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 Deconstructing Byron Vol. 22From Wall Street to Main Street By Andrew Ritchie 1999 was a big year for Martha Stewart. It was the year she took her company public, signaling one of the most successful and promising initial public offerings (IPO) Wall Street had ever seen. It was also the year she became wealthier than anyone had ever imagined, becoming America’s first self-made, female billionaire. It was an achievement that will forever place her in the history books as one of the most notable contributors to entrepreneurial business in America. How Martha achieved that is the subject of this chapter, with Byron demonstrating relatively good behavior throughout. Byron makes a good attempt to bring things full circle in the chapter, noting how it had been 30 years between Martha’s career as a Wall Street stockbroker and her mind-blowing success as a media tycoon, driving her down the proverbial Main Street of success. However, he does manage to insinuate, for the millionth time, that Martha had dramas going on "just off stage" in her personal life that contradicted her well-scrubbed public image and her vast success: an incident where she allegedly threw a coffee mug at a wall in her office; a court battle with the National Enquirer that had been going on for 2 years, which was eventually settled out of court, and subtle jibes here and there to imply that Martha was both unpredictable, rude and emotionally unstable. In short, it’s nothing new from a "biographer" who seems incapable of prying himself away from the mud, mire and slop. None of it is worth repeating in any detail. The most interesting parts of the chapter deal, at last, with the "how and the why" of Martha’s success, as opposed to the "where and the when" of her alleged misdeeds. Byron finally addresses the semantics of her company’s IPO and tells, in relatively good detail, how it came to be. Sainte Patrick Byron gives much of the credit to the company’s success, and rightly so, to Martha’s right-hand gal, Sharon Patrick, President of MSO. While Martha was the vision, the face and the creative force behind the company, Sharon was undeniably the company’s star business woman and the principal force behind the company’s financial organization and structure. Her efforts had enabled Martha to buy back her company from Time Warner in 1997 and help her set up shop on her own. Now, Sharon would stridently lead the company, with Martha’s full support, to the greatest financial heights imaginable. How did she do that?! First, the company needed to get its finances in order to prove to the banks, and more importantly to potential investors, that the company was worth investing in. This was not particularly difficult since Martha Stewart Living Omnimedia Inc. was generating over $222 million annually at the time, with $30 million cold profit each year. All in all, it was a successful company, and getting stronger by the month. Second, Martha needed to beef up her roster of big investors so that traders would see she had the "big boys" on her team. One such ally was Morgan Stanley, where Martha had ironically applied for a job as a stockbroker back in the 1960s and was turned away. More than 30 years later, she was one of their wealthiest clients. Two Morgan Stanley big-wigs, Mary Meeker and John Doerr, were gunning for Martha’s IPO and invested heavily in her company before it went public, as did Kleiner Perkins, a west-coast venture capitalist group, donating $25 million in cash to retire the debt on Martha’s balance sheets in exchange for 2 million shares in her company. This looked terrific to any investor who was seeking to invest in a company with stability, financial strength and a promising future: "If these guys are investing, I should too!" Lastly, Martha and her team of executives, including Sharon Patrick, launched a promotional tour for investors, giving 45-minute presentations around the country, and around the world, to potential investors. This was more or less a formality in the late 90s when nearly every company that went public with a dot.com component instantly hit it big, but Martha has always a been a stickler for tradition and it’s likely that this last bit of polish made her company’s stock look all the more enticing. Small fortunes were being made everyday on Wall Street at the time, with the new dot.com boom exploding in every direction. Companies like Amazon.com, Microsoft and @Home Inc. had made hundreds of millions of dollars thanks to public trading, often raking in nine-figures in a single day. Martha and Sharon agreed that in order to validate the company’s prestige, and make millions of dollars in the process, they needed to put MSO on the public trading frontlines. It would prove to be one of the company’s biggest blessings, but also one of its most dubious curses. "I’m rich!" On Tuesday, October 19, 1999, at 9:30 a.m. Martha stepped up to the balcony overlooking the main trading floor of the New York Stock Exchange where she rang the opening bell, signaling the beginning of the day’s trading. Behind her was a large, orange banner with her company’s logo and standing at her side was Sharon Patrick, NYSE Chairman Dick Grasso, her daughter Alexis, and several of her investors. It was the greatest pinnacle of her company’s achievements and an indication to everyone that Martha had truly made it