Relevant Document:L Brands Complaint
L Brands Inc. filed its complaint against Sycamore Partners yesterday, Thursday, April 23, in the Delaware Court of Chancery alleging that Sycamore’s purported termination of the companies’ Feb. 20 transaction agreement is invalid. L Brands is seeking an order of specific performance from the court directing Sycamore to consummate the transaction.
In its complaint, L Brands asserts that Sycamore’s previously filed lawsuit is “a case of a buyer trying to get out of a deal because of the impact of the COVID-19 pandemic.”
As Reorg previously
reported, on Wednesday, April 22, Sycamore sent L Brands a letter purporting to terminate the transaction agreement on the grounds that L Brands had allegedly materially breached the agreement “and that a Material Adverse Effect has occurred.” Sycamore also subsequently filed its own action in the Court of Chancery seeking a declaratory judgment that its termination of the transaction agreement is valid.
In response to Sycamore’s legal interpretation of the transaction agreement, L Brands responds that the definition of “material adverse effect” expressly carves out impacts resulting from pandemics, and that, at the time the parties negotiated the agreement, “the world was already well aware of the existence of COVID-19, and the parties agreed that Sycamore would bear the risk of any adverse impacts stemming from such a pandemic.”
L Brands also refers to Sycamore’s purported termination based on four main remedial actions L Brands has taken in response to the coronavirus crisis as “nonsense.” L Brands counters that, “at every step, Sycamore was aware of the actions L Brands intended to take to protect the Victoria’s Secret business in light of the COVID-19 pandemic” and that “L Brands was completely transparent and forthcoming with Sycamore, and Sycamore assured L Brands as recently as a week ago that it intended to proceed with the Transaction.”
L Brands bolsters its position by describing how it repeatedly informed Sycamore of its intent to enact the remedial measures, and by the fact that Sycamore responded that L Brands’ actions were “reasonable and raised no objections.” L Brands points to several specific interactions its personnel had with Sycamore personnel in March, including “an extensive meeting with Peter Morrow and Ada Weinberger of Sycamore on March 25, 2020 during which L Brands’ representatives provided a broad array of information about the Victoria’s Secret business and the steps L Brands was planning to take to address the impact of the COVID-19 pandemic.”
The complaint further alleges that Sycamore has itself taken “the same, or even more extensive, steps to protect other retail portfolio companies they own - just as virtually every other retailer in the country has done.” L Brands added, “The investors in Sycamore Partners’ funds are sure to take notice of the contention that Sycamore Partners supposedly took steps that materially and irreparably damaged portfolio companies that they own.”
L Brands characterizes Sycamore’s current position as “pure gamesmanship” and in furtherance of Sycamore’s effort to seek a price renegotiation for the transaction. L Brands seeks an order from the court requiring Sycamore to “abide by the clear contractual obligations imposed by the Transaction Agreement and the Equity Commitment Letter.”
Reorg's previous coverage of this transaction can be found
HERE.
--Patrick Flavin