Conviction Hurts Stewart Brand
Shares of Martha Stewart Living Omnimedia closed down more than 22 percent Friday after Martha Stewart was found guilty on conspiracy and obstruction charges, reversing a wild surge that occurred minutes before the verdict was announced.
Shares of the media company finished at $10.86, shedding $3.17. Trading was halted by the New York Stock Exchange at 3:02 p.m. ET just before the verdict was announced and resumed about 30 minutes later. Shares had surged to a high of $17 just before the announcement, after starting the day at $14.03.
The volume of 16.5 million shares was more than 15 times the daily volume in recent weeks.
Company directors said in a statement they would meet "promptly" to "take actions appropriate." The company said its employees, $169 million in cash and lack of debt should keep it a leading "how-to brand-building" company. But the statement was one of the few positive assessments late Friday.
"It's taken the name out of the brand name," said Rich Hanley, a communications professor at Qunnipiac University. "I don't see it surviving as an entity beyond this year," "There will be an immediate association with a can of paint and a convicted felon, especially with the saturating coverage."
Analysts expect that Stewart will resign all of her posts at the company she founded - she is "chief creative officer" and a board member -- and believe it unlikely that she will return to those roles anytime soon.
Spokesmen for the New York Stock Exchange and Securities and Exchange Commission said there were no specific rules barring from Stewart from serving as an executive or director with any company, though her felony convictions may violate the NYSE's conduct standards.
"This is a fairly serious blow," said Michael Holland, a New York-based money manager who said he does not own Martha Stewart Living shares. "She was enormously positive for the brand. The downside is just what happened. It's very significant body blow to branding."
Holland also expects fallout with Martha Stewart Living's partners, including Kmart, which sells Martha Stewart-branded consumer products. Analysts already expected Martha Stewart Living to have a tough slog in 2004 with advertising revenue down for the company's publishing side and weak consumer demand for retail products.
"(We) continue to believe, whatever the outcome of Martha's trial, her company faces an uphill battle in 2004," said Laura Richardson, an analyst with Adams Harkness & Hill in Boston.
Stewart was charged in connection with her sale of ImClone stock in December 2001, a day before an adverse regulatory ruling sent that stock tumbling. At the time, Sam Waksal, a personal friend of Stewart's, headed ImClone. He later pleaded guilty in a separate insider trading case.
In reaching its verdict, the jury of eight women and four men rejected Stewart and her stockbroker, Peter Bacanovic's claims that she had a pre-existing agreement to sell ImClone shares if they dropped below $60.
Stewart, who founded the media and consumer products company, became famous and wealthy as she built her reputation as an expert in fine living and dining.
But the spotlight grew hot when Stewart was charged. Her Manhattan trial has become a media circus, with celebrity pals such as comedian Bill Cosby and former talk-show host Rosie O'Donnell appearing in court to show support.
By David Weidner
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