Finish Line’s Shocking Shareholders Rights Plan

The athletic apparel and footwear sector have been performing abysmally lately. Finish Line (NASDAQ:$FINL) is no exception, ranking behind sport giants like Nike (NYSE: $NKE) and Foot Locker (NYSE: $FL). Recently, Finish Line shocked all by implementing a shareholders protection plan.

Essentially, following the massacre of Foot Locker, it came as no shock when Finish Line issued a warning about its Q2. Following that notice, the company also adopted a shareholders rights plan to prevent against a hostile takeover. While management desperately attempts to lift the company from a 27% decline, shares are actually rebounding as we speak.

To understand such an enigma, let’s look at the actual plan itself. Firstly, it was unanimously adopted by the Board of Directors, intending to “protect the best interests of First Line shareholders.” The plan was put into place through a declared special dividend of one preferred stock purchase “right” for each outstanding common share. On September 11, 2017, this dividend will be attributed to shareholders, entitling the holder to one ten-thousandths of a share of preferred stock at $26.00 in the scenario of the “rights” becoming exercisable. Basically what this means is that if someone accumulates 12.5% or more of the outstanding common stock, or becomes too powerful, the rights will become enacted. However, those already with 12.5% or more prior to the announcement will be excluded. The plan is set to be in place until August 28, 2020, with a possibility of a date move up pending shareholder approval in 2018.

Let’s dig a little deeper into Finish Line’s statistics to better understand why this plan is raising eyebrows. First off, the plan itself is not what’s driving shares down. Finish Line’s performance in the past year has been gloom, to say the least:

  • Second quarter net sales were $469.4 million, down 3.3% vs last year
  • 4.6 % decrease in comparable sales vs last year
  • Adjusted earnings per share will be $0.05 to $0.06 vs $1.12 to $1.12 last year

Are you keeping track? That means the reality of profit is cut in half versus expectations. As an investor, maybe it’s time to consider a bottom line for Finish Line.

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