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Illustration: Rebecca Zisser/Axios

Sycamore Partners on Wednesday backed out of its agreement to pay $525 million for a majority stake in women's lingerie retailer Victoria's Secret, claiming current owner L Brands (NYSE: LB) breached deal terms by closing stores, furloughing store staff, cutting senior executive pay, and defaulting on lease agreements.

Why it matters: This sets up a legal battle between standard M&A terms that have come into conflict due to the coronavirus pandemic and government lockdowns, and might set some precedent.

Details: The merger agreement includes a clause requiring L Brands to run VS in an ordinary manner prior to completion. But it also explicitly exempts "pandemics" and "police actions" from constituting material adverse effects.

  • Irony: Sycamore claims in court filings that VS' decision to stop paying rent on closed stores is among the actions that hurt the business' fundamental value. This is the same Sycamore that owns Staples, which still refuses to pay rent on stores that remain open.
  • It also makes a big point of L Brands not asking Sycamore for permission to close most of its 1,600 stores, although it's unclear if L Brands never asked or if it did and Sycamore denied the request. Either way, it seems irrelevant given that VS stores wouldn't be considered "essential businesses" in most locked-down states.

L Brands says it plans to pursue all legal remedies, including asking a judge to force deal completion via a court order of "specific performance." Yup, some serious shades of 2009 here.

Bigger picture: No one yet knows how physical apparel retailers will return to "normal." Even if consumers return to indoor shopping malls, it may take longer before they're willing to try on clothes that someone else might have tried on before them.

Go deeper

Beauty giant Coty Cosmetics looking to sell its own branded products

Coty Cosmetics CEO Sue Nabi. Photo: Axios on HBO

Coty Cosmetics CEO Sue Nabi tells Axios the beauty giant will “probably” introduce Coty-branded products one day.

Why it matters: Coty produces some of the world’s most popular fragrances, skin care products and color cosmetics on behalf of other well-known brands, but has shied away from producing its own branded products.

55 mins ago - Sports

NFL to end race-based testing in concussion settlements

Photo: Brett Carlsen/Getty Images

The National Football League on Wednesday reached an agreement with former players to end the controversial practice of race-based adjustments in dementia testing, AP reports.

Why it matters: The deal, which must still be approved by a judge, comes amid a broader discussion of racial inequities in health care.

Parents in Michigan, Virginia sue AG over action on school board threats

U.S. Attorney General Merrick Garland during an October news conference in Mexico City. Photo: Hector Vivas/Getty Images

A group of parents in Michigan and Virginia accused Attorney General Merrick Garland in a federal lawsuit Tuesday of trying to "criminalize" free speech by directing law enforcement to review threats against school staff.

Why it matters: The lawsuit, filed by the conservative American Freedom Law Center on behalf of the parents in two school districts, accuses Garland of seeking to suppress free speech in his memorandum directing federal authorities to counter the threats spike.