My reasoning for this position starts at Cogitator (2:34:52 AM).
A quick summary:

Deep Throat (1:26:40 AM): hey, quick thing about genesco
Deep Throat (1:26:53 AM): are there court documents I could look at?
Deep Throat (1:27:11 AM): and do you think studying it more closely will be useful?
Cogitator (1:27:53 AM): sometimes companies have the court documents on their websites
Cogitator (1:27:59 AM): it’s more of a PR sling
Cogitator (1:28:09 AM): so check genesco’s site
Deep Throat (1:28:13 AM): k’
Cogitator (1:28:23 AM): if they do have it, the whole thing is likely to be redacted
Cogitator (1:28:34 AM): so a lot of important info will be blacked out
Cogitator (1:28:49 AM): not sure if it’s worth a look
Deep Throat (1:28:49 AM): dang
Cogitator (1:29:03 AM): usually the professional arbitrageurs have someone sitting in the court
Cogitator (1:29:17 AM): not very intelligent to bet when they have much more info
Cogitator (1:31:28 AM): though from experience
Cogitator (1:31:41 AM): i feel that gco and finl will just settle on a new price
Cogitator (1:31:50 AM): finl knows it fucked up
Deep Throat (1:31:56 AM): ha
Cogitator (1:32:06 AM): valassis knew too
Cogitator (1:32:10 AM): when it bought advo
Cogitator (1:32:24 AM): they’ll try as hard as they can to reduce it
Cogitator (1:32:31 AM): by how much is the big question
Deep Throat (1:35:16 AM): “I urge our shareholders to read the opinion in its entirety, a copy of which is posted on our website, www.genesco.com. “
Deep Throat (1:35:19 AM): -Hal Pennington
Deep Throat (1:35:26 AM): I don’t see it on the website though
Cogitator (1:36:35 AM): hmm
Cogitator (1:36:47 AM): http://www.genesco.com/?g=litigation_library.litigation_library
Cogitator (1:36:51 AM): maybe it’s in there
Deep Throat (1:37:46 AM): hmm, thanks
Cogitator (1:40:38 AM): i’d look more at what ubs is arguing
Cogitator (1:40:44 AM): the new york case is most important now
Deep Throat (1:40:51 AM): yea, that’s what I’m reading right now
Deep Throat (1:41:00 AM): http://www.genesco.com/images/litigation_library/01-ubs%20original%20complaint.pdf
Deep Throat (1:41:50 AM): they’re appealing the tennessee decision too, I believe
Cogitator (1:42:27 AM): eh
Cogitator (1:42:30 AM): that’s not happening
Cogitator (1:44:21 AM): all you need to do is read this that you sent me
Cogitator (1:44:26 AM): and compare it to the merger agreement
Deep Throat (1:44:53 AM): yea, I just realized that the tennessee appeal is a “maybe”
Deep Throat (1:44:57 AM): should read more carefully
Deep Throat (1:45:03 AM): so yea, just the NY one
Cogitator (1:45:22 AM): they can appeal it
Cogitator (1:45:24 AM): they won’t win
Cogitator (1:48:21 AM): i just have a good feeling about this
Cogitator (1:48:59 AM): intuition tells me they’ll reduce it to a price that’s higher than $29
Cogitator (1:49:12 AM): i think i’ll do it monday
Cogitator (1:49:45 AM): ubs’ argument sucks
Cogitator (1:50:08 AM): all they’re really saying is that the capital structure of the deal will cause it to fail
Cogitator (1:50:26 AM): it’s not only the deteriorating quality of the business
Cogitator (1:50:38 AM): the other half is simply the capital structure… the debt
Cogitator (1:50:48 AM): so they’re admitting stupidity
Cogitator (1:51:10 AM): the only way they could ever win this is if they try to play dirty and say genesco didn’t give them enough info
Cogitator (1:51:20 AM): i think they tried that in tennessee and lost
Deep Throat (1:51:32 AM): yea, they did
Deep Throat (1:51:36 AM): try that, I mean
Cogitator (1:51:47 AM): so childish

Deep Throat (1:58:15 AM): so genesco gave a projection of a profti of 15 mil
Deep Throat (1:58:21 AM): but delivered a loss of 2.5 mil
Cogitator (1:58:52 AM): hmm
Cogitator (1:59:09 AM): is that a material adverse change?
Deep Throat (1:59:40 AM): it’s hard to say
Deep Throat (1:59:55 AM): you have a record of their quarterly results?
