(Bloomberg)—L Brands Inc. is selling a controlling stake in Victoria’s Secret to Sycamore Partners, giving the ailing lingerie chain a chance to rehabilitate its image and sales outside the glare of public markets.
Under the deal, Sycamore Partners will buy 55% in the lingerie chain and take it private, leaving L Brands with a minority stake. L Brands’ billionaire founder Leslie Wexner will also step down as its chairman and chief executive officer. The transaction values Victoria’s Secret at about $1.1 billion—short of some analysts’ expectations and likely a reflection of the business’s decline.
In its heyday, Victoria’s Secret was the top lingerie brand, dominating the industry with its army of glamorous models and provocative undergarments. But that’s been tarnished by ongoing misconduct allegations and years of slumping sales. The company has been accused of maintaining a misogynistic culture under Ed Razek, its former chief marketing officer, and lingering questions about Wexner’s relationship with late convicted sex offender Jeffrey Epstein.
While many details about the deal have yet to emerge, it’s clear that the transaction will at least take Victoria’s Secret out of the spotlight.
“I think about the endless possibilities ahead for this company. And I’ve thought about where I fit in the picture,” Wexner said in a message to employees seen by Bloomberg News. “In keeping with this same thoughtful examination, I have decided that now is the right time to pass the reins to new leadership.”
L Brand shares were down about 3.5% as of 3:05 p.m. in New York on Thursday, paring some of an earlier decline. The stock has lost value for four consecutive years, most recently declining 29% in 2019. That sustained drop built pressure on the company to make a fundamental change.
L Brand is No. 39 in the 2019 Digital Commerce 360 Top 1000.
Activist pressure
Activist investor Barington Capital Group in March last year urged the company to take swift action to correct what it said were Victoria’s Secret’s merchandising mistakes and to revive its dated brand image. Barington suggested it either spin off Victoria’s Secret or make Bath & Body Works, which L Brands also owns, a public company.
The lingerie chain’s flagging financial performance was overshadowing Bath & Body Works’ success, meaning the market was failing to value it properly, the investment fund said last March.
In Thursday’s statement, L Brands also said Bath & Body Works will become a public company. Additionally, L Brands extended its agreement with Barington Capital by a further 12 months—meaning Barington Capital will continue as a special advisor to the company.
Wexner, 82, the longest-serving chief executive officer on the S&P 500 Index, will step down when the deal closes and become chairman emeritus, remaining on the board of L Brands.
‘Unfortunate valuation’
Under the much-anticipated deal, L Brands retains a 45% minority stake in Victoria’s Secret, with that business also including the Pink line of young-adult focused underwear. Alex Arnold, a managing director of the consumer practice at investment bank Odeon Capital Group LLC., said it was an “unfortunate valuation,” adding he had hoped for an enterprise value higher than $1.5 billion.
“This deal was less complete than what the Street was expecting,” Arnold said. “The ongoing negative trajectory of Victoria’s Secret seems to have left L Brands taking what it could get for the business.”
Victoria’s Secret, still tied to the push-up bra aesthetic the company projected for many years, has lost ground to competitors that market their products as comfortable and body-positive. A broader retail shift to ecommerce and away from shopping malls has also dealt a blow.
After this sale, L Brands would be reduced to running the Bath & Body Works chain of skin care products that contributed 35% to the overall revenue in the year ended February 2019. Victoria’s Secret, despite its steady declines, brought in nearly 56% of L Brands’ revenue last year, according to data compiled by Bloomberg.
The deal is a reversal of course for L Brands, which had laid out plans for a turnaround at Victoria’s Secret during an event for investors in Columbus, Ohio, last September. At the time, executives said they would improve the in-store experience and update the marketing to be more inclusive while making sure core customers aren’t alienated.
‘Fresh perspective’
Under the direction of Sycamore, a private equity firm that specializes in retail and consumer investments, those plans may now be altered. Wexner said Sycamore will bring a “fresh perspective and greater focus to the business.” The market will look for more details when the company reports quarterly results on Feb. 26.
In a note before the deal was announced, Jefferies analysts said a partial sale at this low price “shows just how desperate” L Brands was to unload the chain.
The Wall Street Journal reported L Brands was nearing a deal earlier, citing unidentified people familiar with the development.
New company
The new structure will leave the faster-growing Bath & Body Works as a publicly traded company.
Andrew Meslow, who was chief operating officer of Bath & Body Works, is assuming the CEO role effective immediately. Current CEO Nick Coe will become vice chairman of Bath & Body Works brand strategy and new ventures.
Mast Global, which handles L Brands’ international operations, will be reorganized to support the separate companies.
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