Cost-U-Less, Inc. (NDAQ:CULS) responded to requests made by two activist hedge funds yesterday in an 8-K filing with the SEC. The two hedge funds had pointed out the many problems with Cost-U-Less operations and suggested that the company consider putting itself up for sale in order to unlock shareholder value. They suggested that shares of CULS could be worth in excess of $12 per share in the event of a buyout. After not receiving any communication from the company, they threatened a proxy contest in order to more actively generate a response or action.

This worked today as the company finally issued a press release explaining its position. The company explained that its board of directors had contacted investment banks and other advisers in several instances in order to help them evaluate strategic alternatives and increase shareholder value/liquidity. Clearly, most of these evaluations did not result in anything material; however, their most recent financial adviser proves to be quite interesting. The company revealed that in November 2006, it engaged its current financial adviser, Cascadia Capital, LLC, to assist the board in exploring a range of strategic alternatives.

This could prove to be interesting because Cascadia Capital is a Seattle-based investment bank is a nationally recognized M&A advisory practice, which suggests that they may be exploring an M&A transaction. This could include a possible sale of the company or perhaps an acquisition or merger of their own. Unfortunately, the company has a policy in place that prevents it from commenting publicly on the nature or content of their ongoing deliberations, so it's impossible to tell which options they are exploring. However, given Delafield's offer to purchase the company and other interest, we can hope that a sale of the company is at least being considered. This makes CULS a stock that is worth following over the next few months!

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