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L Brands nears sale of Victoria’s Secret to Sycamore

People are seen inside the newly opened Victoria’s Secret shop in Shanghai on February 24, 2017.

Johannes Eisele | AFP | Getty Images

L Brands is nearing a deal to sell its Victoria’s Secret brand to private equity firm Sycamore Partners in a deal that could be announced as soon this week, people familiar with the matter told CNBC.

It could not be immediately determined what leadership role L Brands CEO Les Wexner would have in such a deal. Wexner has been under mounting pressure due to his ties to the late sex criminal Jeffrey Epstein. He has also been criticized for the poor performance of the company’s Victoria’s Secret brand under his watch. L Brands also owns the stronger-performing Bath & Bodyworks personal care shop.

CNBC first reported in November that L Brands was exploring a spin-off of Victoria’s Secret or a “private investment in public equity.” At the time, the company was exploring deals that would keep Wexner in place. The Wall Street Journal in January said Sycamore was weighing a deal to buy Victoria’s Secret that could involve Wexner stepping down as CEO.

The people, who requested anonymity because the negotiations are still confidential, cautioned terms of the deal are still being negotiated and could still yet fall apart or be delayed. L Brands and Sycamore declined to comment.

Shares of L Brands are down nearly 10% over the past year.

For Sycamore, a deal to buy Victoria’s Secret would be a bet on a dominant player in the large intimate apparel industry. Bras are a $7.2 billion category, according to NPD. Victoria’s Secret, which also sells pajamas, perfumes, and other accessories, had roughly $7.4 billion in sales last year, according to Factset.

Sycamore would also be betting that it can reinvigorate the Victoria’s Secret brand after it has faced significant upheaval. The retailer has for years faced criticisms of out-of-date focus on sexy styles, while competitors like Third Love prioritized comfort. This November, it canceled its once-annual fashion show as viewership increasingly shunned the provocative show.

More recently, the company has faced accusations of professional impropriety. Its former chief marketing officer, Ed Razek, was accused of inappropriate conduct, according to allegations in a recent report by The New York Times. Razek, who stepped down last year, is said to have been close to Wexner. An L Brands spokesperson told The New York Times the company “‘is intensely focused’ on corporate governance, workplace and compliance practices and that it had “made significant strides.” Razek denied the allegations.

And Wexner is among the highest-profile executives with ties to Epstein who has yet to remove himself from a public-facing role. Britain’s Prince Andrew has said he will “step back from public duties for the foreseeable future” due to controversy over the British royal’s past friendship with Epstein. Entrepreneur Joi Ito earlier last year resigned from his role as director of MIT Media Lab and several corporate boards after admitting he took money from Epstein.

Wexner said in August he first met Epstein in the mid-1980s through friends who vouched for the financier. Epstein was a trustee of the Wexner Foundation, although Wexner has said Epstein had no executive responsibilities. In a letter to the foundation in August, Wexner said Epstein had misappropriated more than $46 million from Wexner and his family years ago. He only recently provided documents to federal prosecutors about the missing money. He has not explained why he did not pursue charges when he discovered the funds were missing.

L Brands has said it cut ties with Epstein nearly more than a decade ago and called his alleged crimes “abhorrent.”

Sycamore has a history of taking bets that its peers eschew. The private equity firm is one of the few to continue to invest in retail, even as the changing landscape has thrown a number of private equity-backed buyouts, like Toys R Us and Payless ShoeSource, into bankruptcy.

Many of these bets were accompanied by bold and creative strategies. Sycamore financed its $6.9 billion acquisition of beleaguered office retailer Staples in a way that allowed it the flexibility to wind down its retail business while retaining its stronger business-to-business segment.

The firm closed its third fund, with $4.75 billion of limited partner capital, in 2018. It raised the fund, its largest yet, with an eye towards investing in retail.

Sycamore has past ties to L Brands’ predecessor, Limited Brands. The firm took a 51% interest in Limited Brands’ sourcing business, Mast Global Fashions, in 2011. The company, now known as MGF Sourcing, has helped Sycamore put together a retail and apparel empire that also includes Talbots and Torrid.

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