Martha Stewart Living Acquired for $353M

Martha Stewart single-handedly changed the game for home decorating and cooking in the late 1990s, becoming the "it" designer for all things domestic.

But the announcement on Monday of an acquisition of her media and merchandising empire in a deal that values the company at far less than in it was worth in its glory days shows how much her brand has eroded over the years.

Martha Stewart's is being sold to Sequential Brands Group, which owns and licenses such brands as Ellen Tracy and Jessica Simpson, in a deal valued at $353 million. That's a fraction of the $1.8 billion valuation when the company went public in 1999.

"The days when people looked to one person to tell them how to entertain, live tastefully are gone," said Allen Adamson, chairman of Landor Associates, a brand research firm. "Today, there are many voices. She can't go back to retaking that mantle because that mantle is gone."

It's a shift from when Stewart built her business, from books to TV shows, based on her penchant for decorating and cooking. Stewart cultivated legions of loyal fans, all eager to know the best way to decorate a cake, set the Thanksgiving table or plan a cocktail party. Business was booming, and Stewart consolidated her businesses into one company in 1997 and then took that company public in 1999.

But in recent years, the company has been hit with heavy competition. No longer were people looking to get their information from a single source, but rather they were getting decorating and cooking advice from other domestic divas like Rachael Ray and everyday bloggers who write about home decorating, cake baking and the like. That was compounded by the fact that Stewart's recipes and decorating rules didn't quite resonate with younger customers searching for quick solutions on their iPhone.

Adding to these challenges were legal woes of both the personality and the company bearing her name. Stewart was convicted in 2004 on federal criminal charges of lying to prosecutors about selling ImClone shares a day before the Food and Drug Administration announced it declined to review the company's application for a cancer drug. Stewart rejoined the board of Martha Stewart Living in September 2011 after a five-year ban that was part of a settlement with federal regulators related to her conviction

Then, Stewart brokered a merchandising deal with J.C. Penney in late 2011 that competed with a prior exclusive deal with Macy's Inc. As a result, Martha Stewart got into a three-year court battle with J.C. Penney and Macy's, ending with Penney terminating its deal that covered certain products like cookware and towels with the company.

The company has been working to right the ship, though. In recognition of the shift online, Martha Stewart Living last October struck a 10-year licensing deal with Meredith Corp. to take over ad sales, circulation and production of Martha Stewart Living and Martha Stewart Wedding magazines.

According to the deal, the company would continue to create the editorial content. That deal enabled the company to focus on merchandise like pots and pans, which analysts say has been stale in the last few years.

Stewart also focused on remaking her brand online, signing partnerships and launching Martha Stewart Network on video streaming services like Hulu and Hulu Plus.

Despite those efforts, Martha Stewart Living has reported annual losses every year since 2003 with the exception of 2007. For the past seven years, the company's annual sales have been on a downward slope, reaching $141.9 million last year, down from $327.9 million in 2007. Company shares have been on decline since 2006 when it traded at around $21.

Analysts believe Sequential Brands will bring energy back to the brand.

"I believe this is a good deal. It can be a powerful brand again," said Dan Hess, president of Merchant Forecast, an independent research firm that covers the retail industry for the financial community.

But Hess cautioned: "It's still tenuous. It relies on her keeping her nose clean and making her style relevant to a generation that looks for a lot of resources."

In a statement Monday, Stewart called the deal with Sequential a "transformational merger." Stewart will remain as chief creative officer and will be nominated for the board, where she is now non-executive chair. She'll also be a "significant" stockholder.

"The Sequential team is smart, hardworking, and understands the power and limitless opportunity of the Martha Stewart brand and its formidable design, editorial and marketing teams," she said

Yehuda Shmidman, CEO of Sequential, said the breadth of the brand is still strong. He pointed to research that shows the Martha Stewart name has 96 percent awareness among women in the U.S.

He also said 7 out of 10 women say that Stewart has and does influence the way they think about, organize and manage their homes. Additionally, he said the company reaches about 100 million consumers.

But the price Sequential is paying for the company illustrates how much the appeal of the brand has diminished.

Sequential Brands will pay $6.15 per share for Martha Stewart, below Friday's closing price of $6.98 and far beneath the $36 the company had when it when public in 1999. Shares dropped 86 cents, or 12.3 percent, to close at $6.12 on Monday after surging late last week on reports of an impending acquisition.