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The Comeback That Wasn’t

Wall Street was punishing Stewart for not putting stockholders’ interests first. But she wasn’t even putting her own interests first. Stewart’s wealth is tied up almost entirely in her real estate and company stock, which she has always believed to be undervalued. One of the intriguing aspects of her high compensation is that if she were simply to take a $1 salary, along the lines of Steve Jobs, the market would almost certainly reward the move with a hike in her stock price; and an increase of just $1 would boost Stewart’s net worth by tens of millions of dollars.

Multiple former executives see this as Stewart at her least rational. One of them speculates that she can’t help feeling, given how hard she works, that she deserves to be paid well. Another executive chalks up Stewart’s obsession with compensation to her humble origins: “I think she still has the fear that she will end up with nothing.” This was the billionaire, after all, who had risked everything over a $51,000 stock trade.

Even using the loosest definition of “business expense,” Stewart has found she cannot fund her lifestyle on reimbursements alone. In recent years, according to a knowledgeable source, her old friend and personal banker Jane Heller has arranged extensive loans to Stewart. When it was announced in May that Blackstone had been retained, one theory was that Stewart “needs an event to monetize her stake.”

As the stock price has continued to disappoint, sinking as low as $1.73 in early 2009, sources say that relations between Stewart and Koppelman cooled. Stewart has always looked outward when apportioning blame, and she seems to have settled on Koppelman, her onetime savior, as the responsible party for the company’s poor performance. “Martha doesn’t like to hear what she doesn’t want to hear,” someone with knowledge of the relationship says. “Even Charles knows things are beyond screwed-up. He’s become the bad guy.”

This week, Martha Stewart will turn 70. The former model still looks remarkably youthful. She remains ever interested in learning something new and traveling to an exotic place she hasn’t been before. She is a gadget geek who’s constantly tweeting her own photographs (“She’s like a middle-aged man when it comes to audiovisual equipment,” says a middle-aged man who has worked with her). But although she has borne her age gamely, the fit with her brand has become slightly strained.

Stewart had explored launching a magazine targeting older readers that was to be called Grace (her confirmation name), but after Blueprint folded in late 2007, the project was shelved. The pole-dancing video is a little bit painful to watch. And the incorporation of Alexis Stewart into the company fold has been a study in brand dissonance, with the daughter of the woman who likes to talk about her Friesian horses free-­associating on-air about her abortion and her sexual fantasies involving Scott Bakula.

Several people who’ve worked at her magazines say that Stewart has become less certain that she is in touch with younger people’s tastes. Thus the rise of 42-year-old decorating editorial director Kevin Sharkey, a kind of adoptive son to Stewart who often travels with her. She’s named a shade of gray in her line of Home Depot paints after him, as well one of her French bulldogs.

Of course, Stewart is still Stewart. This was apparent even in the Blackstone announcement, which used the unusual phrase “explore strategic partnerships.” Because the typical code for putting a company on the block is “explore strategic alternatives,” the wording suggested that MSLO was not in play and yet might be. There are any number of reasons why a company might not wish to telegraph a determination to find a buyer. A motivated seller draws lowball offers. But in the upside-down universe of Martha Stewart Living Omnimedia, there may be stranger reasons for the cloudy phrasing. “My belief,” says an MSLO insider, “is that Martha does not want to be perceived as someone who wants to sell the company, so if it doesn’t sell, it won’t be perceived as a failure.” More weirdly, an institutional schizophrenia may be playing out, where the board wants to sell the company and Stewart doesn’t. Indeed, no sooner had the press release gone out than new COO Lisa Gersh went off-message, telling the New York Post, “It is not our stated intention to sell in any way.”

The company does have significant assets. For all its travails, it has proved able to innovate, creating iPad apps successful enough that Apple and Adobe use them in their ads; Stewart has 2.3 million Twitter followers. The Martha Stewart brand remains hugely iconic. The company has a vast library of evergreen how-to content that can be repurposed for years to come. Its ­major merchandising partnerships are growing, and last week, on the company’s lackluster second-quarter earnings call, Koppelman sketched a future of robust international growth.