Wall Street analysts tell Martha it's time to go. Though her company denies it's looking for a new CEO, analysts think the scandal-tainted Stewart could best help her company's plunging stock price by stepping down

By Gary Susman
September 05, 2002 at 04:00 AM EDT

How much is Martha Stewart’s alleged connection to the ImClone insider trading scandal hurting the stock of her own company? So much that the New York Times quoted an unnamed insider in a report Wednesday as saying that Martha Stewart Living Omnimedia is looking to dump its namesake as the company’s CEO. The company quickly issued a denial yesterday, saying it had not been looking for a replacement for Stewart. But maybe it should, Wall Street analysts say, if it wants to see its stock price climb again.

Even the Times’ contested report that MSLO was looking for a new CEO was enough to boost the price of the troubled stock 15 cents, to $7.80. The price has tumbled about 60 percent since the news broke in June that Stewart’s sale of her nearly 4,000 shares of ImClone a day before that company’s price plunged last December may have been an illegal trade based on insider information. Stewart has denied the accusation and has not been charged with a crime, but three ongoing federal investigations into the matter have hurt Stewart’s public image, on which her homemaking empire was built.

While MSLO issued a statement Wednesday to ”to categorically deny the report contained in today’s New York Times that any search for a new chief executive has been initiated,” the Times source insisted Thursday that the search was on. The New York Daily News quoted two sources as saying that the company had engaged two of the top three headhunting firms to find a new CEO. The search is ”absolutely under way,” one source told the Daily News. ”Maybe they haven’t made their selection yet, but they’ve called in at least two search firms to discuss it.” Jon Fox, an analyst with Adams, Harkness & Hill, told the Daily News, ”From what we’ve heard, basically everybody except the chairman of the board [that is, Martha Stewart herself] is looking to hire a new CEO.”

And if they did, it would be a good thing. So says Adams, Harkness & Hill analyst Laura Richardson. ”It would be a step toward putting distance between Martha, ImClone and the company,” she told the Times. ”And it would be a step toward a turnaround in the company’s earnings and stock performance.”

If Stewart did step down, she might cease to be MSLO’s public face, but she wouldn’t necessarily leave the company. But could Martha Stewart Living still sell housewares and tips without Martha Stewart? Analyst Kathleen Heaney of Brean Murray told the Times that current MSLO chief operating officer Sharon Patrick has the expertise necessary to take over from Stewart. Heaney recalled another businesswoman and media personality who was once synonymous with her products, Coco Chanel. ”Hey, I’m sitting here wearing a Chanel suit and she’s been dead for, what, 40 years,” she told the Times. ”She’s gone but the perception of quality remains. Martha’s still alive, she just may remove herself from the day-to-day business to concentrate on the big picture.”

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