement to buy Genesco Inc. for approximately $1.5 billion has hit a roadbump. Nashville, TN-based Genesco filed suit in Chancery Court in Tennessee on Sept. 21, charging the buyer, locally based Finish Line, with “buyer’s remorse.”

Finish Line fired back in a statement, saying it has complied with its obligations under the merger agreement. It has asked Genesco for certain financial information and access to the seller’s chief financial officer and financial staff. In the statement, Finish Line says Genesco has refused to comply with the requests.

The failures, according to the statement “constitute a breach of the merger agreement.” Calling Genesco’s lawsuit regrettable, the statement says Finish Line is reviewing the lawsuit and will take steps to protect the company’s and its shareholders’ interests.

The 34-page Genesco lawsuit accuses Finish Line of having become “increasingly concerned that it may have overpaid for Genesco’s common stock,” which, according to the agreement, was $54.50 a share. That topped an earlier offer by Foot Locker Inc. to pay $51 a share. Genesco’s suit also points to “a recent general decline in the retail footwear industry, which it says is evidenced in both companies’ recent financial performance.

Noting that “the market for debt securities has recently taken a turn for the worse,” the Genesco suit also charges that UBS Securities, which was to fund the acquisition, “is exerting pressure on Finish Line to explore ways to escape from the deal or to renegotiate it.”

The suit lists three steps that Finish Line and UBS are taking “to undermine the merger.” One is “slow-walking” the financing transaction. Another accuses Finish Line of “making unsupported public allegations of a purported ‘material adverse effect’ on the part of Genesco.” And finally, of “casting public doubt on the ability of the parties to consummate the transaction.”

A UBS spokesperson declined to comment on the suit.

UBS had informed Finish Line that it required further analysis of Genesco’s financial condition. And the two companies suggested that Genesco’s recent quarterly results breached a material adverse effect clause in the merger agreement. According to Genesco, the merger agreement states that neither party can back out just because Genesco failed to meet its performance goals.

Genesco says it will not renegotiate, and concludes in the legal complaint, “a deal is a deal.” It calls on the court to expedite the proceedings.

As GSR previously reported, despite the $1.5-billion price tag, Finish Line would only contribute approximately $11 million into the buyout deal. The remainder is on debt, which caused one retail analyst to say it was more like a private equity buyout than an acquisition.

Following Finish Line’s Sept. 24 comment on the Genesco suit, shares of FINL on the Nasdaq ended trading at $5.04 a share, down 4.7% for the day, compared with a 52-week high of $14.97 and a 52-week low of $4.90 a share. Genesco’s stock, which trades under GCO on the NYSE, closed the day at $46.50 a share, down 2.3% for the day. The 52-week high of $54.16 a share occurred on June 18, the day after the merger agreement was announced. The 52-week low of $33.98 a share occurred nearly a year ago on Sept. 26, 2006.

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