Billionaire agrees to sell 55 % stake in Victoria’s Secret to private-equity firm, steps down after 57 years as CEO of parent L Brands
Les Wexner’s decision to part ways with Victoria’s Secret is an admission that the 82-year-old billionaire could not revive the fortunes of a troubled lingerie brand built around shopping malls and sex appeal. He has agreed to sell a controlling stake in the chain to Sycamore Partners for USD 525 million and step down from his roles as Chairman and Chief executive of its parent company, L Brands. L Brands said it had promoted one of its longtime executives, Andrew Meslow, to take over as CEO. Its shares tumbled 11 % in morning trading.
By guest author Khadeeja Safdar from Wall Street Journal
Les Wexner’s decision to part ways with Victoria’s Secret is an admission that the 82-year-old billionaire could not revive the fortunes of a troubled lingerie brand he had built around shopping malls and sex appeal.
On Thursday February 20, 2020, he agreed to sell a controlling stake in the chain to private-equity firm Sycamore Partners for USD 525 million and step down from his roles as Chairman and Chief Executive of its parent company, L Brands Inc. The Wall Street Journal had previously reported on the moves.
The deal leaves the shrinking Victoria’s Secret business as a separate private company with a USD 1.1 billion valuation. That is a fraction of the USD 34 billion value investors give Lululemon Athletica Inc., a fast-growing brand with half the annual sales.
In an internal memo to staff, Mr. Wexner shared news of the deal and his departure. “I’ve thought about where I fit in the picture,” he wrote in the email. “In keeping with this same thoughtful examination, I have decided that now is the right time to pass the reins to new leadership.”
L Brands said it had promoted one of its longtime executives, Andrew Meslow, to take over as chief executive and be added to the board when the Sycamore deal closes. Mr. Meslow, who joined the company in 2003, is chief operating officer of its Bath & Body Works chain.
Three longtime board members, including L Brands’ lead independent director, will step down at the next annual meeting, the company said. Two other directors left last year amid pressure from an activist investor. Mr. Wexner, who owns a 17 % stake, and his wife, Abigail, will keep seats on the board.
L Brands shares tumbled 13 % in premarket trading Thursday, February 20, 2020. The shares had rallied in recent weeks after the Journal first reported that L Brands was in talks with Sycamore and that Mr. Wexner was in discussions to step aside as CEO of the company.
L Brands will keep a 45 % stake in the Victoria’s Secret business, which includes its youth-focused Pink chain, and use proceeds of the sale to pay down some of its USD 5.5 billion in debt. The deal is expected to close in the second quarter, the company said.
The sale price is lower than some analysts expected. “A partial sale and this low price won’t help the company’s massive debt load and shows just how desperate LB has become to try to unload VS,” wrote Randal J. Konik, a retail analyst at Jefferies, who had advised investors to avoid the stock.
L Brands will be reduced to running one chain: Bath & Body Works. From its headquarters in Columbus, Ohio, the company once housed Abercrombie & Fitch, The Limited and Express. Like Victoria’s Secret, they have been cast off as Mr. Wexner sought to stay ahead of changing shopping habits. Decades ago, he foresaw the demise of department stores, but then misjudged how deeply the internet would upend retail.
“We all know the past few years have been challenging for Victoria’s Secret Lingerie and PINK,” Mr. Wexner wrote Thursday. “We believe partnering with Sycamore is the best way to return the Victoria’s Secret businesses to historic levels of profitability.”
Sycamore has a history of scooping up struggling retailers, slashing costs and selling off assets. It bought The Limited in 2017 after it filed for bankruptcy protection and it owned the Nine West chain, which filed for bankruptcy protection in 2018. The New York firm’s biggest deal was its nearly $7 billion leveraged buyout of Staples Inc. in 2017.
Both Mr. Wexner and Stefan Kaluzny, managing director of Sycamore, said in a press release announcing the deal that, as a closely held company, Victoria’s Secret could return to growth and improve its profits, though they provided few details.
Jamie Merriman, a retail analyst at Bernstein, said relative to Sycamore’s past transactions the Victoria’s Secret deal implies it is paying a below-average multiple of sales or earnings “though we are not too surprised by this given the rapid drop in VS’s profitability over the last few years.”
Mr. Wexner, the longest serving CEO of an S&P 500 company, started with a $5,000 loan from an aunt and a single store. He built a global retailing empire that at one time was worth $29 billion. Victoria’s Secret, which he acquired in 1982, was one of his biggest successes. It grew from a catalog with a handful of stores to dominate the lingerie market, generating $7 billion in annual sales.
The brand was built around supermodel “Angels” and padded bras. With its provocative advertising featured in a catalogue and televisized fashion show, the chain became synonymous with overtly sexual marketing that was later criticised by shoppers.
But all along Mr. Wexner, a merchant at heart, believed in the power of the store. Even as shopping shifted online and startups such as ThirdLove advertised comfort and inclusivity over sex appeal, Mr. Wexner bet on opening more stores. In an interview with the Journal published in 2018, he fiercely defended malls and said he expected consumers’ obsession with smartphones to fade.
Even in his 70s, Mr. Wexner had a heavy hand in the company’s operations and a few years ago moved to take direct oversight of the Victoria’s Secret business, ousting the unit’s CEO, eliminating the swimwear business and cutting the brand’s catalogue.
But sales began to sag and, despite efforts to revive the business, it never turned around. Mr. Wexner’s personal affairs also became a distraction after he came under scrutiny for his relationship with Jeffrey Epstein, who was once his personal money manager.
The reclusive billionaire said he ended ties with Mr. Epstein more than a decade ago, but the board opened an investigation into Mr. Epstein’s role at L Brands. Mr. Epstein, who was indicted last summer on federal sex-trafficking charges, died in August while awaiting trial.
On February 20, 2020, the company provided more evidence of the diverging paths of its two main brands. Comparable sales at Victoria’s Secret declined 10 % in the critical fourth quarter, while they rose 10 % at Bath & Body Works.
“The brand has lost its way, while the lingerie market is not large or high growth, and has become commoditized,” said Jefferies’s Mr. Konik. “Furthermore, with athleisure taking over, the need for regular bras continues to wane.”