Twin Disc (NYSE:TWIN) said today in an 8-K filing with the SEC that a sale of the company would not be in the best interest of its shareholders in response to a hostile Schedule 13D filing by an activist hedge fund that demanded a sale of the power equipment manufacturer.

Clarus Capital Group Management disclosed a 5.1 percent stake and a letter to the company requesting that the Board of Directors immediately retain a prominent investment bank to explore various alternatives for enhancing shareholder value, including a more aggressive stock buyback and an outright sale of all or part of the company.

"For some time we have been concerned that Twin is a publicly traded company that is largely run as a privately held company," said fund manager Ephraim Fields. "Twin has an overcapitalized and suboptimal balance sheet, an illiquid stock, no sell-side equity analyst coverage, and an unresponsive Board."

Many shareholders are hoping that Twin Disc will take the advice and take action to unlock value. Studies have shown that activist targets have outperformed the overall market when the companies take the recommended actions - an increased buyback or spin-off could unlock substantial value. However, in some cases activist goals can be overly focused on the short-term and hurt long-term growth and objectives.

According to a company statement today, "[We do not believe] incurring debt in order to satisfy the short-term objectives of certain investors was consistent with its long-term interests."

It is not clear how set Claris is on forcing a deal - some activist hedge funds go so far as launching proxy contests to get their proposals enforced. This situation definitely makes TWIN a stock worth watching!

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