Take-Two Interactive (TTWO) may have more than its restructuring to deal with as billionaire activist investor Carl Icahn continues to amass a stake in the troubled gaming company. Mr. Icahn added more than 300,000 shares to his position throughout February and now owns nearly 11 million shares through his various investment vehicles.

“I’m a firm believer in the long-term potential of the company, and from a corporate governance point of view I applaud the current board for its responsiveness,” said Mr. Icahn in January when he was seeking board seats. However, the activist has yet to directly come out and detail its plans for the company, although some analysts expect him to push for a sale.

Carl Icahn is also actively pushing for changes in Lions Gate Entertainment (LGF) where he made a hostile bid to increase his stake in the firm. In an interview, the activist expressed concerns that the company would pay too much for acquiring a library like MGM or Miramax, especially in light of the decline in value of libraries as a whole.

Whether either of these bids prove to be successful in unlocking shareholder value remains to be seen, but many investors remain bullish on the activist’s success in the past.

Investment Partners Asset Management, which owns 86,845 Class A shares sent a letter to the company’s board of directors criticizing the company for not contacting shareholders over the past two years, since their third quarter 2007 results some 25 months ago. However, the firm believes that WNMLA may be trading at only a fraction of its tangible book value.

Here are some highlights from the letter:

“Unfortunately, as 2009 draws to a close, outside, minority shareholders of Winmill have not heard from you this year… or last year for that matter.  In fact, you have not updated your outside Class A shareholders with consolidated information since November of 2007 (25 months ago) when you released Winmill’s Third-Quarter 2007 financial results.  Given the financial crisis of the past 2 years and the increased scrutiny and skepticism of financial institutions during that same period, it is uncertain as to why you have not been more communicative.  One expects that a responsible board in this environment would proactively assure investors that measures are being taken to improve operations, grow revenues and enhance shareholder value.  To date, though, there has not yet been any message from your management directly to its outside minority shareholders during this tumultuous period.  With the stock, according to the last-sale price on the pink sheets from December 16, 2009 at $2.25 (down from more than $6.00 roughly two years ago), the current market capitalization of the Company is only about $3.71 million – representing only a fraction of my estimate of Winmill’s tangible book value.

“Your company still has a publicly-traded stock, and you have a fiduciary obligation to enhance shareholder value. Due diligence for shareholders is a continual process, and to that end, I request that you immediately release Winmill’s consolidated annual reports for 2007 and 2008, as well as resume quarterly updates.  Furthermore, you should hold an annual meeting where shareholders can have a productive dialogue to voice their concerns, better understand your company’s approach, and hear about your strategy for creation of shareholder value.  Also, your affiliated companies and funds should consider abandoning the protection provisions of Maryland Law (specifically the Maryland Control Share Acquisition Act) and any other poison pill provisions, as I suspect that these limitations on shareholders’ rights may be contributing to the discounts to book value of these companies’ share prices.  For similar reasons, I also think you should consider re-listing the shares of your holding company, closed-end funds, and affiliates on national exchanges - or at least move them up to a higher tier on the bulletin board, such as the OTCQX. Finally, in order to represent the interests of the outside minority shareholders, you should consider appointing an independent outside individual to Winmill’s board of directors.  To ensure independence, that new board member should be someone who is unaffiliated with your firm, its affiliates, its employees, or employees’ family members.

I am interested in seeing Winmill’s share price more accurately reflect the value of the company’s enterprise, and would expect that you also share this goal. Therefore, as 2009 closes, I would like to see Winmill’s board take this opportunity to improve communication and enact strategies to create value for the company’s outside minority shareholders.”

Osteotech, Inc. (OSTE) hasn’t exactly been the best performing medical technology companies in the market, and that has prompted some investors to write a letter to the board demanding changes. In a Schedule 13D filing filed on November 24th, Kairos Partners voiced its concern about the company’s results and recommended they seek strategic alternatives.

Here’s a copy of the letter:

As you know, Kairos Partners is a significant, long-term shareholder of Osteotech stock, owning more than 6%. We were greatly disappointed by the company’s Q3 2009 earnings release and investor conference call.

In addition to the poor Q309 results, the company lowered the revenue and earnings guidance for FY09 and, once again, announced a delay in achieving profitability until Q3 2010.

