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Out of Prison, Martha Stewart May Now Face A Tougher Trial

According to the company's most recent proxy statement, Stewart owns about 30 million shares, or about 61 percent of the total number of shares outstanding. The company's stock has soared in advance of Stewart's release, closing yesterday at $33.95, up $1.91, after falling as low as $5.26 on Oct. 9, 2002, when Stewart's ImClone stock sale scandal was in full flower.

But some Wall Street analysts and professional investors view the shares as overhyped and overpriced. Some say the stock has been boosted by a "short squeeze" in which investors who bet that the stock they had borrowed would fall have been forced to buy shares to limit their losses.

_____Live Discussion_____
Transcript: Newsweek senior writer Charles Gasparino was online to discuss the release of Martha Stewart from prison and the future of her business.
While Stewart's Stock Soars...Her Empire Takes a Hit Shares of Martha Stewart Living Omnimedia Inc. Have risen 187 percent since Stewart's sentencing. But with Stewart behind bars and off the air, total revenue was down in 2004.
Photo Gallery: Martha Stewart Released From Prison
Video: Wasting no time, Martha Stewart left prison early Friday and quickly set her sights on rebuilding her homemaking empire after serving a five-month sentence for lying about a stock sale.
Video: The Washington Post's Jerry Knight discusses corporate scandals and compares Martha Stewart's crime with those of Worldcom's Bernard Ebbers and Tyco's Dennis Kozlowski.
_____Martha Stewart Coverage_____
Martha Stewart Begins Life Outside Prison (The Washington Post, Mar 4, 2005)
As Curtain Comes Down, 'NYPD Blue's' Viewership Goes Up (The Washington Post, Mar 3, 2005)
Martha Stewart To Leave Prison With New Image (The Washington Post, Feb 28, 2005)
Complete Trial Background

On the positive side, anecdotal reports suggest advertisers are warming up to the company's flagship magazine, Martha Stewart Living. But it will be at least a couple of months before it becomes clear whether the title can fatten up to its pre-stock-scandal size. That won't be easy, as magazine racks now teem with good-living guides such as Real Simple and O, the Oprah Magazine.

And, in addition to her "Apprentice," Stewart will host a daily lifestyle show that will air on most NBC affiliates. Stewart supporters cite high demand for the show as an indication that the public will warmly embrace a post-prison Martha. Unlike the "Apprentice" spinoff, which will be unaffiliated with the company, Martha Stewart Living Omnimedia will receive much of the advertising revenue from the daily syndicated show, which is to begin airing in September.

That would also boost a sagging part of the company's balance sheet. With Stewart in prison and off the air, television revenue in the fourth quarter dropped to $1.1 million from $5.9 million a year earlier.

Among bright spots cited by Lyne and others, the company launched the "Everyday Food" television show on PBS in January, building on the success of Everyday Food magazine, which Lyne said was growing quickly.

Lyne also said she would focus on packaging the company's "evergreen" media products, such as how-to cooking and entertaining videos for delivery over multiple media devices.

And Lyne said Stewart's "Apprentice" show would draw more people to the brand and bear little resemblance to the current version, with Donald Trump's signature boardroom firings.

"Within the basic format I think there is a lot of leeway for her to create a show that is comfortable for her tonally and features tasks that are more in keeping with the creative work of a company like ours," Lyne said.

If Stewart were allowed to become chief executive again, some corporate consultants say it would be a bad idea, especially with an executive as talented as Lyne already in the slot and because it might derail the company's efforts to make itself about more than just Martha.

Instead, consultants say, Stewart should give up control of day-to-day operations and allow the company to chart its post-Martha future.

White reported from New York; Ahrens reported from Alderson, W.Va.

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