|
|
Get Four
|  | SEPTEMBER 28, 2004
By Diane Brady MSO Is Still All About Martha Its stock rally has stopped as investors realize Stewart's earlier jail time and new deals don't change the outfit's vulnerability The rush of euphoria surrounding Martha Stewart's prospects now that her embarrassing trial is behind her has come to a crashing halt. On Sept. 27, shares in Martha Stewart Living Omnimedia (MSO ) dropped 10.4%, to $15.30, after rising more than 50% since mid-month. One possible reason: A realization that to get back to where it once was, the company needs more than big-name consultants and a stint in jail for its former CEO. While Stewart has proven remarkably resilient at maintaining a strong fan base and staying in the public eye, the ongoing crisis over her lies to the government has eroded a major chunk of her empire. Moreover, it underlined the peril of having a brand so utterly dependent on one woman. The excited reaction over a new deal with reality TV guru Mark Burnett and Stewart's imminent departure for prison demonstrate again that in the minds of many investors, this outfit remains all about Martha. The sell-off is merely a sign that some of the investors may have come to their senses. Here's why the excitement of recent weeks could be premature: • Doing time. Stewart is set to head to prison by Oct. 8 as inmate #55170-054, although it's still not clear if she'll be allowed to serve her five months of incarceration at a facility in Danbury, Conn., near her home. While getting the sentence out of the way adds a welcome element of predictability to Stewart's future -- waiting out an appeal of her criminal conviction could have taken well into next year -- the case's actual outcome remains far from settled. An unsuccessful appeal means she'll remain a convicted felon in the eyes of the law and the advertisers who are considering whether to buy space in her properties. Moreover, the Securities & Exchange Commission is still pursuing civil charges of insider trading against Stewart that could, among other things, forever bar her from serving as a public officer in her company. Even if that doesn't impede Stewart from continuing as founder and chief editorial and media director -- as she's now called under a new five-year employment contract -- another finding of guilt could further mar her brand. • The Mark Burnett effect. Any deal involving Burnett is bound to add some sheen to a brand. After all, this is the man who has made Donald Trump look like an all-knowing corporate titan -- even as his casino empire fights to stay solvent -- through Trump's weekly appearances on The Apprentice. The prime beneficiary of the Burnett-Stewart marriage may be Burnett himself, who gets, among other things, warrants to buy up to 2.5 million shares of MSO's Class A common stock at $12.59 per share. More important, though, the Burnett deal signals a return to the personality-driven brand that left MSO so vulnerable in the first place. While it's easy to imagine how a reality-style show focused on the 63-year-old Stewart could become a huge hit for a season or two, it's less obvious how that will help her company's long-term health. • The underlying business. MSO racked up a net loss of almost $40 million in the first half of this year. Martha's TV show is on hiatus. Circulation and ad pages are down at the flagship Martha Stewart Living magazine. Even sales of Martha-branded goods at troubled partner Kmart (KMRT ) haven't held up because of store closings and the possible impact of the legal battle. While Stewart's talented staffers, led by CEO Sharon Patrick, are working overtime to develop franchise properties, they face a tough battle in matching the success of the Martha Stewart brand. Pet-keeping expert Marc Morrone is a quirky niche. Recent acquisitions like Body & Soul magazine are supplemental at best. Everyday Food has proven to be a successful recipe digest and will be the basis of a new Public Broadcasting System show in January. But skim the pages of Martha Stewart Living, and it seems as though it has almost as many ads for Martha Stewart properties as for outside brands. Until the company can prove that indeed there's life after Martha Stewart's stint behind bars, investors have little reason to bid up MSO stock. Moreover, a relatively small number of trades can prompt big swings in this stock, which has about 20 million shares outstanding. Compare that to, say, 10.6 billion shares outstanding for General Electric (GE ). While Stewart herself may feel relief at cementing her employment contract and getting jail time behind her, her company's struggle is far from over.  Brady is an associate editor at BusinessWeek in New York Edited by Beth Belton
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
