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Why L Brands Stock Is Sinking Today

By John Rosevear – Apr 22, 2020 at 2:07PM

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Its deal to unload Victoria's Secret is in peril.

What happened

Shares of retail holding company L Brands (BBWI -0.45%) were falling sharply on Wednesday, down 22.4% as of 1:30 p.m. EDT, after a private-equity firm that had agreed to buy the company's troubled Victoria's Secret chain filed suit to try to back out of the deal.

So what

In February, private-equity firm Sycamore Partners agreed to purchase a controlling stake (55%) in lingerie retailer Victoria's Secret from L Brands, in a deal that valued the chain at $1.1 billion. 

The entrance to a Victoria's Secret mall store.

L Brands' deal to unload the Victoria's Secret chain is in deep trouble. Image source: L Brands.

At the time, that was seen as something of a bargain-bin price, suggesting that L Brands really wanted to be done with the chain -- but that was before the coronavirus pandemic forced brick-and-mortar retailers to close their stores, pushing some big-name chains to the brink of bankruptcy. 

Now, Sycamore is having second thoughts: It filed a lawsuit in a Delaware court on Wednesday in which it asked a judge to terminate the deal. That would not be good news for L Brands, and it's why L Brands' shares are taking a big hit today. 

Now what

Retail investors who have followed the company won't be surprised to hear that L Brands plans to fight. It said in a statement that it will "vigorously defend the lawsuit and pursue all legal remedies to enforce its contractual rights," while continuing to work toward closing the deal as previously agreed.

Where does this leave investors? Watching and waiting. Stay tuned.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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