Micrel, Inc. (NDAQ: MCRL) may be providing power for its customers, but its shareholders have been feeling rather powerless. All that's about to change after a large activist hedge fund expressed its disappointment in the company and demanded that it immediately explore strategic alternatives in a Schedule 13D/A filing with the SEC. The news comes after shares have rallied off of their lows but continue to underperform the market.

Obrem Capital Management, which owns 9.6% of the company, believes that the shares are substantially undervalued and demanded the board take action to proactively enhance shareholder value. The hedge fund blasted management for failing to create shareholder value over the past decade despite the company's multiple competitive strengths. Obrem attributes these failures to a number of reasons that can be easily remedied via an acquisition.

Micrel operates from a strong technology platform with an attractive customer base and a solid reputation within the semiconductor industry. Unfortunately, the company's insufficient scale, poor outsourcing strategy, and bloated cost structure have caused problems. Micrel lags its peers in revenue growth, earnings growth, operating margin, and share price performance despite its multiple competitive advantages.

Obrem recommended that the board seek to unlock value by selling Micrel to a strategic buyer. The problems could be easily resolved in an acquisition through an increase in manufacturing scale and lower costs realized thanks to economies of scale. Additionally, the valuable customer base, top-notch technology, and strong balance sheet would ensure a healthy premium.

In the end, Micrel is a company that is trading below value thanks to problems that could be easily solved through an acquisition. Obrem is hoping that the board will at least setup an independent special committee to examine strategic alternatives, but it will be interesting to see whether or not the company sees eye-to-eye. This makes MCRL a stock worth watching!

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