Radyne Corporation (NDAQ: RADN) shares spiked yesterday after Monarch Activist Partners voiced their support for Discover Group in its attempt to gain control of two board seats, despite an announcement that the company was already exploring strategic alternatives. The activist hedge funds believe that the company’s management may have an inflated sense of value and may resist reasonable offers made by potential suitors. As a result, they want to appoint their own directors to oversee the process and ensure that the company respects the rights of shareholders. So, is this entire situation one worth watching?

Radyne announced earlier this month that they had retained Needham & Co. as their financial advisor to assist it in exploring strategic alternatives, including a possible sale of the company. The firm had previously assisted the company in evaluating inquires received from time to time from prospective suitors. The company has not yet set any time frame for the conclusion of this process, but many shareholders are hoping that it can be completed within the next 3 to 6 months given that the company is already “in talks with various parties”. Many believe that the offer must come in at a 40 to 50 percent premium in order for current management to even consider selling the company.

Here’s the most recent letter sent by Monarch:

Monarch Activist Partners (Monarch) strongly agrees with your recent announcement to explore strategic options. We hope this news marks the beginning of actions that are more conducive to the best interests of Radyne’s shareholders.

The purpose of this letter is to address the February 13, 2008 13D filing by the Discovery Group LLC, a beneficial owner of close to ten percent of the company. We urge the board to amicably resolve Discovery’s request and appoint the two nominees to the Board immediately. Despite the announcement to explore strategic options we believe management potentially has an inflated sense of value that can be delivered under their tutelage and may resist reasonable offers given the company’s current position and marketplace conditions. Most importantly, a costly and protracted proxy contest does nothing to benefit shareholders and only furthers the rift between management and the company’s most significant owners. If the strategic alternatives process is open and fair, the Board and shareholders can only gain by appointing Discovery’s nominees.

We hope you give this request your full consideration.

In the end, this is all great news for RADN shareholders who have been suffering with subpar returns for some time now. Since the company is already in talks, we can assume that there are many buyers that are interested in the firm. The real question is how high management expectations are set. If Discovery is able to install its own board members, then there is a high likelihood that we will see a sale. Otherwise, it will be interesting to see what kinds of offers come in and how management responds to them. Regardless, this is definitely a company that is worth watching during the next few months!

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