Taking Stock Of Martha

Like a great dinner party, an initial public offering of stock should provide something for everyone. The invited guests get a lovely meal or a chance to invest in a promising company, and the hostess gets the thrill of orchestrating the perfect gathering or cashing in her sweatless equity. Perhaps it's no surprise that Martha Stewart, Master of the Domestic Universe, has a touch for both.

Consider Martha Stewart's plan to sell 7.2 million shares of Martha Stewart Living Omnimedia next week to raise about $100 million. In her prospectus, Martha lays out a menu that will make many investors salivate. There are baskets of profits--$14 million on revenues of $112 million in just the first six months of this year--and the numbers are rising faster than a lemon souffle. For all of 1998, the company earned $24 million on revenue of $180 million. Those figures represent a 77 percent jump in profits over 1997. As the company's name implies, Martha presides over an omnipresent media and merchandising empire, including magazines, books, TV, radio, even a line of housewares at Kmart (sales of Martha-branded merchandise reached $763 million in 1998). She's got big plans for the Internet, too: John Doerr, the brand-name Silicon Valley venture capitalist from Kleiner Perkins, recently invested $25 million in the company and took a seat on the board to help build Martha's e-commerce business, in which she peddles everything from a tiered iron-wire centerpiece stand to rubber garden clogs. Ben Holmes, founder of Ipopros.com, which tracks new issues, expects the stock to jump 20 percent to 30 percent on the first day. Martha Stewart is a strong brand name, he said, and her company actually makes money, a rarity among newly public companies these days. "Nothing in this market cycle speaks louder than black ink,'' he said.

Going public is a lot of work for Martha (what to serve investment bankers for lunch? Homemade quattro stagioni pizzas can add some levity to discussions of quarterly earnings). But she gets a lot out of it, too. At the proposed offering price of about $14 per share, her stock will be worth almost half a billion dollars. Her compensation package: $900,000, and a $2 million annual fee for using her homes as filming locations. She also gets $300,000 a year as a "minimum annual bonus."

Enough talk of money. This offering, after all, is really a chance for Martha, a former stockbroker, to sit at the head of the table and bask in the applause of Wall Street. She is the reason for the company's success, of course, although many investors consider it a "risk factor'' that the company would be in trouble if it was suddenly sans Martha (accidents happen, particularly in potting sheds). Other risks: licensing agreements could sour, or Martha's popularity could--gasp!--drop. For his part, Holmes isn't concerned, saying that the brand is strong enough to carry on without her familiar face. In the prospectus, the company notes, "One of our business strategies is to reduce our dependence on Martha Stewart, but we may be unable to do so." Whether you're the hostess or the CEO, indispensability is a good thing.