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The young women oohing and ahhing the chunky platform shoes and funky snakeskin boots at the Steve Madden store in Garden State Plaza mall in Paramus, N.J., may well know that Madden, founder of his eponymous shoe concern, is hip-deep in legal troubles — after all, it was all over the tabloids and broadcast news. They maybe even know he faces potential jail time. Yet on a recent weekday afternoon, it’s only the shoes that matter. His store is packed with eager shoppers and there’s a line at the register. These should be good times for Steven Madden, 42. His company, Steve Madden Ltd. rang up sales of $152 million for the first nine months of this year, a 34 percent jump over the same period last year. In the latest quarter, ending Sept. 30, sales grew 23 percent and profits increased 33 percent. Madden has 64 free-standing stores as well as prime selling space in the country’s top department stores. Analysts say in the fragmented shoe business, Madden is a powerhouse brand. The company counts Chelsea Clinton and talk show host Ricki Lake among its loyal customers. Says Joe Teklits, an analyst who follows the company for Ferris, Baker Watts Inc. in Baltimore, “Madden is one of the strongest fashion brands out there now. They could easily double their store base in the next three years.” But there’s plenty of turmoil at Madden’s headquarters in the Long Island City section of New York’s borough of Queens. In June, the bachelor shoe mogul was charged with multiple counts of conspiracy, securities fraud and money laundering in two separate indictments. Federal prosecutors allege that Madden helped two now-defunct brokerage firms manipulate the prices of 22 initial public offerings, including that of his own company in 1993. They say Madden was given large blocks in companies the firms were taking public, and in return, he would “flip,” or sell back the shares to the firms at pre-arranged prices after the stock began to trade. Madden allegedly profited from these agreements and enabled the firms to control the “float” or the outstanding shares of the IPO. Madden is also charged with opening accounts with one of the brokerages in order to buy and sell securities as an undisclosed nominee for the founders, and then sharing profits with those founders by making large cash payments to them. Madden, through his attorney, has denied the charges, but was asked by his board of directors to relinquish the chairman’s title as he prepares for trial in April. The company has not been charged with any wrongdoing. SHOPPING AROUND Now, Madden is shopping his company around. In early October, Bear, Stearns & Co. was hired to “assist in exploring strategic alternatives to maximize shareholder value” says acting chairman Charles Koppelman, an outside director since 1998. “The stock price simply does not reflect the health of the company.” That’s for sure. Since the news broke in June of Madden’s legal troubles, shares of the company have been pummeled. The stock now trades at about $8, well off its high of $22.69 in April. Even news of Bear Stearns’ involvement failed to cheer Wall Street: The stock ticked up a meager 13 cents on the announcement. As for Madden, his 18 percent stake in the company is now worth about $19 million, a $33 million paper loss over seven months. Even so, Madden is a long way from his days as a University of Miami drop-out living with his parents on Long Island. In 1978 he took a job selling shoes at a local store called Jildor. He was a good salesman, but his real talent came from talking with the store’s young customers, figuring out what they liked. That attracted the attention of a New York shoe wholesaler L. J. Simone, who hired Madden to push its brands to other retailers. When Simone ran into inventory problems, Madden started sketching shoes himself, working with a pattern maker to come up with such then-unusual designs as platform Mary Janes and pink and white penny loafers. His ideas were so successful that another shoe manufacturer offered him the deal of a lifetime: If he did the designing, they would buy all the raw materials, manufacture and ship the goods, put his name on the label and pay him 10 percent of the profits. By 1991, Madden was an established brand in Macy’s and Bloomingdale’s and with savings and money borrowed from friends, finally struck out on his own. Two years later he took the company public. HEALTHY TAKEOVER CANDIDATE Just how Madden plans on boosting its share price at this point is still unknown. Koppelman says the company would consider a strategic alliance with another company or an outright sale. In fact, since being named acting chairman in June, Koppelman says his phone “has been ringing off the hook. Smart people know what this company’s about and the strength of the brand,” he says. Of course, he won’t identify all those folks at the other end of the receiver. And Bear Stearns declined to comment. Given that its stock price has taken a hit, how much would the company fetch in a sale? And to what degree would that question hinge on how closely Madden himself is tied to the future success of the business? With a market value of $98 million, no long-term debt and $24 million in cash, the company is � financially — a healthy takeover candidate for another shoe company, or a hip sportswear company looking for a way into trendy footwear. Says one analyst who asked not to be named: “If you want to get into the hot end of the shoe business, Madden is the company you’d want to own.” But do you want to own it if Madden is not around? If convicted of the securities fraud and money laundering charges, he could receive a long prison term. The Securities and Exchange Commission also has asked that Madden be barred from serving as an officer of a public company – including his own. As with any company headed by a marquee name — Polo Ralph Lauren Corp., Tommy Hilfiger and Martha Stewart Living Omnimedia Inc. come to mind — there’s always the danger of the brand losing its luster if the founder’s vision is replaced with someone else’s. Koppelman rejects the notion. “For the past two to three years Steve has moved away from the day to day running of the company, to focus more on strategic moves and building the firm’s esprit de corps,” he says. “There should be no concern that this brand will be around for many years to come, even if Steve isn’t.” Copyright (c)2000 TDD, LLC. All rights reserved.

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