Macy's Legal Battle Resumes

Zacks

Yesterday, Macy’s Inc. (M), J. C. Penney Company Inc. (JCP) and Martha Stewart Living Omnimedia Inc. (MSO) took center stage with the three companies back in the legal tussle over the right to sell the latters’ branded products, after they failed to reach a consensus during a month long mediation period ordered by the court, Associated Press reported.

Macy’s, which has been selling an exclusive line of products by Martha Stewart since 2007, did not welcome the licensing deal between J. C. Penney and Martha Stewart Living Omnimedia that was penned in Dec 2011. Macy’s claimed that Martha Stewart’s agreement to sell certain home and lifestyle merchandise at J. C. Penney’s stores violates the exclusive pact which it shares with Martha.

Macy’s had been irked ever since the licensing deal was signed. By virtue of the deal, J. C. Penney acquired a 16.6% stake in Martha Stewart Living, and plans to open Martha Stewart retail departments within its stores.

J. C. Penney invested $38.5 billion (or $3.50 per share) to buy 11 million newly-issued shares of Martha Stewart Living. Thus, it become a major stockholder and now owns two seats in the latter’s board. The deal came as a turning point for J. C. Penney, which has been losing its foothold in the market as it struggles against retail chains such as Macy’s and Kohl’s Corporation (KSS).

To regain its lost glory, J. C. Penney hired Ron Johnson, who announced a string of strategic measures to bring the company back on the growth trajectory. However, his ambitious transformation ideas failed to show desired results. In a major turn of events, the company yesterday took a tough decision and expelled him from his service, and reappointed the former CEO, Myron E. (Mike) Ullman, III at the helm, effective immediately. Ron Johnson remained on the board for only 17 months.

Shares of Macy’s hit a new 52-week high of $44.24, before closing at $43.99, up 1.4% from the previous day’s session. J. C. Penney’s shares jumped 2.7% to close at $15.87. On the other hand, shares of Martha Stewart Living Omnimedia dropped 2.1% to close at $2.36.

Macy’s holds a Zacks Rank #1 (Strong Buy), whereas both J. C. Penney and Martha Stewart Living Omnimedia carry a Zacks Rank #3 (Hold).

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