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Victoria’s Secret Sale a No-Go

The Victoria’s Secret deal is dead.

Parent company L Brands Inc. and Sycamore Partners agreed to call off the proposed sale of the struggling Victoria’s Secret brand, after forging an agreement in February just weeks before the pandemic began unraveling retail.

On Monday, L Brands said it is taking the “necessary steps” to operate its Victoria’s Secret business–lingerie, beauty and teen-friendly Pink–as a separate, standalone company. And as previously reported, Leslie Wexner, who founded L Brands, will step down as CEO and chairman, although he will remain a board member as chairman emeritus. Sarah Nash will become the new chairman, while Andrew Meslow, the CEO of Bath & Body Works, will become the new CEO of L Brands. BBW will operate as a pure-play public company and be the face of L Brands. The changes are effective May 14, the day of the next annual meeting of stockholders, which will be held this year in a virtual format.

L Brands agreement with Sycamore stipulated that the private equity firm would acquire a 55 percent majority stake for $525 million–and valuing the total transaction’s value at $1.1 billion–in the intimates and lingerie brand. Sycamore had a change of heart last month, filing a lawsuit in a Delaware chancery court seeking a court ruling that it’s termination was a valid one. L Brands, meanwhile, opposed, saying it would fight to enforce the contract of sale.

“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,” Nash said Monday.

The company, she added, is implementing “significant cost reduction actions and performance improvements at Victoria’s Secret, while continuing to drive strong growth at Bath & Body Works.”

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The sale of Victoria's Secret is officially off by mutual agreement, with neither L Brands nor Sycamore partners paying a termination fee.
L Brands said the plan now is to operate the Victoria’s Secret business as a separate, standalone company. Shutterstock

L Brands has named current chief financial officer Stuart Burgdoerfer as the interim CEO of Victoria’s Secret, effective immediately. He will continue in his role as CFO of L Brands. The company will provide further details on the go-forward plan for Victoria’s Secret during its next scheduled earnings call, which is set for May 21.

The intimates firm has had its share of troubles, and a new executive team was working on turnaround plans.

“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,” Sycamore said, adding, “Neither party will be required to pay the other a termination fee or other consideration as a result of the mutual decision to terminate the agreement and settle the pending litigation.”

What isn’t clear for L Brands now is how it plans to reduce its more than $5 billion in debt. The transaction with Sycamore was expected to help cut some of that debt as it focuses on building the BBW business. The deal would have eased some pressures for L Brands, such as $2.5 billion in lease costs for more than 1,000 Victoria’s Secret stores.

L Brands has about $400 million in annual interest expenses and an upcoming debt payment of $450 million due April 2021.