Mendoza School of Business

Stewart’s firm free to grow

Published: March 4, 2005 / Author: Andrew Tribune

Newsweek superimposed her face on a model’s body for the cover of its current issue. NBC has a deal in place to create a reality TV show featuring her as the star. The company that has carried her name has seen its stock nearly quadruple since she was sentenced.

Martha Stewart is certainly generating a lot of buzz on the eve of her release from prison.

“There’s a lot of attention being paid to her,” said local corporate communications expert James O’Rourke. “Some is deserved, some is undeserved, and some is bizarre, like that Newsweek cover.”

Lurking underneath that attention, however, are a series of incidents that happened while Stewart was serving a five-month prison sentence that have put Stewart’s former company in a stronger position than before her imprisonment.

O’Rourke, a management professor and director of the Fanning Center for Business Communication at the University of Notre Dame’s Mendoza College of Business, has followed Stewart’s case since 2002, when he directed a case study of her troubles that stemmed from a December 2001 sale of ImClone Systems stock.

Stewart was incarcerated at a West Virginia prison last year after being convicted of lying to prosecutors about a stock sale.

Because Stewart will most likely be prohibited from serving as chief executive officer or as a voting member of the company she helped build, Martha Stewart Living Omnimedia, O’Rourke believed it was essential that the right management team get brought in.

That happened when the company named Susan Lyne, the former president of ABC ntertainment, to be president and chief executive officer.

Lyne, who helped ABC develop hit programs such as “Desperate Housewives,” orchestrated a deal with NBC for a show titled “The Apprentice: Martha Stewart,” a program modeled after the successful Donald Trump reality television series.

What if …

What might have happened if Martha Stewart never sold the ImClone Systems stock that touched off an investigation that ultimately led to her five-month prison sentence?

On Dec. 27, 2001 , when Stewart sold her 3,928 shares of ImClone, she received about $58.43 per share, for a total of about $229,500. Four days later, ImClone shares fell 18 percent after a public announcement by the Food and Drug Administration denying approval of an ImClone product.

However, that product was approved in 2004, and ImClone stock’s gradually recovered. Its stock price peaked at $87.24 this summer, meaning Stewart’s holdings would have been worth about $342,700.

It has since slipped as a result of lawsuits stemming from a class-action lawsuit, and when trading ended Thursday, a share of ImClone cost $42.88, which would have been worth just over $168,400.

Although Stewart is no longer in control of the empire she helped build, she will serve as the company’s creative chief — a position O’Rourke believes is crucial to maintaining her image as the queen of homemakers.

Effectively marketing Stewart’s image and products is crucial to her success, O’Rourke said.

The Martha Stewart Everyday brand received a boost when retailers Kmart and Sears announced plans to merge.

But Omnimedia’s magazine empire has floundered while Stewart was imprisoned. That may turn around soon, O’Rourke said, after the publisher of Martha Stewart Living resigned this week.

“Those are clearly the linchpins,” O’Rourke said, if Martha Stewart Living Omnimedia wants to continue to capitalize on the publicity generated from Stewart’s release from prison.

The stock price of the company that bears Stewart’s name has soared dramatically since her July sentencing, when it traded at $8.64. Thursday afternoon, shares closed at $33.95 — a figure O’Rourke said reflects speculative investment.

By contrast, the company’s stock was trading at just over $19 per share before news of Stewart’s legal troubles were leaked to the media in 2001.

So will Stewart, who must serve five months of house arrest after her release, ever apologize to her audience for her conviction?

“I would be stunned to hear an apology from her or an admission of guilt,” O’Rourke said. “I think she’s in denial about her guilt, but I think she sees the conviction and the guilt as being unrelated.

“I think she’s going to press ahead as if nothing happened.”



Topics: Mendoza