Griffon Corp. (NYSE:GFF) received some advice today from the Clinton Group who revealed a 5.2% in the company along with a series of recommendations to unlock shareholder value. The activist hedge fund said that the current stock price does not reflect the value of the company's operating subsidiaries, which is a notion that the company has also acknowledged. Consequently, the Clinton Group offered to help the company explore strategic alternatives, which include a potential tax-free spin-off of some or all of the companies subsidiaries or privatization of the company.

The hedge fund elaborated in a letter attached to their 13D filing:

"We greatly appreciate you and Mr. Edelstein taking the time to discuss with us Griffon Corporation  (Griffon or the Company) and its prospects, and we are pleased with management's willingness to listen to shareholder ideas and opinions. Currently, funds and accounts managed by Clinton Group Inc. (Clinton) beneficially  own in excess of 5% of the outstanding shares of the Company.

We have been impressed with the franchise that management has built, and continue to appreciate management's eye towards returning shareholder value through steady share repurchases. We have invested in Griffon because we believe the market price of Griffon shares fails to reflect the true value of the Company's operating subsidiaries, if they were to be valued on a stand-alone basis.

Given the apparent disconnect between each segment's intrinsic value and the Company's current stock price, we were pleased to hear on last quarter's conference call that management was proactively reviewing strategic alternatives with respect to the defense segment. We hope to work constructively with management to continue to evaluate multiple strategic alternatives, including, but not limited to, a tax-free spin-off or sale to strategic acquirors of one or more of Griffon's subsidiaries, or a going-private transaction for the Company. Given the market leading positions of Clopay Corporation's garage door division and  specialty films division, as well as Telephonics Corporation's well positioned and growing defense segment, we believe any of these initiatives, or a combination thereof, would unlock significant value for existing shareholders.

Based  on our due diligence, we firmly believe that competitors in each respective segment both hold the Company's subsidiaries in high regard and have tremendous strategic interest. Additionally, a publicly traded comparable company analysis as well as our due diligence supports the notion that ample demand would exist for Telephonics Corporation in the public market as a stand-alone company.

Our analysis ultimately suggests that fair value for Griffon's stock approximates $31-$35, prior to certain adjustments as footnoted below:

[Click Here to View Table in SEC Filing]

We enjoyed meeting with you and hope to continue an open and constructive dialogue. To that end, please feel free to call me at 212-377-4224 or Tobin Kim, Vice President, at 212-739-1830, anytime to discuss any and all issues further at your convenience." (Read More)

The Clinton Group's analysis (along with the company's own suspicions) is correct - the breakup value of the company is greater than the value currently reflected in the share price, based on industry valuations. With management already exploring ways to unlock this value and the Clinton Groups expertise in this area, there is good chance that this value could be unlocked in the near term. The company is currently trading at $25.66, after moving up over 6% today on the news. The valuation calculated by the Clinton Group suggests that the share price could reach $31 to $35, meaning a 20.6% to 36.2% premium over today's prices. While this process may take several months and there is no certain decision by the company's management, this stock is definitely one worth watching into 2007.

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