L Brands fires back at Sycamore over Victoria’s Secret; case could set precedent

The owner of Victoria’s Secret accused Sycamore Partners of “buyer’s remorse” in trying to back out of a deal to buy a majority stake in the struggling lingerie retailer.

“As Sycamore has conceded, this is a case of a buyer trying to get out of a deal because of the impact of the COVID-19 pandemic,” L Brands wrote in a complaint filed in a Delaware court. “Sycamore’s current position is pure gamesmanship.” 

In February, L Brands announced it was selling the majority (55%) stake in Victoria's Secret to private equity firm Sycamore Partners for about $525 million in a deal that valued the lingerie brand at $1.1 billion. About a month later, the COVID-19 was declared a pandemic and stores shuttered nationwide. 

Earlier this month, Sycamore sent L Brands a letter stating it wanted to buy Victoria’s Secret, but at a different price, citing the pandemic’s impact, according to L Brands. On April 22, after L Brands declined to renegotiate the purchase price, Sycamore sent a letter saying it wanted to terminate the purchase agreement on the ground, among other things, that a “material  adverse effect has occurred” as a result of the pandemic.   

“But Sycamore ignores a fundamental problem with its apparent case of buyer’s remorse,” L Brands said in the complaint. “At the time the parties negotiated the agreement, the world was already well aware of the existence of COVID-19, and the parties agreed that Sycamore would bear the risk of any adverse impacts stemming from such a pandemic.”

L Brands also said Sycamore knew the steps the retailer was taking in response to the pandemic, including closing stores and furlouging employees, and never objected to them. The private equity firm took many of the same steps with the retail brands already in its portfolio, such as Coldwater Creek, Talbots, and Aeropostale, L Brands noted.

The dispute between the two companies could set the stage for similar battles, as companies’ operations and value plummet during the coronavirus pandemic, reported the Columbus Dispatch.

“People will definitely be watching this case because it could set a legal precedent for people to use coronavirus to back out of agreements,” Lami Ajibesin, managing director with the New York accounting firm Anchin, Block & Anchin, who advises companies on mergers and acquisitions, said in the report. 

The legal battle, the report said, is likely to hinge on the phrase “material adverse effect,” boilerplate language that is designed to protect a buyer from having to complete a deal if major changes happen to a company after the deal was struck.

To read the full Columbus Dispatch story click here.