Legal woes and an inability to translate to the digital age left Martha Stewart Living Omnimedia, once valued at $2 billion, selling for $353 million.
It was no secret that Martha Stewart Living Omnimedia was seeking a buyer, but some investors were shocked by its low sale price June 22 to Sequential Brands Group: $6.15 a share, 12 percent below its close the previous trading day.
At press time, about a dozen law firms said they were contemplating class-action suits to block the transaction. One firm, Robbins Arroyo, noted the agreed-upon price, which works out to about $353 million, marks a 16 percent premium on the stock's value in May — well below the 22 percent one-month-later average acquired companies have received in the past five years.
Anticipating blowback, Stewart, CEO Daniel Dienst and the rest of the lifestyle company's board built into the deal a 30-day "go shop" period.
"I think that there is room for a sweetened offer given the disparity between the price and my sum of the parts analysis at $9 per share," says Noble Financial analyst Michael Kupinski. He says the go shop period "may shake a few [interested] companies out of the woodwork."
If the deal survives, investors would be paid half in cash and half in stock. Stewart, 73, would be chief creative officer and a primary shareholder in a holding company housing the assets, which include her videos, websites and Emeril Lagasse's culinary brand.
The MSLO acquisition would mark Sequential's ninth under CEO Yehuda Shmidman, 34. Sequential is a publicly traded company with a market capitalization of $668 million whose brands include Justin Timberlake's William Rast label and Jessica Simpson's clothing line.
MSLO's value peaked at $2 billion in 1999, but the company never recovered fully from Stewart's legal woes a decade ago and hasn't transitioned to the digital age as well as others have. Its 2010 deal for a major Hallmark Channel programming block fizzled when the cable network realized it could attract more viewers with Little House on the Prairie reruns. Those burdens led to MSLO losing $8 million in 2014, after losing $2 million the previous year.
"The brand has lost its soul. It expanded into too many disparate categories," says Michael Stone, CEO of brand-extension agency Beanstalk. "It's iconic in the home and entertaining categories, and that's where it should focus."
But Shmidman notes that Stewart boasts 96 percent brand awareness in the U.S. and touts international opportunities: "Martha Stewart's impact around the world is staggering."
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