Victoria’s Secret Owner Unveils Plan B After Sycamore Walks Away

(Bloomberg) -- L Brands Inc. agreed to cancel a deal that would have given private equity firm Sycamore Partners control of beleaguered lingerie chain Victoria's Secret, which now faces an uncertain future as a standalone business in a ravaged retail industry.

Now, L Brands will operate its Bath & Body Works as a standalone public company, while attempting to turn around the lingerie brand as a separate entity. Sycamore Partners and L Brands also agreed to settle all pending litigation, the companies said in statements on Monday.

Shares of L Brands fell as much as 18% to $9.82 in late trading on Monday.

The agreement brings an abrupt end to one of the highest profile deals this year in the retail world and charts an uncertain path for a storied American brand. Victoria's Secret had been a pioneer in mass-market lingerie, but the business has declined in recent years amid controversy and changing consumer tastes.

The February deal, in which Sycamore was poised to take a 55% stake in Victoria's Secret for about $525 million, was thrown into jeopardy in late April when Sycamore sued to terminate the transaction, arguing that Columbus, Ohio-based L Brands violated the terms of the agreement by failing to pay rent and furloughing thousands of workers amid the coronavirus pandemic. L Brands counter-sued to enforce the terms of the agreement.

Alone Again

L Brands, which has struggled to turn around the struggling lingerie brand, will be going at it alone again. The company said it would provide further details on its plans for Victoria's Secret during an earnings call on May 21.

The company was already struggling with image problems and eroding sales before the Covid-19 outbreak that has forced nonessential retailers into a virtual stasis. With retail traffic practically halted, it's unclear when, or if, consumers will go back to their old habits. In this environment, the prospect for months of costly litigation was likely untenable for the company.

“L Brands will have a tough time in preparing Victoria's Secret as a stand-alone entity, given the lingerie retailer's loss in market share,” Bloomberg Intelligence analysts Poonam Goyal and Abigail Gilmartin said in a research note. They listed mounting inventory as a “major concern” for the company.

L Brands said longtime leader Leslie Wexner will step down as chief executive officer and chairman. Andrew Meslow, who runs L Brands' Bath & Body Works, will become CEO of the parent company and join the board, while Sarah Nash will become chair.

Neither party will be required to pay the other a termination fee over the cancelled deal, according to a separate statement from Sycamore.