NEW YORK – Limited Brands Inc. (LTD) said Monday it agreed to transfer a 75 percent stake in its Limited Stores chain to affiliates of Sun Capital Partners in a deal that will cost the retailer $42 million.
Investors, who were hoping the company could sell part of the business for a profit, sent Limited's shares down as much as 4 percent.
Sun Capital Partners will contribute $50 million of equity capital into the Limited business and will arrange for a $75 million credit facility, said the company, which also owns Victoria's Secret and Bath & Body Works.
Limited, which is shedding its underperforming apparel businesses to focus on sexy undergarments and bath and beauty products, said it will receive no cash proceeds and expects to record an after-tax loss of about $42 million on the deal, which it sees closing within the next 30 days.
CL King analyst Mark Montagna said that since an earlier deal to sell two-thirds of the Express chain made the company more money than some investors expected, they anticipated that Limited could make about $100 million after tax from a similar deal for Limited Stores.
"But it is a major positive to know that both Limited and Express will not really impact earnings going forward," Montagna said of the company that will now be made up of the less seasonal and more profitable businesses of Victoria's Secret and Bath and Body Works, with minority interests in the apparel businesses.
"That makes for a cleaner analysis of the company and really creates a powerful brand," Montagna said, adding that Victoria's Secret and Bath and Body Works were the leaders in their respective areas.
Limited, which had previously said that Golden Gate Capital would buy 67 percent of Express for $548 million, said Monday that the private equity firm will now pay $602 million for 75 percent of Express.
"It really doesn't matter whether it's 67 or 75 (percent)," Montagna said. "But the less that Limited Brands owns right now of its apparel brands, the better it is."
Limited expects to receive after-tax cash proceeds of $425 million and to record an after-tax gain of about $188 million related to the Express deal.
Stifel Nicolaus analyst Richard Jaffe said he applauded management's strategy to focus on its more successful brands and its success in doing so.
"The challenge facing management is delivering on the potential of these two brands," Jaffe said in a research note. "With visibility for improvement limited, we remain neutral on the shares."
Both chains will continue to operate under the same brand names and are expected to remain headquartered in their current locations in Columbus, Ohio.
Banc of America Securities advised Limited on the sales of Limited and Express.
Limited shares were down 2.8 percent, or 80 cents, at $28.19 in midday trade on the New York Stock Exchange, after falling to $27.83 earlier in the session.