Why Martha Stewart Living Cannot Be Sold

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Shares of Martha Stewart Living Omnimedia Inc. (NYSE: MSO) have risen recently on speculation that new CEO Daniel Dienst can sell the company. There is virtually no chance of that. The publicly traded media firm’s market capitalization is too high and its prospects far too poor.

The number of logical buyers for Martha Stewart Living is limited. The most likely are the biggest owners of women’s magazines — Hearst, Conde Nast and Meredith Corp. (NYSE: MDP). None of these needs new magazine properties to add to its impressive portfolio, particularly if that franchise has lost money for years. The Time Inc. division of Time Warner Inc. (NYSE: TWX), the largest magazine publisher in the United States, might like to expand its properties that target mostly women. However, as it moves toward becoming a public company, an ill-advised deal would hurt its prospects with Wall Street.

Martha Stewart Living’s market cap is $190 million, based on a share price of $3.36. Investors will want some premium, so an acceptable buyout price could be no less than $200 million, and probably more.

Against the market value, Martha Stewart Living lost $4.1 million on revenue of $33.8 million in the most recent quarter. The revenue dropped from $43.5 million in the same period of last year. The company’s publishing revenue has collapsed, and its TV revenue has almost disappeared. The only part of the corporation that is doing well is merchandising, and the prospects for that business were hurt by the near collapse of its deal with J.C. Penney Co. Inc. (NYSE: JCP).

Martha Stewart Living’s annual revenue is headed down toward $100 million a year. It would be hard to make a case that its future sales will ever be any better. No potential buyer will pay two times revenue for a company that is losing revenue, and one that has also lost substantial ground in almost all of its franchises and has destroyed much of its brand value.

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