L Brands Inc. — which had been mulling either a split or sale for its Victoria’s Secret chain — has opted to go the spinoff route, announcing on plans to separate into two publicly traded companies.
The transaction, which is expected to be completed in August 2021, 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.
Bloomberg News reported last month that the lingerie chain had restarted talks with buyers about a potential Victoria’s Secret sale, seeking well above the $1.1 billion value it had last year in a failed deal. The New York Times said earlier 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.
L Brands didn’t give a valuation for the companies in its statement, but it did confirm it had received interest from and held discussions with multiple potential buyers, which it evaluated with its financial advisers, Goldman Sachs and JP Morgan. A spokesperson for L Brands didn’t comment on the reported valuation.
The company, which also owns Bath & Body Works, 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 and competitors focused on a wider array of sizes and comfortability swooped in.
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. L Brands also reported preliminary first-quarter results that beat estimates.
“In the last ten months, 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, which together have dramatically increased profitability,” Sarah Nash, chairman of L Brands, said in a statement. “As a result of these efforts, Victoria’s Secret is now well-positioned to operate as a standalone, public company.”
Andrew Meslow, who is the current chief executive officer of L Brands, will continue in that position and lead the soap and fragrance chain after the spinoff. Martin Waters, current CEO of Victoria’s Secret, will still run that brand once it’s a standalone.
The transaction will involve a tax-free distribution of shares. L Brands shares fell 3.3% as of 7:42 a.m. in New York.