J.C. Penney Buys Martha Stewart Living Stake in Plan to Open Mini-Stores

Orlando, FL 12/7/11 (StreetBeat) --J.C. Penney Co. (NYSE:JCP) acquired a 17 percent stake in Martha Stewart Living Omnimedia Inc. (NYSE:MSO) for $38.5 million as the U.S. department-store chain seeks to revive sales with new mini stores dedicated to the brand.

J.C. Penney agreed to pay $3.50 a share for the stake, 12 percent more than Martha Stewart Living’s closing price yesterday, according to a joint statement today. The Plano, Texas-based retailer will also obtain two board seats on Martha Stewart Living’s board.

The agreement marks J.C. Penney Chief Executive Officer Ron Johnson’s first strategic move since he took over in November after running Apple Inc.’s retail operations. Johnson, who helped introduce Apple’s (Nasdaq:AAPL) big-city stores, is seeking to revive sales after the department-store chain last month posted its first quarterly loss in two years as shoppers deferred purchases.

“It’s definitely outside the box of what they’ve historically done,” Liz Dunn, at analyst at Macquarie Group in New York, said in an interview. “It’s certainly interesting and points to a strategy with the new management of kind of going after different brands and better products.”

Martha Stewart Living surged 22 percent to $4.14 at 10:52 am in New York, after earlier reaching $4.30 for the biggest intraday gain since July 2004. J.C. Penney fell 0.9 percent to $33.

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Martha Stewart Living will gain more than $200 million in revenue from the 10-year agreement, according to the statement. The owner of the namesake magazine and TV show is trying to boost sales growth after three years of falling revenue, and had hired Blackstone Group LP this year to help review proposals from potential investors.

The mini stores, which will sell home and lifestyle merchandise, are scheduled to begin opening in J.C. Penney stores in February 2013. The stores will have trained sales associates who can provide “educational tips.” The two companies will also develop and introduce an e-commerce site.

Since his appointment in June, Johnson has brought in Michael Francis, a former colleague at Target Corp. (NYSE:TGT), to head marketing efforts. Last month, he also announced the appointment of two former Apple executives as chief operating officer and chief talent officer.

J.C. Penney reported a net loss of $143 million, or 67 cents a share, in the fiscal third quarter ended Oct. 29 compared with profit of $44 million, or 19 cents, a year earlier, according to a statement Nov. 14. The company had last reported a loss in the quarter ended August 2009.

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