We believe the significant investments the company has made in product development have produced a strong new product portfolio. However, we also believe that Osteotech, as currently structured, is not well positioned to take full advantage of the commercial opportunity that these exciting new products present.

We have serious concerns regarding Osteotech’s limited capital resources, management’s historically poor performance in new product launches, and the lack of a direct sales force. We strongly believe that a larger and more experienced company would be able to recognize this opportunity and reward Osteotech shareholders today for their long patience.

As such, it is our recommendation to the Board of Directors that they hire a strategic advisor to explore all possibilities, including the sale of the company, as the best way to realize this potential value for all shareholders.

1. Improve its capital allocation process;
2. Concentrate on its core businesses;
3. Review its strategic alternatives for improving return on invested capital;
4. Increase transparency in public disclosure;
5. Strengthen the link between compensation and performance;
6. And enhance its corporate governance practices.
   

1. Declassify its board of directors;
2. Implement a majority voting standard for uncontested director elections;
3. Allow the company’s poison pill shareholder rights plan to expire;
4. Provide shareholders with the right to call special meetings;
5. And adopt an annual shareholder advisory vote on compensation.
   

Adaptec Inc. (ADPT) is facing increased pressure from an activist hedge fund that derailed its previously planned merger in 2007 and now wants to stop the company from making a large acquisition following a coup. Warren Lichtenstein’s Steel Partners, known for its hostile activism, said in its PRE14A filing with the SEC that it is now preparing for a proxy fight.

In private sessions that excluded four directors, Adaptec’s “legacy directors” appear to have adopted policies designed to preserve Mr. Sundaresh in his position as CEO despite his recent serious performance issues and to entrench Legacy Directors, who have overseen the destruction of significant shareholder value over the years.

Steel Partners believes that the legacy directors took the actions to pave the way for Adaptec to make a large acquisition utilizing a significant portion of the company’s cash on hand. Given the company’s poor financial performance and the recent history of ill-conceived acquisitions, the hedge fund doesn’t believe that Mr. Sundaresh should be permitted to continue with plans.

This scheme was carried out after the nomination deadline in connection with Adaptec’s 2009 Annual Meeting had passed, leaving Steel Partners with little choice to protect shareholder rights but to commence a consent solicitation. The hedge fund said it would drop the solicitation if its own directors were nominated and if shareholders would be given the opportunity to vote on any acquisition in excess of $100 million.

According to the solicitation, the proposals are:

Proposal No. 1 – Repeal any provision of the Amended and Restated Bylaws of Adaptec (“the Bylaws”) in effect at the time this proposal becomes effective that was not included in the Bylaws that became effective on May 6, 2009 and were filed with the Securities and Exchange Commission on May 12, 2009 (the “Bylaw Restoration Proposal”);

Proposal No. 2 – Remove without cause two members of Adaptec’s Board of Directors (the “Board”), Subramanian “Sundi” Sundaresh and Robert J. Loarie and any person elected or appointed to the Board to fill any vacancy on the Board or any newly-created directorships prior to the effective date of this proposal (the “Removal Proposal”); and

Proposal No. 3 – Amend Section 2.1 of the Bylaws, as set forth on Schedule I to this Consent Statement, to fix the number of directors serving on the Board at seven (7) (the “Authorized Director Proposal” and together with the Bylaw Restoration Proposal and the Removal Proposal, the “Proposals”).

Ladies and Gentlemen:

Today, Sandler Capital Management and related persons (“Sandler Capital” or “we”) will file a Schedule 13D with the United States Securities and Exchange Commission indicating that we beneficially own in the aggregate over 5% of the outstanding common stock of Bare Escentuals, Inc. (the “Company”). Sandler Capital, a Registered Investment Advisor since 1988, is an alternative asset management firm managing both hedge funds and private equity funds.  Sandler Capital currently manages approximately $850 million in assets including approximately $500 million within our hedge fund portfolios.

