Pandemic Scotches Victoria’s Secret Sale
May 4, 2020
Victoria’s Secret has suffered from declining sales for a variety of reasons — #MeToo, shoppers preference for comfort over glamour, a marketing strategy that aged badly — and now covid19 may be the final nail in its coffin. The company’s parent, L Brands, reached a deal to sell 55 percent of Victoria’s Secret to private equity firm Sycamore Partners in February, but on April 22, Sycamore Partners filed suit in Delaware seeking a declaratory judgment that its move to end the agreement is valid. Sycamore says store closures and a halt to rent payments related to the pandemic breach the terms of the deal. L Brands has vowed to fight the suit, and enforce its contractual rights to finalize the transaction. If it is unsuccessful Victoria’s Secret is probably kaput. Recently, L Brands has temporarily closed stores in the U.S. and Canada, drawn down $950 million from its revolving credit facility, suspended its quarterly dividend, cut pay for senior vice presidents and furloughed workers. The pending deal had provisions that allow for the possibility of an event like the pandemic to trigger a “material adverse effect” clause, which at minimum means a renegotiation. Adria Cimino, writing at The Motley Fool, says If Sycamore prevails, the presence of Victoria’s Secret would make a possible recovery much more difficult and expensive, and the chances of finding another buyer for the chain are unlikely in the current environment.
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