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Why L Brands' Stock Is Bouncing Today

By John Rosevear – Apr 23, 2020 at 3:44PM

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Maybe the possible collapse of its Victoria's Secret deal isn't all bad?

What happened

Shares of retail holding company L Brands (BBWI 0.62%) were on the rebound on Thursday, a day after a lawsuit threatened to block the company's deal to sell a majority stake in its troubled Victoria's Secret chain.

As of 3:30 p.m. EDT, L Brand's shares were up about 6% from Wednesday's closing price.

So what

L Brands' stock closed down over 17% on Wednesday, after the private-equity firm that had agreed to buy 55% of Victoria's Secret filed suit in a Delaware court in an effort to get out of the deal.

A Victoria's Secret storefront in London.

Until the deal with Sycamore Partners closes, L Brands is stuck with the leases for Victoria's Secret's closed stores. Image source: L Brands.

Sycamore Partners' suit against L Brands alleges that L Brands breached covenants in the transaction agreement when it shut down Victoria's Secret's stores and moved to preserve its cash in mid-March, amid the COVID-19 outbreak.

L Brands said on Wednesday that it plans to fight the suit, and it may have grounds to do so. The problem: Even if it eventually wins, the suit will delay the deal's closing -- and leave L Brands on the hook for the lease payments for Victoria's Secret's stores while they remain closed.

Now what

Analysts had mixed reactions to the news on Thursday, with some saying that L Brands' solvency may soon be in question, and others arguing that the company's stock is a buy because of the relative health of its other retail chain, Bed Bath & Beyond. 

What happens now? Retail investors will have to watch and wait. 

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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