Martha Strewart Living Omnivision Shares Tank

Martha Stewart Living Omnivision (NYSE: MSO) retained Blackstone on May 25 to find potential investment partners and explore other opportunities. The announcement was widely viewed as the start of a process to sell the company. There do not appear to have been any serious suitors so far, at least as far as the stock market can tell. The company’s share price rose to $5.31 after the disclosure. It has fallen to $3.04, just pennies above their 52-week low

There are several reasons that there may be no interest in the company. The first is Stewart herself. There is no assurance that she will be with Martha Stewart Omnivision in a year. She is absolutely essential to the health of the brand, and, therefore, the company’s revenue. And, that revenue has weakened over the last five years with the exception of a modest improvement in 2007. Revenue in 2006 was $288 million. It was $231 last year. Martha Stewart Living Omnivision has lost money on an operating basis in four of the last five years.

The latest quarter, which ended on June 30, was not any better. Revenue dropped slightly from the same quarter of last year, to $54.9 million. The operating loss for the period was $2.5 million. The firm has three divisions: publishing, broadcasting, and merchandising. Merchandising was the only profitable division. It made $7.3 million on a segment operating basis in the latest quarter. That was more than wiped out by corporate costs which were $8.6 million for the period.

Management has done very well despite the performance of Martha Steward Living Omnivision. Charles A. Koppelman has the title of Executive Chairman and Principal Executive Officer. He is the de facto CEO and has had the job since July 2008. Koppelman made $2,268,225 last year, as shareholders were battered. He made nearly $12.5 million over the 2008 to 2010 period, a sum that has to be consider extraordinary by any measure. Some of the board members, at least, should know better than to have granted such generous rewards. Claudia Slacik has held senior positions at JPMorgan Chase. And, Charlotte Beers is a former Chairman of the Board of Directors of J. Walter Thompson Worldwide. Martha Steward Living Omnimedia added to its management recently, perhaps in the hope that an outsider could repair the company. Lisa Gersh was appointed President and Chief Operating Officer. She is a former President and Chief Operating Officer of Oxygen Media. She is supposed to become CEO of Martha Stewart in the next year or so.

Martha Stewart Living Omnivision will have to alter its operations before Gersh takes over. The company could close its broadcast division which lost $2.3 million in the first half as its revenue fell from $20.3 million last year to $15.6 million. Or, it could lay-off a significant portion of its staff as it has in the past. These are the only realistic options, especially since the chances that a buyer will pay much more than the current market cap of $168 million are low

Douglas A. McIntyre