Wall Street likes the idea of an acquisition of Martha Stewart Living Omnimedia Inc. by Sequential Brands Group Inc.
Shares of Sequential on Friday rose 5.7 percent to close at $17.00 in Nasdaq trading, one day after sources confirmed to WWD that the two firms were talking. A source close to Sequential said on Friday those discussions were continuing, although range for the purchase price couldn’t be immediately determined. MSLO, after Thursday’s market close, had a market cap of over $350 million. Shares of MSLO on Friday climbed 8.4 percent to close at $6.98 in Big Board trading.
Steven Marotta, analyst at CL King, said the purchase of MSLO “fits nicely in Sequential’s wheelhouse.” Sequential’s most recent acquisition – that of Jessica Simpson, which closed less than eight weeks ago – has already been fully integrated in with Sequential’s operations. “We further believe the swiftness of the assimilation is a result of the depth of maangements’ cumulative experience. As such, it is in our opinion, that they are ready for another acquisition,” Marotta said.
Wunderlich Securities Inc.’s Eric Beder said, given the shifts at MSLO, “we believe a deal would make sense.” He noted that given MSLO’s market cap, “this acquisition would be a game changer for Sequential and would firmly position the company as the second largest – and growing – licensing player.”
Although MSLO would be the largest transaction for Sequential so far, Beder said Sequential has strong support from its lead lenders Bank of America and Blackstone Group, and he believes the deal could be financed. He also said Sequential can help MSLO expand internationally.
MSLO was in talks with Authentic Brands Group earlier this year, but nothing came of those talks. The home lifestyle firm in October last year transitioned to a licensing model when it licensed its publishing operation to Meredith Corp. The publishing segment has historically been the largest business segment for the firm, and accounted for 58 percent of revenues last year.
Forty percent of MSLO’s revenues are from its merchandising operation, which includes licensed product at The Home Depot, Macy’s, J.C. Penney and PetSmart. The company also acquired the Emeril Lagasse franchise in 2008, which includes television programming, licensed kitchen products and food products.
Broadcasting revenues are just 2 percent of last year’s total revenues.
MSLO ended 2014 widening its net loss to $5.1 million, or 9 cents a diluted share, from a net loss of $1.8 million, or 3 cents, in 2013. Total revenues slipped 11.7 percent to $141.9 million from $160.7 million in 2013.
Domestic doyenne Martha Stewart controls the company, and as of Feb. 28, 2015, holds 89 percent of the outstanding voting power of the company’s common stock. She serves as chief creative officer and nonexecutive chairman.