We are writing to you to express our concern regarding what we believe to be a great disconnect between the value of the Company and its brand, on the one hand, and the price at which the Company’s Common Stock currently trades, on the other hand. Since the Company’s initial public offering on September 28, 2006 at a price of $22.00 per share, the market price of the Company’s Common Stock has fallen approximately 60%.(1)  During the same period, the S&P 500 Index was down approximately 25% and the Russell 2000 Index was down approximately 20%. During the same period, the stock price of two of the Company’s peers, L’Oreal SA (“L’Oreal”) and The Estée Lauder Companies Inc. (“Estée Lauder”), fell approximately 26% and 10%, respectively.  The Company’s underperformance relative to the overall market and to its peers is similar on a trailing two year basis. In addition, based on analysts’ current consensus earnings estimates for both calendar years 2009 and 2010, the Company is currently trading at substantial discount to Estée Lauder and L’Oreal.  Compared to Estée Lauder, the Common Stock is trading at nearly a 60% discount on 2009 estimates and close to a 50% discount on 2010 estimates. Compared to L’Oreal, the Common Stock is trading at over a 40% discount to both 2009 and 2010 estimates. We note that although Estée Lauder and L’Oreal have net debt to EBITDA profiles that are similar to the Company’s, the Company has far superior return on assets.  The current disconnect between “Wall Street’s” perception of the Company as compared to the cosmetic industry’s perception of the Company is vast and in our opinion is being perpetuated by the actions and inactions of the Company’s board and management.

We would like to engage the Company’s board and management in an active dialogue to offer suggestions that we believe will enhance the value of the Company’s Common Stock.  We respectfully remind the board of directors, including affiliates of Berkshire Partners LLC (“Berkshire”), and Ms. Leslie A. Blodgett, of their duties to act in the best interests of all of the Company’s shareholders and we believe that the Company needs to alter its mindset in order to do so. A brief outline of some broad suggestions is included below.

1. Improve communication efforts with the investment community:  We believe that part of the value destruction that has taken place has been due to the Company’s lack of communication with the public investment community. Rather than shy away from “Wall Street,” we believe now is the time to communicate in a clear manner and attend various marketing events and non-deal road shows. In addition, we believe the Company and board should better communicate to investors anticipated large distributions of the Company’s Common Stock, particularly by inside private equity owners. Specifically, we cite the recent August 4, 2009, unannounced, haphazard distribution by Berkshire of just over 4 million shares of Common Stock.  This distribution was done without an underwritten offering and without a road-show.  We find this most disturbing because Berkshire has two seats on the Company’s board, including the Chairman, giving them a fiduciary duty to act in the best interest of all shareholders. We believe that this type of haphazard distribution of Common Stock skews upwards the volatility of the Common Stock, sharply depresses its price, and needlessly raises its beta.  These factors result in depressed earnings multiples. In our opinion, an underwritten public offering of such Common Stock would have produced a more desirable outcome than the arbitrary stock distribution that occurred. We cite the foregoing as a key example of the board and management not acting in shareholders’ best interests and the inherent conflict imposed on the Chairman of the board.
   
   
2. Utilize the strength of the balance sheet for buying back stock:  The Company’s balance sheet continues to strengthen and net debt to EBITDA now stands well below 1x. With the continued free cash flow, supported by return on assets in the 40% range, we believe the board should authorize a share buy back program, as permitted by covenants contained within the Company’s credit agreements.  Any such buy back at current valuations would be highly accretive to earnings. For example, according to our calculations, repurchasing Common Stock using this year’s estimated free cash flow would be very accretive to even conservative forward 12 month earnings per share estimates. If “Wall Street” will not recognize the value of the Company as evidenced by per share market price remaining at current levels, we believe the board should take advantage of the disconnect by authorizing the Company to buy back its Common Stock.
   
   
3. Explore strategic alternatives and sale of the Company:  We believe that the Company’s powerful brand, unique distribution strategies, including a growing boutique footprint, and burgeoning push into international markets, would be an attractive fit for a number of multi-national cosmetic companies.  If the disconnect continues, we would urge the Company’s board to form a special committee of the independent directors to actively seek strategic alternatives for the Company in order to maximize shareholder value.
   

We would appreciate and look forward to discussing these issues with you and with senior management in a cordial and productive manner. Given the urgency of these matters, we suggest that this occur as soon as possible.

Very truly yours,

Andrew Sandler
Managing Director
Sandler Capital Management