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Victoria’s Secret sale cancelled; company to be spun off

The ongoing saga of Victoria’s Secret’s survival took another significant turn overnight as parent L Brands confirmed the deal with private-equity company Sycamore Partners was cancelled and it now plans to spin the business off. 

The two companies have announced a “mutual termination” of the deal – itself a twist after L Brands last month commenced legal action to force Sycamore to honour the sale.  

Sycamore had agreed to pay US$525 million for a 55 per cent stake in L Brands back in February, a deal most analysts at the time considered a bargain. But the subsequent advent of the coronavirus pandemic which saw most of the company’s stores shuttered, decimating sales, has made L Brands less desirable, even at that price.  

Last month, Sycamore declared the purchase agreement was invalid, claiming that by closing stores during the Covid-19 pandemic, laying off staff and withholding rent, L Brands was in breach of the sale agreement under which the retailer was obliged to continue to conduct business ‘as usual’ ahead of settlement. L Brands disagreed.

In a press statement confirming the mutual termination, Sycamore said neither company would be required to pay the other a termination fee or any other consideration in both cancelling the deal and settling the litigation. 

L Brands’ board decided a protracted court battle worth neither the effort nor the expense. 

Furthermore, with L Brands to retain a 45-per-cent stake in the Victoria’s Secret business under the agreement, the two companies would have made uneasy bedfellows after a lengthy court fight with each other. 

Next: a spin off

L Brands says its new plan is to spin off Victoria’s Secret, but the details on how and when are far from clear. According to a statement overnight, L Brands will focus on building the profitable Bath & Body Works business as a pure-play public company, separating the Victoria’s Secret lingerie, beauty and Pink entity into a standalone company. 

It is hard to see this being done through an IPO given the underwhelming financial performance of the business and its tired retail format, let alone in an economic climate where there is little appetite for new investments. 

“Like all retailers, the company faces an extremely challenging business environment,” said Sarah Nash, who will next week assume chairmanship of the company. 

“We are implementing significant cost reduction actions and performance improvements at Victoria’s Secret while continuing to drive strong growth at Bath & Body Works. We will continue to make decisions and take actions with the best interests of all our stakeholders and the future of our company in mind.”

Most of the changes which were planned after Sycamore’s investment will still proceed. At next week’s virtual board meeting Leslie Wexner will step down as CEO and chairman, but will remain a member of the board as ‘chairman emeritus’. Andrew Meslow, CEO of Bath & Body Works, will become CEO of L Brands and join the board. In addition, Stuart Burgdoerfer, currently CFO, will immediately assume the role of interim CEO of Victoria’s Secret while continuing to serve as CFO. 

Nash says L Brands will provide further details of its plans for restructuring during a scheduled earnings call on May 21. 

L Brands operates 2920 company-owned specialty stores in the US, Canada, Greater China and the UK as well as selling through more than 700 franchised locations worldwide. 

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