Many companies that previously agreed to significant acquisitions earlier this year and in late 2019 are now trying to see if they can opt-out of their previous agreements. With many mergers now being canceled off due to this coronavirus pandemic, companies are instead hunkering down, stocking up on cash, and preparing to ride out the worst of this situation. Sycamore Partners, a private-equity company that agreed to buy out well-known woman’s underwear brand Victoria’s Secret from L Brands, has now decided to back out of its previously agreed upon deal.
The company had originally planned to buy a 55% stake in Victoria’s Secret for a total of $525 million in a deal that was announced back in February. While the coronavirus pandemic hadn’t scaled up as much as it has now, shares of many companies were still trading at mild discounts, something that would have made things attractive for potential buyers.
However, Sycamore partners have decided that it’s simply too risky to fork over that much cash in this market and have started a lawsuit to break off the transaction. More specifically, the company went on to argue that this COVID-19 pandemic breaks the terms of the deal. L brands intend to find the decision in a legal battle.
“Sycamore Partners delivered a notice on April 22, 2020 purporting to terminate the Feb. 20, 2020 transaction agreement (“Transaction Agreement”) relating to the sale of a 55% interest in Victoria’s Secret Lingerie, Victoria’s Secret Beauty and PINK (collectively, Victoria’s Secret) announced on Feb. 20, 2020. Sycamore Partners also filed a lawsuit in the Court of Chancery of the State of Delaware on April 22, 2020 seeking a declaratory judgment that its termination of the Transaction Agreement is valid,” wrote L Brands in an official press release. “L Brands will vigorously defend the lawsuit and pursue all legal remedies to enforce its contractual rights, including the right of specific performance. L Brands intends to continue working towards closing the transactions contemplated by the Transaction Agreement.”
In response to the news, L Brands stock decline by 15.5% over the course of the day, with shares tumbling an extra 4% in after-hours trading. Ever since March, the company’s stock has been cut in half, although shares had been doing pretty well in February despite the growing coronavirus. L Brands is also the parent company of Bath & Body Works, another company that has seen substantial declines over the past couple of months.
Other noteworthy acquisition cancelations over the past while including SoftBank Group, a conglomerate that backed down from a $3 billion deal to buy shares of WeWork from current employees as well as burned investors. With everything going on right now, it’s not surprising to see 2020 being one of the worst years on record for buyouts and IPOs.
L Brands Company Profile
L Brands is a women’s intimate, personal-care, and beauty retailer operating under the Victoria’s Secret, Pink, and Bath & Body Works brands. The company generates the majority of its business in North America, with about 5% of sales coming from international markets in fiscal 2019. Distribution channels include more than 2,900 stores and online, which represented about 20% of total sales in 2019. – Warrior Trading News
