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[update 2] L Brands, Sycamore Partners Terminate Transaction

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L Brands has announced a transformative transaction with private equity firm Sycamore Partners to help drive shareholder value and pay of some of the company's debt.

L Brands, Inc., with Sycamore Partners, has announced Bath & Body Works will become a standalone public company and Victoria’s Secret will be positioned as a privately held entity majority-owned by Sycamore.

Related: L Brands CEO May Step Down & Potentially Sell Victoria's Secret

Sycamore will purchase 55% interest in Victoria’s Secret for approximately $525 million and L Brands will retain a 45% stake, enabling shareholders to meaningfully participate.

Update:

CNBC reports Sycamore is looking to back out of the purchase agreement following L Brands' move to close stores and furlough employees in response to the COVID-19 pandemic.'

Sycamore has filed a lawsuit in attempt to terminate the deal, in which it claims L Brands violated the transaction when it closed dtores and skipped April rent payments, according to the article.

L Brands intends to fight the lawsuit and continue working toward closing the transaction, according to CNBC.

Previously (February 2020): The company intends to use the proceeds from the transaction, along with approximately $500 million in excess balance sheet cash, to reduce debt, expecting its overall leverage, on an adjusted debt to EBITDAR basis, will be close to its current leverage ratio.

Previously: L Brands Reports Q4 2019 Results, Updates Q4 Earnings Guidance

Upon the transaction’s close, Wexner will step down as CEO and chairman of the board, but will remain a member of the board as chairman emeritus.

Previously: L Brands Reports Q3 2019 Results

Similarly, Nick Coe, current CEO of Bath & Body Works, has been named vice chairman of Bath & Body Works brand strategy and new ventures. Andrew Meslow, currently COO of Bath & Body Works, has been promoted to CEO of Bath & Body Works and at the close of the transaction, Meslow will become L Brands CEO and join its board.

“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,” L Brands CEO and chairman Leslie Wexner said. “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.”

Speaking on the position changes, Wexner said, “For nearly nine years, [Coe] and [Meslow] have been a powerful combination, driving the Bath & Body Works brand to more than $5 billion in sales with best-in-class profitability. Management and the board have been engaged in thoughtful discussions over the past few years to develop a succession plan that leverages the unique partnership established by [Coe] and [Meslow] to advance the long-term, strategic direction of the brand. We are pleased to name [Meslow] as CEO of Bath & Body Works and have [Coe] step into this new, more focused role as the team propels the brand and business forward.”

Update 2:

L Brands, Inc. and Sycamore Partners have agreed to end their previously announced agreement that would have made Bath & Body Works a standalone public company and positioned Victoria’s Secret as a privately held entity majority-owned by Sycamore.

L Brands reportedly “remains committed” to establishing Bath & Body Works as a pure-play public company and is taking the necessary steps to prepare the Victoria’s Secret Lingerie, Victoria’s Secret Beauty and PINK businesses (collectively, Victoria’s Secret) to operate as a separate, standalone 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.”

The following leadership changes will also go into effect:

  • 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. He will also serve as interim chief executive officer of Victoria’s Secret and continue acting as CFO of L Brands;
  • Sarah Nash will become chair of the board; and
  • Allan Tessler, current lead independent director, Gordon Gee and Raymond Zimmerman will retire from the Board.