Penney’s Snips Ties to Martha Stewart

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Yet another of former CEO Ron Johnson’s big ideas to lift the fortunes of J.C. Penney Co. Inc. (NYSE: JCP) is coming unraveled. The wide-ranging deal signed in late 2011 between the retailer and lifestyle company Martha Stewart Living Omnimedia Inc. (NYSE: MSO) is being trimmed way back.

Penney is giving up its two seats on Martha Stewart’s board of directors and Martha Stewart Living Omnimedia will “receive design fees, guaranteed minimum royalties and the 11 million shares of MSLO Class A Common Stock that JCPenney currently owns.”

That sounds like the 11 million shares, worth nearly $25 million at today’s closing price, are a payment for cancelling most of the contract terms between the two companies. Penney’s invested $38.5 million in Martha Stewart Living Omnimedia as part of the original deal.

Penney and Martha Stewart fell afoul of an earlier deal the lifestyle company had made with Macy’s Inc. (NYSE: M). Macy’s sued and a ruling is due later this week. Monday’s agreement is likely an effort by Penney and Stewart to resolve the dispute among the three companies before the ruling is made. A Macy’s spokesman cited in The Wall Street Journal claimed “victory” and said that the “announcement was a tacit admission by both companies that their agreement violated Macy’s exclusive contract to sell Martha Stewart bed, bath and kitchen goods products.”

Penney and Martha Stewart are left with an agreement under which the lifestyle company will continue to design Martha Stewart branded products in window treatments and hardware, lighting, rugs, holiday and celebrations for Penney.

Penney’s stock closed Monday’s after hours trading session at $6.40 after setting a new multi-decade low of $6.27 earlier in the day.

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