L Brands is ceding control of Victoria’s Secret to a private equity firm. Under the terms of the transaction, Victoria’s Secret, with a total enterprise value of $1.1 billion, will be separated from L Brands into a privately held company majority owned by Sycamore.

WHO: Founded in 1963 by Leslie H. Wexner in Columbus, Ohio, L Brands has evolved from an apparel-based specialty retailer to a segment leader focused on women’s intimate and other apparel, personal care, home fragrance, and beauty categories. Through Victoria’s Secret, Victoria’s Secret PINK, and Bath & Body Works, L Brands is an international company that operates nearly 3,000 company-owned specialty stores in the United States, Canada, the United Kingdom, Ireland, and Greater China, and its brands are sold in more than 650 additional franchised locations worldwide.

Sycamore Partners is a private equity firm based in New York. The firm specializes in consumer, distribution, and retail-related investments, and partners with management teams to improve the operating profitability and strategic value of their business. Sycamore has approximately $10 billion in assets under management. The firm’s investment portfolio currently includes Belk, Coldwater Creek, CommerceHub, Hot Topic, MGF Sourcing, NBG Home, Pure Fishing, Staples, Inc., Staples United States Retail, Staples Canada, Talbots, The Limited, and Torrid.

WHY: The retailer has been battling falling sales and criticism that its provocative messaging is out of touch with today’s consumer.

IN THEIR OWN WORDS: Leslie Wexner, Chairman and Chief Executive Officer of L Brands, stated, “We believe this structure will allow Bath & Body Works—which represents the vast majority of 2019 consolidated operating income—to continue to achieve strong growth and receive its appropriate market valuation. The transaction will also allow the company to reduce debt.”

Wexner continued, “We believe the separation of Victoria’s Secret Lingerie, Victoria’s Secret Beauty and PINK into a privately held company provides the best path to restoring these businesses to their historic levels of profitability and growth. Sycamore, which has deep experience in the retail industry and a superior track record of success, will bring a fresh perspective and greater focus to the business. We believe that, as a private company, Victoria’s Secret will be better able to focus on longer-term results. We are pleased that, by retaining a significant ownership stake, our shareholders will have the ability to meaningfully participate in the upside potential of these iconic brands.”

Allan Tessler, Lead Independent Board Director, L Brands, said in a statement, “The Board undertook a comprehensive review of a broad range of options to best position its brands for long-term success and drive shareholder value. As the Board and its advisers explored these potential alternatives, we received valuable input from a number of shareholders, and we greatly appreciate their support. We are confident that this transformative transaction is the best path forward to strengthen our iconic brands and deliver enhanced value to all L Brands shareholders.”

DETAILS:

• Sycamore will acquire a 55% stake in Victoria’s Secret for about $525 million, while L Brands will retain the remaining 45%. Les Wexner owns 13.24% of L Brands.
• The transaction is intended to deliver long-term value to L Brands shareholders by positioning Bath & Body Works as a highly profitable, standalone public company and separating Victoria’s Secret Lingerie, Victoria’s Secret Beauty, and PINK (collectively, Victoria’s Secret) into a privately held entity.
• L Brands will use the money from the deal, along with roughly $500 million in excess balance sheet cash, to cut down on debt.
• L Brands recorded sales of $13.2 billion in 2018 and employs more than 80,000 associates.
• Bath & Body Works, which was responsible for the vast majority of L Brands’ 2019 operating income, will become a stand-alone public company.
• L Brand founder, 82-year-old Les Wexner, will step down as its chairman and CEO, remaining on the board as Chairman Emeritus.
• Andrew Meslow, currently COO of Bath & Body Works, will take over as CEO of L Brands.
• Meslow will join the board and three other directors, including the lead independent director, will be replaced.
• The company is also extending an agreement with activist fund Barington Capital Group, which disclosed a stake in L Brands last year. They will continue to serve as a special advisor to the company.
• BridgePark Advisors and PJT Partners are serving as financial advisors to L Brands and Davis Polk & Wardwell is serving as legal counsel. Kirkland & Ellis LLP is serving as legal counsel for Sycamore Partners.