Deep Throat (2:00:25 AM): if this kind of variance is small or within the expected variance for this company, then obviously I’d say no
Cogitator (2:00:45 AM):
Deep Throat (2:00:58 AM): like if it were normal for earnings to fluctuate b/w say 15 and 30 million, then a drop to -2.5 million is obviously well within reasonable error of judgement
Cogitator (2:02:04 AM): yeah
Cogitator (2:03:04 AM): let’s assume that this deal doesn’t work out
Cogitator (2:03:26 AM): let me do some valuation
Deep Throat (2:03:44 AM): hmm
Deep Throat (2:03:57 AM): they do mention the “material adverse effect” stuff a lot
Deep Throat (2:03:58 AM): but
Deep Throat (2:04:08 AM): in their request to the court for what they want
Cogitator (2:04:35 AM): it’s almost always the most contested point
Cogitator (2:04:43 AM): http://www.dlapiper.com/global/publications/detail.aspx?pub=780
Cogitator (2:04:45 AM): classic reading
Deep Throat (2:05:23 AM): huh
Deep Throat (2:05:25 AM): yea
Cogitator (2:08:16 AM): Tyson had specifically relied on a two-quarter, significant decline in IBP’s performance. The court found that the event was too short in duration because Tyson’s strategy in the merger was long-term and because the cyclical nature of IBP’s cattle business was well known. In exploring whether to declare a MAC, management must be prepared to demonstrate that the “change” in its counterpart’s business has an appropriate degree of durability or permanence.
Deep Throat (2:08:25 AM): yea, I just read that
Deep Throat (2:08:39 AM): I’ll see if genesco used that to argue its case
Deep Throat (2:08:42 AM): I’m sure they did
Deep Throat (2:12:12 AM): hmm, you read item 24 of UBS’s complaint?
Cogitator (2:12:18 AM): nope
Deep Throat (2:12:23 AM): hold on a sec
Deep Throat (2:13:48 AM): basically the NY case seems more a suit by UBS against finish line and genesco
Cogitator (2:14:13 AM): yeah
Deep Throat (2:15:15 AM): “Due to insolvency, Finishline cannot deliver a valid solvency certificate… as required by the commitment letter between Finish Line and UBS as a condition to UBS’s obligation to close under the commitment Letter”
Deep Throat (2:15:35 AM): hmm, nvm
Deep Throat (2:15:40 AM): it doesn’t say what I thought it said
Deep Throat (2:16:26 AM): if it can be deemed that the combined entity will be insolvent, UBS has it’s way out
Deep Throat (2:16:52 AM): and technically, I guess Finish Line is still on the hook, although I can’t see them getting the financing for it
Cogitator (2:17:10 AM): haha
Cogitator (2:17:17 AM): i don’t think there’s precedent for this
Deep Throat (2:17:42 AM): yea, the MAC stuff happens often, this seems rarer
Deep Throat (2:17:52 AM): “often” being relative
Deep Throat (2:18:17 AM): although the judge who ruled in tennessee did not in her decision that she thought the combined company WOULD be solvent
Cogitator (2:18:51 AM): yeah
Cogitator (2:18:58 AM): this looks good then
Cogitator (2:19:07 AM): well you could argue
Deep Throat (2:19:15 AM): yea, I’m gonna read as much of the court documents as I can
Cogitator (2:19:29 AM): if ubs isn’t required to finance the deal then finl is off the hook
Cogitator (2:19:44 AM): a judge might look at it that way
Deep Throat (2:19:53 AM): well, they won’t be able to finance the deal in any case, so what’s the point
Deep Throat (2:20:23 AM): finl is fucked in any case, this is just UBS trying to save some money on a bad play
Deep Throat (2:21:07 AM): I haven’t read any of the other stuff yet though
Deep Throat (2:21:15 AM): I mean, to be honest, this seems very straight forward
Deep Throat (2:21:22 AM): either the company is or is not solvent
Cogitator (2:22:00 AM): yeah
Cogitator (2:22:20 AM): where does ubs protect itself?
