Glenayre Technologies, Inc. (NDAQ:GEMS) shares jumped $0.18, or 8.18%, to $2.38 today after Daniel Loeb's Third Point disclosed a 6.3% stake in the company and demanded that the company immediately put itself up for sale.

Daniel Loeb is well known for unlocking value in his funds' investments through shareholder activism. This typically involves authoring letters to boards of directors and replacing them in proxy fights if they do not heed his demands. And it works - his hedge fund has returned an annual average of 28.9% between 1995 and 2005, beating both the market and most other hedge funds!

So, what does he see in Glenayre? Well, the company is currently set on an acquisition-based strategy that Loeb insists will run it into the ground. The company's SG&A spending - which includes executive compensation - is simply too high for a company of its size. The company also has $355 worth of net operating loss carryfowards (NOLs) that can be used to offset future income.

Given the elimination of these costs (along with compliance costs for Sarbanes-Oxley) and the addition of the NOLs' value, Loeb suggests that the company currently trades at less than 2x adjusted EBITDA. This would make it a logical buyout target for strategic or financial buyers at a considerably higher valuation. Consequently, Loeb suggests that the board can best maximize shareholder value by putting the company up for sale.

Whether or not this occurs depends on how close the board is to management. However, if no action is taken, Loeb said at the end of his letter to the board that he would explore all legal and other options to combat them - including removing them from office. This makes GEMS a stock worth following!

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