UBS Securities LLC and UBS Loan Finance LLC (Plaintiffs/Counter-Defendants) vs. The Finish Line, Inc. (Defendant/Counter-Plaintiff) and Genesco Inc. (Defendant)
Economic Advice in Litigation
The Situation
Finish Line and Genesco are two companies operating footwear retail chains and related businesses. They agreed to a merger in June 2007. Finish Line agreed to acquire Genesco Inc. for $54.50 per share in cash, or about $1.5 billion. UBS agreed to provide financing. After negative business results for both companies, and with the US economy deteriorating, Genesco sued Finish Line for specific performance of the merger agreement. Finish Line counterclaimed that a material adverse change had occurred, which released it from its obligation to complete the deal.
NERA's Role
In support of its counterclaim of material adverse change, Finish Line retained NERA to evaluate changes in the prospects for the footwear industry since the merger was announced. NERA evaluated sales projections made by the companies, performed a macroeconomic assessment, and reviewed analysts' earnings forecast revisions. NERA Vice President Dr. John Montgomery was asked to provide an expert opinion on the revenue projections by Genesco and by Genesco's valuation expert. Dr. Montgomery evaluated the projections in light of mounting concern in February 2008 that the US economy was headed into recession. In an expert report and in deposition testimony, Dr. Montgomery emphasized that the duration of recessions was highly uncertain, and concluded that the projections of Genesco's expert did not adequately consider these risks.
The Result
Immediately after expert depositions, and only hours before trial was scheduled to begin, Finish Line and Genesco agreed to terminate their merger agreement. Finish Line's stock price rose 52% on the news.
