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L Brands Will Spin Off Victoria’s Secret From Bath & Body Works

Bloomberg logoBloomberg 5/11/2021 Jordyn Holman and Anne Riley Moffat

(Bloomberg) -- L Brands Inc. will spin off its Victoria’s Secret chain to shareholders after a rebound in profit at the lingerie retailer persuaded the company to abandon the idea of selling the unit.

The transaction, which is expected to be completed in August, will result in two independent retailers: Bath & Body Works and Victoria’s Secret. The split will let the separate companies better focus on growth and give more financial flexibility in a changing retail landscape, L Brands said in a statement Tuesday.

Bloomberg News reported last month that the lingerie chain had restarted talks with buyers about a potential sale, seeking well above the $1.1 billion value it had last year in a failed deal. The New York Times said earlier Tuesday that while L Brands received several bids of more than $3 billion, it turned them down to pursue a spinoff valuating the company at between $5 billion and $7 billion, without saying where it got the information.

chart: L Brands has seen marked improvement in a key sales metric © Bloomberg L Brands has seen marked improvement in a key sales metric

L Brands didn’t give a valuation for the companies in its Tuesday statement, but it did confirm that it had held discussions with multiple potential buyers, which it evaluated with financial advisers Goldman Sachs Group Inc. and JP Morgan Chase & Co. A spokesperson for L Brands pointed Bloomberg News toward analysts notes that showed Victoria’s Secret could be valued between $4.1 billion and more than $5 billion.

“The reality is Victoria’s Secret turnaround has been so effective that finding someone to pay what they’re worth was unlikely,” said Simeon Siegel, an analyst at BMO Capital Markets. “It’s not surprising.”

The company has been considering splitting the two chains for more than a year. At the time of the original announcement, the rational was clear: Bath & Body works was booming, while Victoria’s Secret sales had been slipping as consumer taste for bras and lingerie shifted toward competitors focused on a wider array of sizes and comfort.


Video: L Brands to spin off Victoria's Secret, Bath & Body Works into two public companies (CNBC)

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Bright Spot

In February 2020, just before the pandemic, L Brands struck a deal with Sycamore Partners to sell a majority stake in the company, which would have taken the lingerie maker out of the public market and spotlight, giving it space and privacy to revive the brand. It would have also given the company an opportunity to focus on its bright spot: Bath & Body Works. During the pandemic, it became even more clear that the soap and lotion line was a top performer for the portfolio.

But Victoria’s Secret has been on an upward trajectory since then. In the third and fourth quarters, adjusted operating income increased more than 300%, the company said Tuesday. L Brands also reported preliminary first-quarter results that beat estimates.

“We have made significant progress in the turnaround of the Victoria’s Secret business, implementing merchandise and marketing initiatives to drive top line growth, as well as executing on a series of cost reduction actions,” Sarah Nash, chair of L Brands, said in the statement. “Victoria’s Secret is now well-positioned to operate as a stand-alone, public company.”

Andrew Meslow, who is the current chief executive officer of L Brands, will continue in that position at the soap and fragrance chain after the spinoff. Martin Waters, current CEO of Victoria’s Secret, will still run that brand once it stands alone.

The transaction will involve a tax-free distribution of shares. L Brands shares fell 2.6% as of 8:43 a.m. in New York.

(Updates with analyst’s comment in fifth paragraph)

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