UPDATED June, 22, 2015: Martha Stewart Living Omnimedia Inc. slumped as much as 14 percent after Sequential Brands Group Inc. made an offer to buy the home-decor company for $6.15 a share, below its closing price on Friday, June 19.
Investors had anticipated a higher price. Through Friday, the shares had jumped 37 percent over two days amid reports of an imminent takeover by Sequential Brands, owner of the Avia workout gear and Caribbean Joe island wear brands. That’s adding to a year-to-date gain that was already the strongest for Martha Stewart Living since 2009.
The shares declined to $6.02 at 10:35 a.m. New York time, after falling to $5.97 for the biggest intraday decline since August 2011.
The deal -- valued at about $353 million based on shares outstanding as of March 31 -- will be paid 50 percent in stock and 50 percent in cash, Sequential said Monday in a statement. Martha Stewart, who with her daughter Alexis controls the voting rights, will serve as chief creative officer of the brand and take a seat on the board, according to the statement.
The offer price may lead to shareholder resistance, said Erik Gordon, clinical assistant professor at the the University of Michigan’s Ross School of Business. After suffering through the worst of times with the company -- including Martha Stewart’s time in prison in 2004, slumping advertising sales and TV show cancelations -- shareholders expected more from the turnaround efforts under chief executive officer Daniel Dienst.
“It’s a fizzle-out end for what was once a consumer empire,” Gordon said in an e-mail. “Martha was a good entrepreneur who was blind to her weak spots that cost her and her shareholders dearly.”
The Martha Stewart Living brand reaches about 100 million consumers monthly and has a retail presence in stores such as Macy’s, Home Depot and Staples. Under the deal, Sequential will also get the Emeril Lagasse brand, which includes food and cookware products and television and book properties.
Sequential Brands’ shares were mostly unchanged. The company has a financing commitment from GSO Capital Partners LP, an affiliate of the Blackstone Group, according to the statement. Sequential Brands was advised by Tengram Capital Partners. Martha Stewart Living was advised by Moelis & Company.
The deal is expected to close in the second half of 2015.
Bloomberg reported on June 19 that shares of the company, named after the lifestyle guru, jumped 26 percent and continued rising Friday amid reports of an imminent takeover by Sequential, owner of the Avia workout gear and Caribbean Joe island wear brands. That added to a year-to-date gain that was the strongest for Martha Stewart Living since 2009.
Dienst has made some marked improvements since taking over in October 2013 to turn around the one-time Wall Street darling. Since then, he’s resolved legal woes with Macy’s Inc., expanded merchandising agreements with PetSmart Inc. and Staples Inc. and handed over production and advertising for Martha Stewart Living and Martha Stewart Weddings magazines to Meredith Corp.
The latter move in particular should go a long way toward cutting costs and improving profitability. Dienst was previously chairman of two metals companies -- both of which were sold under his watch.
“The CEO is a restructuring guy who is focused on cutting costs and positioning the company for a sale,” said Michael Kupinski, director of research and media analyst at Noble Financial Capital Markets. “Things are getting better.”
The reward for shareholders has been a more than doubling of Martha Stewart Living’s market value to about $400 million on Friday. The company is trading at its highest multiple of enterprise value to sales since 2007.
Going forward, the big growth opportunity for Martha Stewart Living is international expansion, Kupinski said.
But “they really just don’t have the infrastructure to do that. That’s the reason they would be talking to a company like Sequential,” he said.
A representative for Martha Stewart Living didn’t immediately respond to a request for comment.
Sequential distributes its brands in numerous countries outside the U.S. including Spain, Australia, Japan, China and regions of South America. The Wall Street Journal reported Thursday that a deal between the about $670 million company and Martha Stewart Living could be announced in the coming days.
Other rumored suitors included fellow label licenser Iconix Brand Group Inc., valued at $1.3 billion, Kupinski said. Martha Stewart Living still develops the editorial content for the magazines that Meredith now produces. Meredith could have acquired the whole of the magazine business in a combination deal with Sequential, he said.
A buyout would cut costs and drive revenue growth through international expansion Already, analysts are projecting the company will post its first annual revenue gain since 2007 next year.
Robert Routh, a New York-based analyst at FBN Securities, estimates a takeover bid could be in the range of $9. That represents about a 30 percent premium even after this week’s gains.
“If they take less than $8 or $9 a share, at minimum, they’re going to have some pretty pissed-off shareholders that they’re going to have to deal with later,” Routh said at the time. “You’ve got to believe that in someone else’s hands, they can financially engineer the company to that valuation almost overnight. There’s a lot of fat.”
Martha Stewart, the legendary dispenser of advice on entertaining and home decorating, took her company public in 1999. Its stock rose to $39.75 that year, reaching a market value of $1.9 billion.
The shares have had their ups and downs since. They were buffeted when Stewart faced charges over a 2001 stock sale. She was later convicted and served prison time. In recent years, sluggish advertising sales and show cancellations pressured the company’s publishing and broadcasting division.
Stewart, who stepped down as head of the company in 2003, was re-elected to the Martha Stewart Living board in 2011 and is now chairman. She and her daughter Alexis control the voting rights for the company.
“It’s definitely positioned better to now do an international merchandising deal,” Routh of FBN said. “You can really grow the revenue materially going forward if you leverage those brands across a platform with a bunch of other brands.”