Dive Brief:

• In an attempt to block the proposed merger between Finish Line and U.K. sports retailer JD Sports, a Finish Line shareholder on Wednesday filed a federal lawsuit in Indiana’s Southern District Court alleging "an unfair process for an unfair price," according to court documents reviewed by Retail Dive.

• Edward Martinez, in a claim proposed as a class action on behalf of all shareholders, alleges that the sales process was "hastily conducted… in order to avoid an escalation of a conflict with an activist investor," that the board entered into it to gain "significant and immediate benefits" to themselves and senior management to the detriment of shareholders, and that the board hasn’t provided sufficient information to shareholders about the sales process leading up to the merger or the financial considerations underlying it.

• JD Sports Fashion in March agreed to acquire 100% of Finish Line's stock for about $558 million. The deal is subject to shareholder approval at both companies, (along with other regulatory approvals and customary closing conditions), and is expected close by next month at the earliest. 

Dive Insight:

With sports retail in turmoil as more casual styles continue to dominate athletic fashion, Finish Line could really benefit from a partnership with one of Europe's biggest sportswear retailers. For JD, it’s a foothold in the U.S.

"This makes JD a very strong partner for sports brands now," Matt Powell, vice president and senior industry advisor at The NPD Group, told Retail Dive in an email at the time of the announcement. "Good news for both Finish Line and JD."

These allegations from a shareholder — which could end up a class action — isn’t the only possible stumbling block. The deal would snatch away the interest acquired last year by a JD rival, U.K. sports retailer Sports Direct. In April 2017, Sports Direct acquired a 7.9% stake (and has acquired more since for about 10%), making it Finish Line's fifth-largest shareholder. "It remains to be seen how easily that company would allow its most direct competitor to acquire one of its assets," Wedbush analysts Christopher Svezia and Paul Nawalany said in comments emailed to Retail Dive in March, in which they called Sports Direct's interest a "wild card."

Finish Line ended last year with a major inventory management revamp around its in-store and online merchandise assortment, and in March reported that fourth quarter net sales rose 0.7% year over year to $561.3 million, driven by an 8.5% boost from sales at Macy's, while same-store sales fell 7.9%. For the year, net sales fell 0.3% to $1.84 billion, as the mainline stores dragged down increased sales at Macy's. Full-year same-store sales fell 3.9%.

Coming out of a holiday period that saw all brands drastically reducing prices and still finding it difficult to get shoppers to buy, the market for shoes and sportswear continues to face challenges in coming up with appealing design and performance attributes, Powell warned early in the year.

Pulling back from last year's heavy discounts will cost some sales in the short term, but focusing more on leisure styles and on women will eventually help them overcome that, Powell said in January.