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May 6, 2020
May 6, 2020
Photo: via Victoria’s Secret

Sycamore Partners, a private equity firm specializing in consumer, retail, and distribution investments, confirmed a mutual agreement with L Brands to terminate their transaction agreement, previously announced on February 20, 2020, under which an affiliate of Sycamore Partners was to acquire a 55% interest in Victoria’s Secret for approximately $525 million.

In connection with the termination of the Victoria’s Secret transaction agreement, Sycamore Partners and L Brands agreed to settle all pending litigation and mutually release all claims. This decision comes as a surprise, given that L Brands partners had included language in the agreement that accounted for the pandemic, obligating Sycamore to complete the deal.

The day the Sycamore deal was announced, L Brands shares were trading at more than $23 a share. On March 20, they traded for less than $10. On May 4, shares, already under pressure due to tumbling sales and litigation with Sycamore, plunged more than 17% after the market closed.

The Timeline

February 20, 2020: Sycamore Partners announced an agreement to acquire a 55% interest in Victoria’s Secret for approximately $525 million, while L Brands would retain the remaining 45%. After the sale closed, the plan was for L Brands to remain a public company consisting of Bath & Body Works while Sycamore worked to revive Victoria’s Secret as a private company. Mr. Leslie Wexner was expected to step down as CEO and chairman upon the closing of the sale and retain a board seat at L Brands. Ms. Sarah Nash, a director at L Brands, was then expected to become the chairwoman of L Brands.

March 17, 2020: L Brands announced the temporary closure of all its US stores.

March 27, 2020: L Brands furloughed most of its workers as states extended shutdown orders. L Brands also drew down $950 million from a revolving credit line and suspended its quarterly dividend and cut pay for senior executives.

Early April: Sycamore Partners sent L Brands a letter stating it wanted to buy Victoria’s Secret, but at a different price, citing the pandemic’s impact, according to a complaint filed with the courts. L Brands declined to renegotiate the purchase price.

According to the lawsuit, Sycamore contacted L Brands, claiming it hadn’t agreed to the actions and was concerned the conditions necessary for the deal to close might not be met. L Brands replied it was complying with their agreement.

April 22, 2020: Sycamore filed a lawsuit contending that L Brands failed to run the Victoria’s Secret business in a manner consistent with past practices, in breach of the agreement with Sycamore. It points to the fact that Victoria’s Secret furloughed most employees, failed to pay rent, and didn’t replenish out-of-fashion merchandise, all of which were at odds with the company’s previous behavior and supposedly hurt the Victoria’s Secret brand. Sycamore conceded that it can’t invoke the “material adverse event” clause to justify terminating the contract, given the language that specifically excludes a pandemic. The lawsuit also did not fault L Brands for closing its stores, which it did under government orders.

L Brands said in a statement it believed the termination of the transaction was invalid and that it “will vigorously defend the lawsuit and pursue all legal remedies to enforce its contractual rights.” The company said it would continue to work toward closing the deal.

April 24, 2020: L Brands filed a countersuit saying that the private equity firm is inappropriately leveraging the COVID-19 epidemic to renege on their deal, or get a better one.

May 4, 2020: In a statement on Monday, Sarah Nash, director at L Brands and the company’s incoming chairwoman, cited the “extremely challenging business environment” for retailers as part of its decision to put an end to the deal.

Go-Forward Strategy

On May 4, L Brands announced plans to move forward with establishing Bath & Body Works as a pure-play public company and taking necessary steps to operate Victoria’s Secret as a separate, stand-alone company.

Sarah Nash, current director and future Chair of L Brands’ board, said, “Like all retailers, the company faces an extremely challenging business environment. Our Board believes that it is in the best interests of the company, our stockholders and our associates to focus our efforts entirely on navigating this environment to address those challenges and positioning our brands for success rather than engaging in costly and distracting litigation to force a partnership with Sycamore. 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.”

  • Leslie Wexner will step down as Chief Executive Officer and Chairman of the Board of L Brands. He 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.
  • Sarah Nash will become Chair of the Board.
  • Allan Tessler, current lead independent director, Gordon Gee and Raymond Zimmerman, will retire from the Board.
  • The board has appointed Stuart Burgdoerfer, current Chief Financial Officer of L Brands, as Interim Chief Executive Officer of Victoria’s Secret, effective immediately. Burgdoerfer will also continue to serve as CFO of L Brands and will have a dual reporting relationship to Nash as the incoming Board Chair and Meslow as the new CEO of L Brands.

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