A Private Martha?

What's Martha Stewart to do? The chairman and CEO of Martha Stewart Living Omnimedia (MSO ) is under siege on all fronts: The Securities & Exchange Commission is looking into her sale of ImClone System shares for possible insider trading, stockholders are incensed by the collapse of MSO shares--from 20 in mid-March to 8.21 on July 31--and analysts have downgraded the stock and cut earnings estimates.

Would you blame Stewart, then, if she took her company private? Several in the Stewart circle say she has been talking to investment bankers about a leveraged buyout to resolve some of her woes. "With MSO's shares plunging, it would be strategically wise of Martha to buy all of MSO," says a banker who didn't want to be identified. He thinks an LBO at 12 a share would be fair.

Some analysts also think an LBO would be logical. "I would consider it if I were in her shoes," says Laura Richardson of Boston investment firm Adams, Harkness & Hill, who dropped her MSO rating from "buy" to "reduce." Richardson, who doesn't own shares, says the future outlook is worse than she originally thought. Adams Harkness has no business ties with MSO. Kathleen Heaney of investment firm Brean Murray says an LBO is a "natural" for companies with two classes of stock. Stewart owns 66% of the common and nearly all of the voting shares. Heaney, who owns no shares, has also cut her estimates due to the ImClone mess. But based on a sum-of-the-parts valuation, she rates the stock a buy. She cut her 2002 estimates from 56 cents to 40 cents a share, and for 2003 from 73 cents to 55 cents. Brean has no business links to the company. MSO, which markets the Martha Stewart brand across a broad range of media and retail outlets, declined comment.

By Gene G. Marcial

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