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Sycamore Partners to acquire control of Victoria’s Secret

Victoria’s Secret, which once dominated the lingerie category with its sexy image, will go private in a deal that shows how far the brand as fallen out of favor. 

Private equity firm Sycamore Partners will acquire a 55% share in Victoria’s Secret from its owner L Brands for $525 million, the companies announced Thursday. Upon the close of the deal, L Brand founder, the 82-year-old Les Wexner, will step down as its chairman and CEO. He will remain on the board. 

L Brands shares tumbled as much as 10% in premarket trading after the deal was announced Thursday, likely a sign the market was disappointed in the deal, which puts a value on the lingerie brand of $1.1 billion. L Brands, which has a market value of $6.7 billion, has seen its stock fall more than 11% over the past year.

L Brands will use the funds from the deal, along with $500 million in excess balance sheet cash, to reduce its debt. As part of its deal explorations, L Brands had also explored a transaction through which Sycamore would have invested into L Brands through “private investment in public equity” to reduce L Brands’ debt load. The company ultimately decided against such a deal, which would have been dilutive to its shareholders.

Its Bath & Body Works banner will continue to be run as a separate company.

Wexner’s departure is notable because he has long been closely intertwined with L Brands. He has come under fire both for the company’s underperformance and his ties to the late sex criminal Jeffrey Epstein.

“I think about the endless possibilities ahead for this company. And I’ve thought about where I fit in the picture. In keeping with this same thoughtful examination, I have decided that now is the right time to pass the reins to new leadership,” wrote Wexner in an internal memo to the company obtained by CNBC.

Wexner highlighted “resources, expertise and focus” that Sycamore has to revive the Victoria’s Secret brand. The private equity has a long track record of investing in retail, including acquisitions of Talbots and Torrid. Wexner also said that as part of the deal, it struck an agreement to split its Mast Global sourcing business, part of which will be focused exclusively on serving Victoria’s Secret. Sycamore had acquired 51% of Mast Global in 2011, which helped provide the platform for its expansive retail investments.

The new L Brands will “sharpen its focus” on Bath and Body Works, which sells personal care products. That business has driven sales growth at the company but has recently seen that growth slow as malls see lighter foot traffice. Upon the deal’s closing, the company will promote chief operating officer, Andrew Meslow, to CEO. He will also join its board. 

It is also extending an agreement with activist fund Barington Capital Group, which disclosed a stake in L Brands last year. The firm last year had criticized the L Brands board for its close social ties and pushed the company to split its Victoria’s Secret and the stronger-performing Bath & Body Works businesses. L Brands last year agreed to add two new directors to its board and reached a truce with Barington that was set to expire this month.

L Brands, said Thursday it will continue to refresh its board. Board members Allan Tessler, Gordon Gee and Raymond Zimmerman will retire at the date of their annual meeting. L Brands has also engaged Heidrick & Struggles to help find new board members.

This is breaking news. Please check back for updates.

Correction: Sycamore will pay $525 million for its controlling stake in Victoria’s Secret. The deal puts a value on the lingerie brand of $1.1 billion.

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