Sycamore Seeks to Terminate Deal to Acquire Majority Stake in Victoria’s Secret

The private equity firm filed suit in Delaware

a victoria's secret storefront
Private equity firm Sycamore Partners seeks to terminate its deal to acquire a 55% stake in Victoria's Secret from L Brands. Getty Images
Headshot of Richard Collings

Key Insight:

Victoria’s Secret is staying with L Brands a little longer.

Sycamore Partners sent a notice to L Brands, Victoria Secret’s parent company, that it intends to terminate its deal to acquire a 55% stake in the lingerie retailer, the retail conglomerate announced. In tandem, the private equity firm has filed a lawsuit in Delaware’s Court of Chancery seeking a judgment declaring the termination of the transaction agreement as valid.

L Brands said it will “vigorously defend the lawsuit and pursue all legal remedies to enforce its contractual rights.” Meanwhile, Victoria’s Secret’s parent company said it will continue to work toward closing the transaction as intended.

L Brands’ complaint, filed with the Delaware court, cites the agreement’s material adverse effects (MAE) clause that excludes pandemics which could have provided Sycamore a way out of the deal.

In its lawsuit, Sycamore argues that L Brands agreed to operate Victoria’s Secret in a manner consistent with how it managed the business in the past, a provision of the deal separate from the MAE clause. By not paying rent and furloughing employees, for example, L Brands violated that provision.

L Brands did not provide a comment beyond its court filing and press release, while Sycamore declined to comment.

L Brands and Sycamore struck a deal in late February, under which the private equity firm would acquire a 55% stake in Victoria’s Secret for $525 million in a transaction that valued the business at $1.1 billion. As a result, the lingerie business was to be separated from parent L Brands, which would continue to hold a 45% stake. L Brands’ sole remaining banner would be Bath & Body Works.

L Brands planned to use the $525 million in proceeds in addition to $500 million in excess balance sheet cash to reduce debt.

Victoria’s Secret was beset with a host of image problems in recent years, including a reluctance to showcase a variety of body types in its marketing, a lack of product innovation and allegations of sexual misconduct, which affected sales. During the 2019 holiday season, the brand saw a 12% decline in comparable store sales.

Last year, the intimates business canceled its high-profile holiday fashion show, a centerpiece of its marketing since the 1990s, which featured the world’s top supermodels. The televised event was canceled following backlash, waning public interest and a decrease in broadcast ratings.

Editor’s note: This article has been updated to include information from L Brands’ complaint filed with the Delaware court Thursday, April 23.

@RichCollings Richard Collings is a retail reporter at Adweek.