(Bloomberg)—Sycamore Partners wants to terminate its deal to acquire a controlling stake in lingerie brand Victoria’s Secret from L Brands Inc., according to a court filing Wednesday.
Shares of L Brands fell as much as 26% in New York trading to as low as $8.92 apiece. Sycamore Partners agreed in February to buy 55% of the lingerie chain and take it private, leaving L Brands with a minority stake.
The private equity firm said in the Delaware Chancery Court complaint that L Brands has breached covenants under the agreement. It claimed that the Covid-19 outbreak, which has forced the retailer to shutter stores, “provides no relief” under the deal terms.
A representative for L Brands wasn’t immediately able to comment.
Victoria’s Secret operates about 1,100 stores in the U.S., all of which were temporarily shut down in March due to the coronavirus outbreak. After the closures, management decided to furlough most of its 88,000 store employees across its brands, suspending paychecks but keeping some benefits active.
Sycamore’s complaint claims that the “voluntary actions” taken by the company, including the furlough, executive pay cuts, bonus deferrals and a failure to dispose of old stock, have “saddled the Victoria’s Secret business with a stock of merchandise of greatly diminished value.”
“That these actions were taken as a result of or in response to the Covid-19 pandemic is no defense,” according to the complaint.
It’s not the first retail deal to collapse under Covid-19 pressures. Stein Mart and Kingswood called off their merger last week, citing the unpredictable economic conditions.
--With assistance from Jordyn Holman.
To contact the reporter on this story: Ed Hammond in New York at [email protected].
To contact the editors responsible for this story: Elizabeth Fournier at [email protected]
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