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Finish Line (NASDAQ:FINL), the mall-based retailer, has fallen on hard times lately and it has not gone unnoticed. The share price has declined about 30% due to depressing first and second quarter same-store sales declines of 7.2% and 6.6% respectively. The Company was recently issued a letter by Clinton Group (who currently owns 5.1% of FINL) encouraging the board to take action to increase shareholder value.

Today, we choose to highlight the following as initial steps that the board should do to enhance shareholder value: (1) eliminate the unfriendly shareholder corporate governance structure including the dual class voting structure, (2) commence a Dutch tender offer in conjunction with a modest senior debt financing, and (3) to the extent the share price continues to languish, engage a reputable investment banking firm to explore strategic alternatives including, but not limited to, a going private transaction or an outright sale of the Company.

The stock jumped 7.5% after the release of Clinton Group's letter but there still is money to be made. Finish Line currently carries a p/e of 11.67 which is historically low based on a five year average of 13.76. The book value is 1.38, cash flow is relative strong, and debt is minimal.

Finish Line trades at a discount to its closest competitor Foot Locker (NYSE:FL). The following is another excerpt from the Clinton Group letter:

We believe that Finish Line represents an as good, if not better, leveraged buyout and/or management buyout candidate than Foot Locker given the Company's relatively lower valuation, strong cash flow generation, potential for a margin recovery story and diversified growth prospects. Over the last several years prior to calendar 2006, Finish Line experienced stronger revenue and earnings growth than Foot Locker. We also believe that the Finish Line shopping experience is truly a superior one given the stores' fresh decor, improving product mix and wide selection of non-footwear goods.

Finish Line will be an outstanding investment if Clinton Group is able to influence management to sell the company or take it private. As outlined in the letter, companies such as PETCO (PETC), Michaels Stores (NASDAQ:MIK), and The Sports Authority are all companies which have been acquired for substantially more based on a value standpoint. A conservative 30% upside exists on a going private transaction and that percentage is probably even higher considering retail sale/private transactions are the current rage.

At this time I do not see the Company falling below $9.00 per share, which is a hefty fall from current levels ($12.43 per share). However, Finish Line may prove greater reward than risk for the patient investor.

FINL 1-yr chart: