Martha Sentencing Affects Related Stocks

07.16.2004

The sentencing of Martha Stewart on Friday had an almost immediate impact in trading on three stocks linked to the domestic diva: Martha Stewart Living Omnimedia Inc., ImClone Systems Inc., and Kmart Holding Corp.

Stewart was given what many believe was a lighter-than-expected sentence of five months in prison, five months' home confinement and two years of probation. This was less than the 10- to 16-month prison term usually associated with the crimes of which Stewart was convicted. Investors now armed with the final outcome began taking positions in the three companies she had varying degrees of involvement with.

Stewart resigned as CEO of Martha Stewart Living Omnimedia Inc., once a $1 billion media empire, when she was indicted in 2003. She gave up her seat on the board after her conviction, but remains founding editorial director.

Shares of the company rallied during the two days leading up to the sentencing. On Thursday, investors sent the stock higher by as much as 6 percent on speculation the judge might hand Stewart a lighter sentence. The first few minutes of trading on Friday - just as Stewart entered the courthouse to cheers from fans gathered outside - shares moved higher by about 3 percent.

Once the sentence was handed down, shares of the company spiked by more than 21 percent. The stock was recently trading up $1.87 to $10.51.

Stewart was convicted March 5 of lying to investigators, conspiracy and obstruction of justice relating to her holdings in ImClone stock just before it plunged in 2001. Her former stockbroker, Peter Bacanovic, also will be sentenced Friday for his involvement in the transaction.

The tip to sell shares came after former ImClone CEO Sam Waksal began dumping his own stock. Waksal, who is a friend of Stewart, is now serving a seven-year, three-month term for securities fraud, conspiracy, obstruction and perjury in a federal prison camp in Pennsylvania.

Shares of ImClone were left devastated after the scandal broke, but the stock has rallied back along with other biotechnology shares during the past year. ImClone has since surged back from a 52-week low of $31.64 hit last October.

ImClone, which was higher by about a half percent in the minutes leading up to the verdict, saw shares move down 69 cents, or 0.8 percent, to $79.20 after the sentence was announced.

Meanwhile, Kmart has been one of the top sellers of Stewart's home products line. The company recently extended its partnership by two years, until 2009, and expanded the amount of items sold. Shares of Kmart were slightly lower ahead of the sentencing, and moved down $2.24, or 2.8 percent to $77 shortly after the sentence was announced.

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