Sequential's $6.15 per share offer represents a premium of about 21 percent to Martha Stewart Living's closing on June 17, a day before The Wall Street Journal first reported on the deal.
Martha Stewart Living's shares, which closed up 26.3 percent after the report on Thursday, were down 14.3 percent at $5.98 in early trading on Monday. Sequential's shares rose 2.6 percent to a six-and-a-half year high of $17.45 on the Nasdaq.
Sequential, a brand management and licensing company, owns the Avia athletic wear and Caribbean Joe beach wear brands. The company acquired a majority stake in the Jessica Simpson brand in April.
Martha Stewart Living generated $141.9 million in revenue last year. Its businesses include magazines, websites and home improvement products, which are sold by retailers such as Home Depot and Macy's.
Martha Stewart, the homemaking maven who founded the company in 1997, will become a significant shareholder in Sequential and serve as chief creative officer.
Martha Stewart Living's annual sales have been declining since 2007.
The company's shareholders can elect to receive either $6.15 in cash or stock equal to $6.15 for each share of Martha Stewart Living stock held.