With a global pandemic in full swing, no one is in the mood to buy Victoria’s Secret’s extravagant underwear sets—not even the private equity firm that promised to acquire the fabled lingerie brand.
In February, weeks before COVID-19 hit U.S. economy, private equity firm Sycamore Partners struck a deal to buy a 55 percent stake in Victoria’s Secret for $525 million from its parent company, L Brands. The deal would allow the struggling retailer to focus on running its more profitable Bath & Body Works brand and its scandal-ridden CEO Leslie Wexner to retire.
But now, Sycamore is looking to back out of the deal as the coronavirus casts a long shadow over Victoria’s Secret’s future.
According to a lawsuit filed in Delaware on Wednesday, private equity firm claimed that L Brands violated terms of the transaction when it closed stores and skipped rent payments in April. Sycamore is now seeking the court’s approval to break the deal.
L Brands shares tumbled 27 percent Wednesday on the news. The stock is down 48 percent since the beginning of this year.
In a statement on Wednesday, L Brands dismissed Sycamore’s demand as “invalid,” saying that it “will vigorously defend the lawsuit and pursue all legal remedies to enforce its contractual rights” and “continue working towards closing the transactions.”
Terms of the February deal included a clause that allows Sycamore to renegotiate the transaction should extraordinary events, such as a pandemic, trigger “a material adverse effect” to L Brands’ business.
L Brands closed all its U.S. stores and furloughed the majority of its retail employees in mid-March. Sycamore argued that these “voluntary actions” caused “severe damage” to the Victoria’s Secret brand. “That these actions were taken as a result of or in response to the COVID-19 pandemic is no defense,” the firm said in court filings.