UPDATE 4-Martha Stewart Living may sell itself, shares soar

Wed May 25, 2011 3:55pm EDT

* Hires Blackstone to examine options

* Approached about partnerships, investment deals

* Martha Stewart expected to rejoin board in third quarter

* Shares jump 23 percent (Adds comments from Stewart, analyst)

By Paul Thomasch

NEW YORK, May 25 (Reuters) - Martha Stewart, the home decor and cooking doyenne, may sell her company or find a partner for it after hiring bankers to explore its options.

Martha Stewart Living Omnimedia's (MSO.N) move to hire the Blackstone Group (BX.N) -- news of which sent shares of the company up more than 20 percent -- comes after several years of sales declines in its magazine publishing, television and merchandising businesses. Between 2007 and 2010, revenue fell by more than a quarter.

The company, whose stock market value is just above $200 million, said on Wednesday that it hired Blackstone after other parties approached it about becoming a partner or investing in it.

Martha Stewart Living cautioned that there is no guarantee that any transaction or partnership would happen.

No one has made an offer for the entire company, a source familiar with the situation said, adding that founder and controlling stockholder Martha Stewart would prefer a partnership or investment to an outright sale.

Stewart, who turns 70 this year, will rejoin the board. She said in an interview that her interest in the business has not diminished. She left the door open to a number of moves.

"There are a lot of very interesting opportunities both domestically and internationally for this company," she said. "What we are going to focus on is all those opportunities -- and really focus on them."

Analysts said the company's options could range from partnerships with other media companies, such as Time Warner Inc (TWX.N) or John Malone's Liberty Media Corp LINTA.O, to transactions that would take the company private, following the lead of publishers such as Playboy Enterprises.

"They are too small to be big, and too big to be small," said Phoenix Partners Group analyst Robert Routh. "As a standalone company, do they have the leverage to get all of the cost efficiencies and revenue opportunities they should? As part of a larger organization, that would be a piece of cake."

Stewart, who served a prison sentence after being convicted in 2004 of lying to investigators about a stock sale, has been unable to serve on the board or work as a top executive under the terms of a settlement securities regulators. Those restrictions end in August, and she is expected to rejoin the board in the third quarter.

"I would imagine if they are exploring strategic options, including a sale, she would like to be on the board and part of that decisionmaking process," said Noble Financial analyst Michael Kupinski.

Running the company day to day will be left to Lisa Gersh, a co-founder of Oxygen Media, who has been hired as the company's chief operating officer. She is expected to assume the role of chief executive within 12 to 20 months, the company said on Wednesday.

Once a company whose stock traded around $30 a share, Martha Stewart Living has struggled to draw advertising dollars, and has turned over top management and laid off staff over the last several years.

But analysts say the company has made strides. Advertising has improved dramatically, which should help publishing.

It also has a deal with Crown Media's Hallmark Channel to develop programs and recoup production costs more quickly than in previous agreements. It also struck merchandising deals with partners including Home Depot (HD.N), PetSmart (PETM.O) and Macy's (M.N).

"I've been saying for some time that once the company had some of its ducks in a row, that they they would explore options," said Kupinski.

Phoenix's Routh said he, too, was unsurprised by Martha Stewart Living's decision to hire bankers.

"If you're management, and you see this growth over the next two to three years, and the public markets don't see it, wouldn't you consider taking the company private or doing something strategic?" he said.

Shares of Martha Stewart Living were up 87 cents at $4.64 after reaching $5.10 on the New York Stock Exchange. (Additional reporting by Megan Davies. Editing by Maureen Bavdek, Dave Zimmerman and Robert MacMillan)