Sequential Brands Group, Inc. is slated to acquire Martha Stewart Living Omnimedia, Inc. in a transaction that transforms both businesses.
The deal at $6.15 a share, in a half-cash and half-stock transaction, has an enterprise value of roughly $350 million. Actual value of the deal, given that 50 percent of the purchase is through stock, won’t be known until the transaction closes. The boards of both firms have already approved the merger agreement.
The deal is expected to close between the next three to six months. That will enable MSLO to have what is known in acquisition parlance as a “go-shop period,” which is traditionally 30 days. The “go-shop” period allows the targeted company, in this case MSLO, to see if there are better offers forthcoming.
Domestic doyenne Martha Stewart, who controls an 89 percent stake in MSLO, will continue to serve as the chief creative officer of the brand she founded. She will also become a significant shareholder in the brand management firm, and will become a board member of Sequential when the deal closes.
Stewart said, “This merger is positioned to further the growth and expansion of the unique Martha home and lifestyle brand.” She added that the deal with Sequential would allow for expansion of MSLO’s merchandising business domestically and overseas.
Yehuda Shmidman, chief executive officer of Sequential, said, “Looking ahead, we believe that we can leverage our global activation platform at Sequential in partnership with Martha and her team to develop the next chapter of growth for the Martha Stewart brand.”
After the deal closes, MSLO will no longer be an independent company, while Shmidman will have a new vertical under its umbrella. MSLO is the largest transaction for Sequential so far. MSLO’s home portfolio, when added to Sequential’s existing fashion, lifestyle and active categories, will generate about $3.75 billion in annual worldwide retail sales for the brand management firm. That makes it the third player in the licensing arena among the brand management firms, after Iconix Brand Group and Authentic Brands Group.
Sources familiar with the plans for the brand said Sequential is already eyeing category expansion for the Martha Stewart brand, as well as overseas placement. Details are likely to be disclosed once the transaction closes, one individual said.
The home lifestyle firm in October transitioned to a licensing model when it licensed its publishing operation, with the exception of creative content, to Meredith Corp. The publishing segment has historically been the largest business segment for the firm, and accounted for 58 percent of revenues this year. It is believed that the creative content component of the publishing segment will remain intact under new ownership with Sequential, according to one source familiar with the talks.
Forty percent of MSLO’s revenues are from its merchandising operation, which includes licensed product at The Home Depot, Macy’s, J.C. Penney, Staples, Michaels and PetSmart. The company also acquired the Emeril Lagasse franchise in 2008, which includes programming, licensed kitchen products and food products.
Broadcasting revenues, the third component of the MSLO business, represent just 2 percent of last year’s total revenues.
MSLO ended 2014 with a net loss of $5.1 million, or 9 cents a diluted share, on net revenues of $141.9 million. That’s compared with a net loss of $1.8 million, or 3 cents a diluted share, on net revenues of $160.7 million in 2013.
Shares of MSLO fell 12.3 percent to close at $6.12 in Big Board trading, while shares of Sequential slipped 1.1 percent to $16.82 in Nasdaq trading.