The Finish Line Surges on a Merger Agreement

What happened

Shares of The Finish Line (NASDAQ: FINL) soared on Monday after the footwear retailer announced that it had entered into a merger agreement with European retailer JD Sports Fashion PLC. This news came alongside Finish Line's preliminary fourth-quarter results, which featured a steep decline in comparable sales. The stock was up about 30% at 11:15 AM EDT.

So what

Finish Line has agreed to be acquired by JD Sports for $13.50 per share, representing a deal value of $558 million. Finish Line's board of directors have unanimously approved the transaction, which is still subject to Finish Line and JD Sports shareholder approval.

The Finish Line headquarters.

Finish Line headquarters in Indianapolis. Image source: Finish Line.

Finish Line has struggled with slumping revenue and profits in recent quarters as the shake-up of retail driven in part by e-commerce has negatively impacted the company. It did manage to grow fourth-quarter sales by 0.7%, although an extra week was behind the increase. Comparable sales at Finish Line stores tumbled 7.9%, partly offset by the company's partnership with Macy's, which generated an 8.5% sales increase.

Finish Line believes that its sale to JD Sports will provide immediate value to shareholders and move it into a stronger position to compete as part of a global enterprise. The purchase price is below the stock's 52-week high of $16.38, and well below a five-year high of roughly $32 per share. Investors who have held on for the past few years are unlikely to be happy with this deal.

Now what

With a steep comparable-sales decline during the fourth quarter, an acquisition may be the path of least resistance for the retailer. JD Sports sees the U.S. market as a highly attractive growth opportunity, and it aims to bring "a differentiated multichannel retail proposition" to this market.

The companies expect the deal to close no earlier than June 2018. Finish Line will report its full fourth-quarter results on March 29.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.