Cogitator (2:22:39 AM): where does it say that it doesn’t need to finance the deal if it can prove that insolvency is inevitable
Deep Throat (2:24:00 AM): The merger agreement
Deep Throat (2:24:34 AM): section 4.9 gives 4 ways in which the entity could be deemed insolvent
Deep Throat (2:24:41 AM): item 24 in the original complain
Deep Throat (2:24:54 AM): basically
Deep Throat (2:31:25 AM): if 1) the amount of assets is exceeded by the value of all liabilities or the amount required to pay the probable liabilities on debts as they become mature 2) the combined entity has an “unreasonably small amount of capital for the operation of the business” 3) basically the same as (1) 4) dissatisfaction of any solvency reqs under Tenn, Indiana, or federal law
Cogitator (2:32:49 AM): this is all very tough to argue
Cogitator (2:33:12 AM): i think gco can keep this in court past april 30
Cogitator (2:33:30 AM): which is the latest ubs can cancel commitment
Deep Throat (2:33:39 AM): yea
Cogitator (2:34:52 AM): hmm. i might consider going long on both gco and finl
Deep Throat (2:35:01 AM): why finl
Cogitator (2:35:17 AM): to protect myself if the deal falls apart
Cogitator (2:35:29 AM): i would expect that to go up way more than gco would go down
Cogitator (2:35:41 AM): it’s an idea
Deep Throat (2:35:45 AM): yea
Cogitator (2:35:56 AM): if the deal goes through
Cogitator (2:36:13 AM): you’d lose maybe a third of the finl investment
Cogitator (2:36:21 AM): but you’d make more on gco
Cogitator (2:36:28 AM): and if the deal price is cut
Cogitator (2:36:34 AM): both would go up
Deep Throat (2:36:44 AM): why would finl go up
Cogitator (2:37:09 AM): assuming that the market is currently pricing finl in a doom situation
Cogitator (2:37:29 AM): the lower buyout price of gco would be a relief
Cogitator (2:38:23 AM): this strategy would be really unusual but probably conservative given the situation
Cogitator (2:41:22 AM): the risks look mispriced
Deep Throat (2:42:19 AM): I’m hoping to come to a decision on Genesco by the end of tonight, but it’s not looking good
Deep Throat (2:42:28 AM): I have so much other work to do too
Cogitator (2:42:47 AM): well
Cogitator (2:42:59 AM): the risks look mispriced based on what i said a few lines ago
Cogitator (2:43:25 AM): the best way to handle this is with the two long position hedge
Cogitator (2:43:33 AM): which i’ve never seen anyone do
Cogitator (2:43:37 AM): just came up with it
Cogitator (2:44:54 AM): buy both
Cogitator (2:45:00 AM): in what proportions i need to work out
Cogitator (2:45:33 AM): there are three outcomes
Deep Throat (2:45:41 AM): here’s my problem with that
Deep Throat (2:45:58 AM): how is it rational to believe that the market is pricing Genesco as if the deal won’t go through
Deep Throat (2:46:08 AM): yet also prices FINL as if the deal will
Deep Throat (2:46:18 AM): which is basically what your’e saying, no?
Cogitator (2:46:51 AM): yes i am
Cogitator (2:47:01 AM): well that’s just based on my rough valuation
Cogitator (2:47:08 AM): using normalized earnings
Deep Throat (2:47:19 AM): that IS an interesting situation
Cogitator (2:47:26 AM): finl shouldn’t be selling at 100 million
Cogitator (2:47:27 AM): no way
Cogitator (2:47:33 AM): look at past earnings
Cogitator (2:47:39 AM): over a cycle
Deep Throat (2:47:43 AM): ya
Deep Throat (2:47:54 AM): you gonna be on tomorrow?
Cogitator (2:48:12 AM): http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=FINL
Cogitator (2:48:13 AM): yeah
Cogitator (2:48:45 AM): 100 million is a joke
Cogitator (2:49:04 AM): that’s like 2.5X average earnings for the past 5 years
Cogitator (2:49:09 AM): it’s priced for bankruptcy
Deep Throat (2:49:12 AM): huh
Deep Throat (2:49:15 AM): you’re right
Cogitator (2:50:24 AM): and if you want to continue that logic
Cogitator (2:50:35 AM): you can compare it to the valuations of other similar retailers
Cogitator (2:50:37 AM): foot locker
Cogitator (2:51:14 AM): virtually all are having problems of late
Cogitator (2:51:26 AM): they’re not selling at 2.5X normalized earnings
Cogitator (2:53:02 AM): actually the others aren’t doing nearly as bad… they’ve been profitable over the past few quarters
Cogitator (2:53:19 AM): doesn’t completely refute the argument that finl is priced for bankruptcy