By now, the latest news about Martha Stewart is well known. The founder of Martha Stewart Living Omnimedia (NYSE:MSO) must go the appeal route after being found guilty of obstructing justice in the ImClone Systems (NASDAQ:IMCL) affair. The attention now, it seems, has turned back to the company as market watchers consider whether it can survive the blow to the domestic diva's reputation.
We discussed the resilience of the stock, which actually rose in recent months, in an article published just before last week's big news broke. Shares continued to rise Friday until the verdict was released, at which point they unsurprisingly changed direction. They've continued to fall in trading today.
I'm reminded of the story of Steve Madden, whose namesake footwear company Steven Madden (NASDAQ:SHOO) moved him to the newly created post of "chief creative officer" after he was charged with securities fraud -- while also signing a long-term contract to keep him and his name associated with the company even as he stepped out of strategic operations. Stewart, meanwhile, stepped down as chairman and CEO in June, but also stayed on as chief creative officer.
Madden pleaded guilty and is now serving a sentence in a minimum-security prison in Florida. Interesting thing, though: His company's shares are pretty much right where they were -- up a bit, actually -- before the other shoe fell, as most of the damage was done (and undone) before the sentencing. The company's business, meanwhile, has hit some rough patches but seems wholly unaffected by Madden's legal problems.
But there are certainly key differences here. As a brand and media company built around Stewart's smiling face and mellow voice, it is perhaps more difficult to extricate her from the business. The fact that Viacom (NYSE:VIA) has already pulled her syndicated television show only reinforces this. The New York Post reports that Stewart will inform directors today that she knows she must step down from the board. All this is not to mention that the legal side of her story is hardly over.
The company's financial strength, however, gives it options. One I've seen discussed is going private, but that may be a last resort. Such a move wouldn't alleviate much of the pressure Stewart's bad publicity has created, though it would at least give it more freedom to operate outside investor scrutiny should the business continue to deteriorate.
Ever the contrarian, David Gardner recommended Martha Stewart Living Omnimedia for Motley Fool Stock Advisor subscribers in the November 2002 issue. Including the recent volatility, shares are up 64% since David highlighted the firm, beating the S&P 500's 38% gain during the same time period.
Fool contributor Dave Marino-Nachison doesn't own any companies in this story. He can be reached via email.
