Does Anyone Win in the Martha Stewart Trial?

Martha Stewart appeared in court earlier this week to defend her company’s right to sell its products in both Macy’s (NYSE:M) and JCPenney (NYSE:JCP). While the three parties’ attempt to sort out a business arrangement gone sour is definitely news for the entertainment pages, the real question is whether or not anyone wins from the legal battle.

Let’s take a look.

To start, Stewart’s company Martha Stewart Living Omnimedia (NYSE:MSO) definitely loses. It’s tempting to think that the legal battle demonstrates the ongoing popularity of the Martha Stewart brand. In reality, though, it’s nothing more than an old-fashioned pissing contest between three companies hell-bent on exercising their legal rights.

Martha Stewart wasn’t happy with Macy’s development of its brand in stores, but that’s actually irrelevant. She should have worked out any differences with Macy’s directly. Instead, she did what she does best by manipulating the wording of the existing contract with Macy’s in order to jump into bed with JCPenney.

Macy’s agreed to let Stewart sell product categories exclusive to the company only if MSO opened its own stores. Stewart claims that the opening of 700 JCPenney store-within-a-store locations constitutes such an endeavor. Supreme State Court Judge Jeffrey Oing must decide whether the contract between Stewart and Macy’s allows for any wiggle room for such a claim.

Currently, the judge has disallowed any Martha Stewart branded products from being sold until his decision is made, but he has vacillated on whether to also block merchandise JCPenney plans to sell under its “JCP Everyday” brand.

Whatever he decides, the damage has already been done.

When MSO first announced it was hooking up with Macy’s, the stock was sitting just under $20. As of a year ago, that had already dwindled down to a $5 shareprice. Over the last month alone, another 16% has been sliced off. Yesterday, MSO closed at $2.45. No matter what happens in this trial, Martha Stewart’s goose is cooked. What comes around goes around.

The next loser in this trial is Ron Johnson. Already under fire for JCP’s recent woes — and after delivering awful fourth-quarter earnings just recently — the CEO’s email testimony makes him look like a backstabbing, conniving individual with little respect for others. How are people like Bill Ackman supposed to keep trusting Johnson when he clearly has no desire to play by the rules?

Heck, last November, I made an impassioned case why Bill Ackman is no fool. I’m afraid this trial proves we are both fools — at least when it comes to JCPenney. The calls for Johnson’s job have begun in earnest now, thanks to the revelation that Vornado Realty Trust (NYSE:VNO) is selling 10 million of its 18.6 million JCPenney shares in an unregistered secondary transaction. Vornado’s CEO, Steven Roth, sits on JCPenney’s board. If he’s bailing, clearly there’s something rotten in Denmark … and that something is Ron Johnson.

The last person in this three-ring circus is Terry Lundgren, Macy’s CEO. He saved Martha Stewart back in 2006 and, once again, she repaid him by doing an end-around with one of his biggest competitors. Even if you don’t agree with everything Lundgren’s done in his 10 years as top dog, he certainly comes off looking like the good guy in this disagreement.

Judge Oing believes the three parties should have solved this out of court … and I can’t disagree. However, Lundgren also couldn’t let shareholders think he was rolling over. Furthermore, he had to stand up for its legal rights or no other creative company would ever want to do business with Macy’s again. A contract is a contract.

Plus, Macy’s business is terrific — unlike JCP and MSO. Despite Lundgren’s claims that he doesn’t want to lose the Martha Stewart business, I doubt he would lose any sleep over it.

All in all, Martha Stewart’s days are numbered … and Ron Johnson’s farewell won’t be too far behind. It’s time for Macy’s to move on. It’s the only winner in this trial, no matter the verdict.

As of this writing, Will Ashworth did not own a position in any of thee aforementioned securities. 

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