J.C. Penney buys stake in Martha Stewart Living

PLANO, Texas ― Department store chain J.C. Penney Co. Inc. bought a 16.6 percent stake in Martha Stewart Living Omnimedia Inc. in a $38.5 million deal that will see it introduce the brand in its stores starting February 2013.

Martha Stewart shares rose as much as 37 percent to $4.26 in premarket trade on Wednesday.

J.C. Penney will pay $3.50 a share for the stake, a 12 percent premium to Martha Stewart Living’s closing price on Tuesday and will get two seats on the board.

Under a 10-year partnership, J.C. Penney will introduce ministores for the Martha Stewart Living brand and jointly develop an e-commerce site, expected to launch in 2013.

The arrangement is expected to fetch Martha Stewart Living, a diversified media and merchandising company, more than $200 million, including royalty payments, design fees and advertising commitments over the contract period.

Martha Stewart Living also said it will pay its shareholders a special dividend of 25 cents a share.

In May, Martha Stewart Living hired Blackstone Group to explore opportunities to sell or find a partner after several years of sales declines in its magazine publishing, television and merchandising businesses. Between 2007 and 2010, revenue fell by more than a quarter.