in the world of business, just two years after she took her company solo. The men at Time Warner, who had condescended to Martha more times than she would like to remember, must have certainly been awe-struck, embarrassed and more than a little envious as they watched her success balloon to unfathomable heights. Her stock had been priced at $18 a share, meaning Martha, who owned 70 percent of the company’s stock, would leave that day with a minimum of $614 million in the bank! However, public interest in her company was so high at the time that it traded, not at $18 a share, but at $37.25 a share! The result was that by the end of the day Martha was worth $1.27 billion, becoming the first self-made, female billionaire in history. Following the day’s exciting events, Martha attended a party in her honor at the Manhattan home of Talk magazine editor, Tina Brown. Also in attendance were her friends Diane Sawyer, Charlie Rose and Diane von Furstenberg. Apparently, when Tina opened the door to greet a beaming Martha and asked her how she was, Martha excitedly replied: "I’m rich!" And indeed she was! What goes up must come down Martha launched her company on Wall Street at the Zenith of one of the greatest bull markets in recent history and made a fortune in the process. That being said, her stock had nowhere else to go but down and within months of her IPO her company’s stock was trading at significantly less than $37 a share, as was the stock of most dot.com companies. The downside of running a publicly-traded company, of course, is that fortunes can be lost as quickly as they can be made. As we’ve seen with Martha Stewart’s legal troubles, the impact of bad press and uncertainty regarding the company’s figurehead and CEO can have devastating consequences on the company’s overall value and reputation. In August of 2002, for instance, Martha had lost nearly $300 million of her personal wealth even as the company was losing revenue and ad sales. Shares in her company plummeted to just over $6, the lowest they’ve ever been traded, all as a result of sloppy government leaks to the press regarding her alleged crimes as an inside trader, allegations which were later dropped in favor of more obscure charges. The consistency and glee with which the media reported on speculation and hearsay regarding the ceaseless investigation into her legal conduct had done significant damage to both the company’s reputation and also its stock by the beginning of 2003. What is so often overlooked in this case, however, is that the criminal investigation has nothing to do with Martha’s company itself only the personal affairs of the CEO and masthead who runs it, whose questionable stock sale was in a company that was not even her own. The public perception, however, is that Martha Stewart, the person, and Martha Stewart, the business, are one and the same: If one half of this whole is seen to be in trouble, the other half sinks as well, particularly in an environment as volatile and unpredictable as the stock market. Public vs. Private This has raised serious questions about whether Martha Stewart Living Omnimedia Inc. is a viable company without Martha Stewart. What would happen to the company if Martha Stewart went to jail? What will happen to the company when she dies? These are questions that cautious investors are now asking themselves about a company that is so strongly linked with an individual’s lifestyle and reputation. Sadly, like many of the former advertisers in Martha Stewart Living magazine, they are often backing away filled with skepticism, meaning more losses for the company’s finances and reputation. One way to avoid ongoing financial losses would be to take the company private again, meaning there would no longer be such volatility based on MSO’s gains and losses. To do so, Martha and her investors would have to cash in all their shares and then restructure the company’s financial system to compensate for the loss of publicly-traded wealth. This is easier said than done, however, since selling shares at their current low prices would possibly be viewed by investors as suspicious: Martha and her staff taking advantage of the scandal to dump the shares and abandon ship. This would open the floodgates for law suits from frantic investors in her company who were not party to the decision to go private in the first place. Going private might also be portrayed by the media as weakness, as Martha giving up, as an indication that she has crumbled under the pressure or, worse, that she is closing up shop for good. This perception would be devastating for business unless Martha and her staff managed to reassure loyal consumers that they are merely downsizing for the sake of a better product. Either way, the decision for MSO to go private will most certainly have to wait until after Martha’s court battle is resolved, one way or the other. In the meantime, MSO share values will depend heavily on what the media are saying about Martha’s court battles and the public perception that will ensue. Whether that’s a good thing or a bad thing remains to be seen. Please e-mail Chris Byron at the NY Post and tell him how wrong he is about Martha: cbyron@nypost.com Also, visit The Pantry each month for a closer look at the cover subject of Martha Stewart Living Magazine with insightful articles that broaden the scope of the cover topic, written by Andrew Ritchie |
