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L Brands Ousts Wexner, Sells Victoria’s Secret Control to Sycamore

By Ronald Orol

Buyout shop Sycamore Partners LLC on Thursday, Feb. 20, agreed to acquire 55% of L Brands Inc.’s (LB) Victoria’s Secret chain for about $525 million.

The deal also included a major boardroom and C-suite shakeup and came a few days before a key settlement agreement with an activist fund was set to expire.

As part of the transaction, the lingerie company, with a total enterprise value of $1.1 billion, will be separated from L Brands into a privately held company majority-owned by Sycamore.

The transaction essentially will give control of Victoria’s Secret to a private, retail-focused firm so it can restructure itself. L Brands will retain access to any upside associated with a recovery of the brand, however, with its 45% stake.

An investor presentation shows Sycamore will appoint three of the directors of the new company and L Brands the remaining two.

Once the deal is consummated, L Brands will continue to operate its other major brand, Bath & Body Works, with proceeds from the sale paying down its debt load. In addition, as part of the agreement, embattled L Brands CEO Les Wexner plans to step down from his role as CEO and chairman and will become chairman emeritus. Andrew Meslow, COO of Bath & Body Works, will be the new CEO of L Brands and join its board.

The statement did not specify an estimated closing date, and a Sycamore representative declined comment.

Wexner’s oversight of the Columbus, Ohio-based company has come into question, partly over concerns about his association with Jeffrey Epstein, who died in prison after being charged by federal prosecutors with sex trafficking in underage girls. Wexner helped drive massive growth for the company over the past half-century, but its shares have mostly been declining since 2015.

In addition, a standstill agreement reached in April between L Brands and Jim Mitarotonda’s Barington Capital Group LP, which was set to expire Feb. 25, has been renewed for 12 more months. The deal, which installed Mitarotonda as a special adviser to the company, averted a director contest.

Barington had a strong reason to return with another boardroom contest ahead of a March 17 deadline for director nominations had Victoria’s Secret not been sold.

In addition, another activist — or Sycamore — may have been privately accumulating shares in L Brands. Investment bank UBS reported both on Nov. 14 and Feb. 14 that it owned nearly 4 million shares in L Brands, which indicated a potential share accumulation by an activist with an intent to push the company into an M&A action.

Sycamore declined comment on whether it held the UBS shares.

The sale is a win of sorts for Mitarotonda, who in March urged L Brands to separate Victoria’s Secret from Bath & Body Works. As part of the transaction, Barington will continue to serve as a special adviser to L Brands.

Barington also accomplished a number of its other goals. The fund had pushed L Brands to separate its chairman and CEO role, which suggested it wanted to reduce or eliminate Wexner’s role in the business. Instead, Wexner resigned completely, except for his continued chairman emeritus role.

In addition, under pressure from Barington, L Brands plans to include proposals at its 2020 annual meeting to declassify its board by 2021 and eliminate its supermajority voting requirements.

The insurgent fund pushed L Brands to improve the composition of its board, arguing it lacked independence and diversity. In the April settlement, L Brands brought on two new company-chosen woman directors, including Anne Sheehan, ex-director of corporate governance at the second-largest U.S. pension fund.

In another win for Barington, the longest-serving L Brands directors — those likely with the closest ties to Wexner — Allan Tessler, Gordon Gee and Raymond Zimmerman, are resigning as part of the deal Thursday.

According to relationship mapping service BoardEx, a sister company to The Deal, Tessler, the lead independent director, has been on the board 33 years; Zimmerman, 36 years; and Gee, 25 years. Tessler, Zimmerman and Gee are 83, 88 and 76 years old, respectively, according to BoardEx.

Wexner and Gee also have had a lengthy relationship that suggested he might not provide an independent check on L Brands’ management. According to BoardEx, Wexner and Gee both spent time together at various roles at Ohio State University, Abercrombie & Fitch Co.’s (ANF) board and the Wexner Center for the Arts.

It is unclear if Barington has profited from its investment in L Brands. Shares at midday Thursday were trading at $24.50, up 0.8% on the news, which also included an estimate of a 2% drop in same-store sales in the fourth quarter when L Brands reports earnings on Feb. 26.

The retailer’s shares are down substantially from the roughly $27 a share price in March when Barington launched its breakup campaign. Nevertheless, L Brands likely remains a work in progress for Barington.

BridgePark Advisors and PJT Partners are providing financial advice to L Brands and Davis Polk & Wardwell LLP is the retailer’s legal counsel. Kirkland & Ellis LLP provided legal counsel for Sycamore.