Macy's should have been told about Penney deal: ex-Martha chair

NEW YORK Thu Mar 7, 2013 5:06pm EST

Martha Stewart holds a camera as she departs the New York state Supreme Court after testifying in Manhattan March 5, 2013. Stewart was questioned in a New York state court on Tuesday over the terms of her contract with Macy's, which the retailer says she broke when she tried to sell cookware and other goods at rival J.C. Penney stores. REUTERS/Lucas Jackson

Martha Stewart holds a camera as she departs the New York state Supreme Court after testifying in Manhattan March 5, 2013. Stewart was questioned in a New York state court on Tuesday over the terms of her contract with Macy's, which the retailer says she broke when she tried to sell cookware and other goods at rival J.C. Penney stores.

Credit: Reuters/Lucas Jackson

NEW YORK (Reuters) - Macy's Inc (M.N) should have had a chance to match rival J.C. Penney's (JCP.N) offer to carry Martha Stewart products in its stores, the former chairman of Stewart's company testified on Thursday.

Charles Koppelman, a music mogul and corporate crisis manager who became chairman of Martha Stewart Living Omnimedia (MSO.N) in 2005, said he told the board it was a mistake to keep the proposal from Macy's Chief Executive Terry Lundgren.

Macy's sued MSLO and J.C. Penney last year after the companies announced an agreement to sell a line of Martha Stewart products. Macy's claims the deal breaches a contract it has to sell Martha Stewart home goods in certain exclusive categories, including cookware, bedding and bath.

"I wanted to offer Mr. Lundgren and Macy's the opportunity to do the deal that J.C. Penney was proposing to the company," Koppelman said on the witness stand Thursday in New York state court. He said he made that recommendation to Stewart, the board and a special committee seeking business opportunities.

"Their view was that was not something I should do," he said.

Macy's Lundgren testified last week that he was "blown away" when Stewart called him the night before the J.C. Penney deal was announced in December 2011. He said he would have liked the opportunity to counter the offer.

Lundgren said he hung up on Stewart after she told him the Penney deal would be good for Macy's. He said he has not spoken to her since.

Stewart, 71, who took the witness stand on Tuesday, said she was "flabbergasted" by Lundgren's angry reaction at news of her J.C. Penney partnership. "It didn't occur to me that there weren't enough customers to go around," she said.

Koppelman joined MSLO when the domestic diva was found guilty of lying about a stock trade in 2004. She went to prison for five months, and he stepped down as chair last year when Stewart resumed the post.

Martha Stewart is the No. 1 home brand at Macy's, while J.C. Penney views the brand as vital to its turnaround strategy.

The Penny's deal includes a 17 percent stake in Stewart's company, which also has been struggling.

(Reporting by Karen Freifeld; Editing by Dan Grebler)