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Ex-Martha Stewart Chairman Proposed Macy’s Match Deal

March 7 (Bloomberg) -- Ex-Martha Stewart Living Omnimedia Inc. Chairman Charles Koppelman said his recommendation to offer Macy’s Inc. a chance to match a proposal from J.C. Penney Co. was rebuffed by his board.

Koppelman testified today that he told Martha Stewart and the company’s board that he wanted to give Macy’s Chairman Terry Lundgren “the opportunity to do the deal that J.C. Penney was proposing” even though he wasn’t involved in the negotiations.

“Their view was that that was not something I should do,” Koppelman testified today in New York State Supreme Court in Manhattan in a nonjury trial of Macy’s lawsuits against Martha Stewart Living and J.C. Penney.

J.C. Penney in December 2011 acquired a 17 percent stake in New York-based Martha Stewart Living for $38.5 million as the department-store chain seeks to revive sales with new mini-stores dedicated to Martha Stewart and other brands.

Macy’s, which has sold Martha Stewart-branded home goods since 2007, sued her company in January 2012, saying it had the exclusive right to sell items in certain categories including bedding and cookware. Macy’s sued Plano, Texas-based J.C. Penney about three months later.

‘Reap Rewards’

Macy’s, the second-biggest U.S. department store chain, has argued that J.C. Penney is trying to “reap the rewards” of its work with the Martha Stewart brand, which the chain says it rebuilt after Stewart’s release from prison in 2005, when her products were sold at Kmart.

Martha Stewart Living has defended its agreement with J.C. Penney, accusing Macy’s of breach of contract and saying the retailer stocked and priced Martha Stewart products in a manner that favors private-label brands. Martha Stewart Living also said Macy’s couldn’t have exercised a five-year renewal option in January 2012 because of the breach.

During the trial that began on Feb. 20, Justice Jeffrey K. Oing today ordered the three sides to participate in mediation between now and April 8, when the proceedings are set to resume because of scheduling conflicts.

Koppelman, a former record company executive, joined Martha Stewart Living’s board in 2004, months after Stewart had been convicted of obstruction of justice for lying to authorities probing her December 2001 sale of ImClone stock. Stewart served five months in prison and about six months of house arrest.

Negotiated Deals

Koppelman became vice chairman in December 2004. He was promoted to chairman in June 2005 and served in that role until being named executive chairman and principal executive officer in 2008.

He stepped down in 2011 and was named non-executive chairman, a position he held until Stewart replaced him in May 2012. As chairman, Koppelman helped the company reach several licensing deals with companies such as Sirius XM Radio Inc., KB Home, Home Depot Inc. and PetSmart Inc.

Koppelman said he played a role in negotiating Martha Stewart’s pact with Cincinnati-based Macy’s in 2006, although the company’s former head of merchandising, Robin Marino, was the main point person. He said he initially approached Lundgren while Stewart was in prison to discuss the possibility of doing a deal but that Lundgren was focused on exclusive brands and was uninterested because of the Kmart agreement.

Wanted Deal

Koppelman said he later stepped into the talks with Macy’s “to see why it was not happening” and met with Lundgren several times because it was clear both sides wanted a deal.

“I thought this was becoming a never ending saga, much like what is going on now,” said Koppelman, who said he owns about 1 million unrestricted shares of Martha Stewart Living.

While Koppelman said he hasn’t read the Macy’s contract, he testified that there “certainly was exclusivity in the categories that were listed in the contract.”

The case is Macy’s Inc. v. Martha Stewart Living Omnimedia Inc., 650197/2012; Macy’s Inc. v. J.C. Penney Corp., 652861/2012, New York State Supreme Court (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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