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Martha Stewart, J.C. Penney revise partnership agreement in Macy's dispute

The sign outside the J.C. Penney store is seen in Westminster, Colorado February 20, 2009. REUTERS/Rick Wilking
The sign outside the J.C. Penney store is seen in Westminster, Colorado February 20, 2009. REUTERS/Rick Wilking

By Karen Freifeld

NEW YORK (Reuters) - J.C. Penney Co Inc and Martha Stewart Living Omnimedia on Monday announced a revised agreement that eliminates Stewart's products in home goods categories to which rival Macy's Inc claims exclusive rights.

The amended deal calls for the domestic doyenne's company to design Martha Stewart-branded products for J.C. Penney in window treatment, holiday and other categories not claimed by Macy's. Penney also gave up its 17 percent stake in Martha Stewart's company.

Macy's sued Penney and Martha Stewart Living after the two announced a partnership in December 2011. Macy's said the agreement breached its contract with Martha Stewart that included exclusive rights to Martha Stewart-branded cookware, bedding and bath products.

"It's a total victory for Macy's," attorney Ted Grossman, who represents Macy's, said of the revised agreement between Penney and Martha Stewart. "They obviously knew they had lost the trial, just as we clearly believed that we had won."

Penney's stock hit a more than 30-year low on Monday, closing at $6.42 on the New York Stock Exchange after falling as low as $6.27. An analyst had slashed her price target on shares to one dollar, citing concern the retailer "may engage in financial restructuring in 2014."

Former Penney Chief Executive Officer Ron Johnson viewed Martha Stewart as key to his vision for remaking the struggling retailer. Johnson, who failed to win over shoppers and investors, was ousted in April.

"We are happy to be moving forward," Penney Chief Executive Mike Ullman said in Monday's statement announcing the revised agreement.

Johnson, Martha Stewart and Macy's Chief Executive Terry Lundgren all took turns on the witness stand during the trial in New York state court.

Justice Jeffrey Oing, who presided over the trial, had set a Friday deadline for Penney and Stewart's licensing company to negotiate changes to their agreement before he ruled, according to people familiar with the case.

Macy's still has claims for damages as a result of Penney's interference with Macy's contract and Martha Stewart's breach of contract, the department store said in a statement.

Macy's contract with Martha Stewart runs through 2018. The company has said Martha Stewart is its No. 1 home brand.

A spokeswoman for Penney and a spokesman for Martha Stewart declined comment on any potential damages.

The amended contract runs through June 30, 2017, according to the announcement, shorter than the 10-year deal in the original agreement. In addition, the statement said Penney will no longer own 11 million shares of Martha Stewart Living or have representation on Martha Stewart Living's board of directors.

The original Martha Stewart Living-Penney deal was estimated at over $200 million. The parties would not comment on the value of the amended agreement.

Imperial Capital analyst Mary Ross Gilbert cut her one-year price target on the stock from $5 to $1.

Penney spokeswoman Kristin Hays said Penney expects to end the year with more than $2 billion in liquidity. Last week, Hays denied a market rumor that the chain had hired bankruptcy counsel.

Penney has been trying to lure back shoppers after Johnson's failed experiment in 2012 to go upmarket led to a 25 percent drop in sales. The company incurred huge losses and spent large amounts of money on store remodels.

The case is Macy's Inc v Martha Stewart Living Omnimedia Inc, 650197/2012, New York State Supreme Court, New York County.

(Additional reporting by Jessica Wohl in Chicago; Editing by Dan Grebler and Lisa Shumaker)

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