Victoria's Secret Fashion Show 2018

The Victoria’s Secret deal with Sycamore Partners is off. 

L Brands Inc., the lingerie giant’s parent company, released a statement Monday saying the retailer had come to a mutual agreement with the private equity firm to terminate the agreement to buy Victoria’s Secret. Now, L Brands plans to spin off its more lucrative business, the Bath & Body Works brand, into a stand-alone firm, while the Victoria’s Secret division will go private and once again make changes to the c-suite. 

“Like all retailers, the company faces an extremely challenging business environment,” Sarah Nash, current director and future chairperson of L Brands’ board, said in a statement. “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.”

Earlier this year, Sycamore Partners agreed to buy a majority stake in Victoria’s Secret — which included the lingerie and beauty divisions, along with the Pink brand — for $525 million. It was seen by some as Victoria’s Secret’s last chance to turn itself around.

The brand had been suffering from declining revenues over the last three years, allegations of sexual assault within the company and a tainted image that many believed failed to adapt to changing market trends. L Brands founder and executive chairman Leslie H. Wexner’s relationship with sex offender Jeffrey Epstein did little to help the brand. 

The Sycamore deal was signed in February and L Brands said it would likely be completed by 2020’s second quarter. Then in April, Sycamore filed a suit in Delaware asking a judge to terminate the agreement. The private equity firm claimed L Brands had violated the terms of the agreement when it closed stores Stateside, temporarily shut down its e-commerce site and furloughed staff because of the coronavirus pandemic. With roughly 1,000 stores nationwide, Victoria’s Secret is heavily dependent on its brick-and-mortar retail fleet for revenues.

“That these actions were taken as a result of or in response to the COVID-19 pandemic is no defense to L Brands’ clear breaches of the transaction agreement,” according to the lawsuit filed by Sycamore. 

At the time, L Brands said it planned to “vigorously defend” the deal and filed a complaint against Sycamore the very next day. The retailer accused the private equity firm of using the crisis to renegotiate a better price for the lingerie business. 

“This is a case of a buyer trying to get out of a deal,” the L Brands complaint claimed. “Sycamore’s current position is pure gamesmanship.” 

Then last week, L Brands released a statement saying it was taking steps to protect itself amid the pandemic, including slashing spring inventories and not paying April rent. 

Sycamore confirmed on Monday that the deal had been terminated. 

“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,” according to a representative from Sycamore. “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.”

As for L Brands, the company said its previously announced leadership changes will go into effect on May 14, during L Brands’ annual shareholder meeting, which will take place virtually this year. The changes include Wexner’s place on the board. He will step down as chairman of the board and chief executive officer of L Brands, transitioning to a member of the board and chairman emeritus. In addition, Nash will become chairperson of the board, while members of the board Allan Tessler, Gordon Gee and Raymond Zimmerman will all retire. 

Other changes include Andrew Meslow, ceo of Bath & Body Works, who will now join the board and become ceo of L Brands. Stuart Burgdoerfer, current chief financial officer of L Brands, will become interim ceo of Victoria’s Secret — effective immediately. Burgdoerfer will also continue his duties as cfo of L Brands. 

L Brands’ stock, which closed up 0.33 percent Monday to $12.04 a share, fell about 16.5 percent during after-hours trading. Shares are down more than 53 percent year-over-year. 

The company plans to release quarterly earnings on May 20 after the bell.

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