M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Tuesday, May 15, 2007

Victoria's Sale

Limited Brands yesterday announced that it agreed to sell a 67% ownership interest in its Express brand to Golden Gate Capital for $548 million in cash.  The Company also announced that it is exploring strategic options for its Limited Stores business.  Limited Stores' 2006 net sales were $493 million and it currently has 253 store locations.  Limited, based in Columbus, Ohio, also owns and derives a majority of its revenue from its Victoria's Secret and Bath & Body Works.

The company chose to take a common tactic with this "good" news" M&A announcement -- disclose other bad news and hope no one notices.  So, with the sale announcement the company also yesterday substantially lowered its 2007 first quarter earnings guidance to $0.12 to $0.14, versus its initial guidance of $0.25 to $0.28, and $0.25 last year.  Despite Limited's efforts, the market chose to follow the bad news and Limited's shares closed at $26.18 down 4.5% on the day.

Blogging Buy-outs also writes that Limited's sale may have more nefarious motives.  They blog

Interestingly, although sales are lower in the Express and Limited brands, they units are on an upward trend, and operating profit is growing much faster at these stores than at the Victoria's Secret/Bath & Body Works segment -- both of which reported profit down from the year-earlier period for the quarter ending February 3, 2007. With Q1 2007 EPS outlook being revised downward today, it seems that the company is taking advantage of the enhanced value of its two recent success stories before they're tainted by the poor results in the rest of the company's stores. . . . You have to wonder: is this a case of management battening down the hatches to focus on the profitability of its flagship brands, or opportunism?


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