In a drastic move, Victoria’s Secret will be going private as the brand loses status within the market. The once-popular business, announced Thursday, it has made a deal in which private equity firm Sycamore Partners will buy out 55% of shares from L Brands for USD525 Million.
L Brand, having faced some difficulty in the past few months is making noticeable changes. Founder and CEO of L Brand, Les Wexner, announced he will be stepping down from the position but remaining on the board as chairman emeritus.
Victoria’s Secret has battled tension as customers have chosen other brands like Aerie, Adore Me and Third Love. Ultimately the company’s sales have plummeted for three consecutive years, nevertheless, the brand still dominates the lingerie division with approximately USD7 Billion in annual sales.
As a means to relieve its debt, L brand is set to use the earnings from the transaction, in addition to USD500 Million cash of excess balance sheet money, to pay it off.
“The price is lower than our competitors’ rosy view that a full sale near $3.5B was likely,” said Jefferies analyst Randal Konik, who has been bearish on the stock for quite some time. “A partial sale and this low price won’t help the massive debt load and shows just how desperate LB has become to try to unload VS. We think true value of VS is much lower, BBW is about to roll over, and LB shares have near 50% downside from recent elevated levels.”
Konik added that he expects it is likely a dividend cut may be possible while L Brand establishes its financial situation.