LB - Owning L Brands Just Got Complicated ... Again
In February, it looked like the deal was all but done -- then it wasn't. Last month, Sycamore Partners asked Victoria's Secret's parent company L Brands (NYSE: LB) to let it out of the agreement that would have sold 55% of the lingerie retailer to the private-equity outfit. L Brands, which also owns Bath & Body Works, initially pushed back with a threat of litigation. On Monday, however, the retailer amicably agreed to cancel the contract.
This effectively drags L Brands back to square one: holding a deteriorating Victoria's Secret brand it doesn't really want to own, with even less hope of rebuilding it now than before the coronavirus contagion took hold. It also -- perhaps more alarmingly -- puts the $2.5 billion worth of lease obligations Sycamore was going to absorb back on L Brands' books.
In that light, the oddly low valuation of $1.1 billion Sycamore's offer implied for the Victoria's Secret brand actually makes sense. The lingerie retailer may have produced $6.8 billion in sales last year, but with operating income of only $115 million and saddled with $2.5 billion of future rent obligations, it's a risky project to take on. Now, it's L Brands' project to tackle again.