Victoria's Secret at 745 Collins Ave.

Some engagements are just not meant to last. Gwyneth Paltrow and Brad Pitt. Jennifer Lopez and Ben Affleck.

And now, Sycamore Partners and L Brands. 

On Monday, the private equity firm and the Victoria's Secret parent company settled what was shaping up as a blockbuster fight in Delaware Chancery Court when both sides agreed to walk away from their pending $525 million deal. 

"Neither party will be required to pay the other a termination fee or other consideration as a result of the mutual decision to terminate the agreement and settle the pending litigation," Sycamore stated in a news release. 

(Does that mean they can still be friends?)

The outcome looks like a big win for Sycamore—represented by Kirkland & Ellis lawyers including complex commercial litigation partner Robert Ellis and litigation associate Michael Biehl—which wanted out of its offer to buy a 55% stake in Victoria's Secret after COVID-19 broke the economy. 

On April 22, Sycamore filed suit in Chancery Court, seeking a declaratory judgment that its decision to terminate the transaction was valid. 

The Kirkland team argued L Brands breached the terms of the agreement when it failed to conduct the Victoria's Secret business "in the ordinary course consistent with past practice" while the deal, which was signed on Feb. 20, 2020, was pending.

Of course, business as usual promptly went out the window when the country went into a lockdown. All 1,091 Victoria's Secret stores (lingerie, alas, is a non-essential business) in the U.S. and Canada were closed by March 17. 

L Brands took non-government ordered actions as well, such as not paying rent in April for its retail locations and furloughing most of its employees. New merchandise was drastically reduced and the stores were stuck with out-of-season, obsolete and excess merchandise.

Still, a pandemic is no excuse, argued the Kirkland team along with co-counsel from Richards, Layton & Finger. 

"[T]he transaction agreement is clear that the risk of L Brands' failure to operate the Victoria's Secret business in the ordinary course consistent with past practice between signing and closing, even in the face of events such as the COVID-19 pandemic, is to be expressly and completely borne by L Brands," they wrote.

L Brands, represented by Davis Polk & Wardwell, responded by counter-suing Sycamore in Delaware the next day.

"[T]his is a case of a buyer trying to get out of a deal because of the impact of the COVID-19 pandemic," wrote Davis Polk's Andrew Ditchfield, Brian Burnovski, Serena Wu and Patrick Malone, joined by co-counsel from Morris, Nichols, Arsht & Tunnell.

"But Sycamore ignores a fundamental problem with its apparent case of buyer's remorse," they continued. "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."

Litigation involving material adverse effects is usually of narrow (albeit intense) interest, but this case—involving a well-known retailer and the impact of COVID-19—was widely covered.

The New York Times on April 29 gave Davis Polk a Valentine of sorts when it published an article headlined "The Victoria's Secret Contract That Anticipated a Pandemic," which lauded the firm's contract drafting skills.

"Sycamore faces unusually daunting odds, thanks to clever drafting by L Brands' lawyers at Davis Polk & Wardwell. In the acquisition agreement, the lawyers carved out specific exceptions to those acts of God, including a pandemic," wrote columnist James B. Stewart.

"By all accounts," Stewart continued, "the L Brands-Sycamore contract was the product of hard-fought negotiations, but there's no evidence that Sycamore's lawyers at Kirkland & Ellis pushed back against the pandemic language. Should they have?" 

So … that kind of makes it sound like the Kirkland lawyers got snookered. But the actual settlement—which appears to give Sycamore exactly what it wanted—indicates otherwise. 

Sycamore argued that the pandemic carve-out didn't matter. Rather, the deal could be killed based on any "facts, circumstance or event that would prevent or materially impede the performance by L Brands of its obligations under the transaction agreement."

Technically, the pandemic itself wasn't the material adverse effect. It was when L Brands closed all the Victoria's Secret stores/didn't pay rent/furloughed its workers/got stuck with stale inventory. 

That, the Kirkland team wrote, was what "constitutes a material adverse effect causing a failure of a condition to closing." 

Who is the clever drafter now?

L Brands in a statement said that given the "extremely challenging" retail environment, it was in the company's best interest "to focus our efforts entirely on navigating this environment to address those challenges and positioning our brands for success rather than engaging in costly and distracting litigation to force a partnership with Sycamore."