SEC Investor - Shareholder Activism

Barnes & Noble Faces More Activist Pressure

SECInvestor.com — Wed, 17 Mar 2010 19:07:53 GMT

Barnes & Noble Inc. (BKS), which primarily competes with Amazon.com, Inc. (AMZN), could face additional pressure from a new activist investor coming onto the scene.

Barnes & Noble Inc. (BKS), one of the largest booksellers in the United States, faces a number of competitive threats from a migration to the Internet for reading as well as larger online retailers like Amazon.com (AMZN). As a result, at least one activist investor is challenging the company to make key changes to enhance its business for the new century.

Since late last year, Ron Burkle has been aggressively buying up shares of the bookseller, which even led the company to adopting a poison pill to protect it from takeover. The activists latest move to double his stake to 37% of the troubled company would make him the largest shareholder, ahead of company insiders that own just over 30%.

In recent letters contained within 13D filings, Mr. Burkle characterized the company’s stock as undervalued and criticized the company for not letting him increase his stake without triggering anti-takeover provisions. Meanwhile, the company insists that it remains in a good positive, given the circumstances, and it has already made efforts to change.

While the activist investor hasn’t articulated his strategy to turn around the book seller, many investors are looking forward to the involvement brining some real change to a struggling company.

Blum Takes Stake in Macrovision (MVSN)

SECInvestor.com — Tue, 04 Sep 2007 18:52:32 GMT

Macrovision Corp. (NDAQ:MVSN) shares moved up marginally after Blum Capital disclosed a 5 percent stake in the company last Friday, according to a Schedule 13D/A filing with the SEC. Shareholders are hoping that the activist hedge fund will work with management to unlock value in the company.

What is in the cards for the software company? Well, Macrovision's balance sheet is extremely solid with $413 million in cash with only $240 million in total debt. Often times, hedge funds will look to distribute this spare cash to shareholders via a share buyback or special dividend.

The problem is that Macrovision is showing negative year-over-year cash flow growth of -80 percent with an EBITDA margin of 18.4 percent. This has many speculating that Blum Capital will step in to reduce the company's capital spending and distribute the spare cash to shareholders via a share buyback or special dividend.

Whether or not the hedge fund will be successful in implementing this strategy remains to be seen; however, with a growing 5 percent stake in the company they may have enough say to make it happen. Combined, these factors make MVSN a stock worth watching!

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RealNetworks Inc. (RNWK)
Sun Microsoft (JAVA)

Breeden Demands Change at H&R Block (HRB)

SECInvestor.com — Mon, 27 Aug 2007 13:27:08 GMT

H&R Block (NYSE:HRB) shareholders are gearing up for this years September 6th board meeting where they will be faced with a decision whether or not to vote for incumbent board members or a new slate of three directors proposed by ex-SEC head Richard Breeden's hedge fund, Breeden Capital Partners. Shareholders are hoping that these new directors can implement a series of changes designed to jump the company's stagnant share price.

Richard Breeden, who owns a 1.8% stake in the company, has attracted widespread support for his proposal to narrow the company's focus to just tax preparation services by divesting everything else. The company's long history of failed diversification efforts has frustrated many investors and led to a stagnant share price that has many ready for change. Among other things, Breeden demanded that the company shut down its thrift division and focus on selling off its mortgage businesses while focusing on tax preparation services.

Unfortunately, the poor credit markets might prove to be a hurdle for any move to divest. H&R Block's current deal to sell its One Mortgage unit to Cerberus Capital Management was recently delayed until December 31st, which has many worried that the deal will fall through. Meanwhile, many other financial and strategic buyers are finding it very difficult to obtain financing. The company's business units may also prove to be too small for spin-offs onto the public market.

Shareholders and analysts seem unphased, however, after three proxy advisory services recently came out in support of his candidates while other activists holding a cumulative 15% of the outstanding shares are also expected to vote in favor of change. Whether or not Breeden is successful remains to be seen; however, this is definitely a stock to watch given his past success in activist situations!

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Intuit Inc. (INTU)
Jackson Hewitt Tax Services (JTX)
Ameriprise Financial (AMP)

Unisys Draws MMI's Attention (UIS)

SECInvestor.com — Wed, 15 Aug 2007 14:13:34 GMT

Unisys Corporation (NYSE:UIS) is set to move higher today after MMI Investments filed to boost its stake in the company above 10 percent but not more than 15 percent. The Hart Scott Rodino Antitrust Act required the activist hedge fund to seek permission before making its purchase, which gives investors a chance to jump on the opportunity.

Unisys is a worldwide technology services and solutions company whose consultants assist clients with general consulting, systems integration, outsourcing, infrastructure, and server technology. The company's stock is currently trading at $7.53 slightly off of its 52-week high earlier this year of $9.70.

A glance at the financials shows that the company is trading slightly below enterprise value with a P/E multiple of 17x - below the industry's 24x. It is also worth noting that the company has approximately $520 million - or $1.49 per share. This has led to speculation that MMI may be interested in unlocking value for shareholders through a special dividend or share repurchasing using the company's substantial amount of cash.

Unfortunately, the company faces negative quarterly growth, a paltry 1.78% ROA and a -19.83% ROI. These numbers point to a company that is struggling to operate cleanly and efficiently and that is also facing problems extracting revenues from its customers. As a result, MMI may have to work to help the company turn itself around before any value can be had from the company's pile of cash. However, this situation is definitely one worth watching!

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China Security and Surveillance Substantially Undervalued (CSCT)

SECInvestor.com — Tue, 14 Aug 2007 15:55:56 GMT

China Security and Surveillance Technology (OTC:CSCT) shares may soon get a much needed boost from Conrad Bringjourn's Clinton Group. The activist hedge fund sent a letter to the company commending management's execution to date but cautioning that its shares were substantially undervalued. Shareholders are hoping that the hedge fund can work with CSCT to unlock value for everyone.

China Security and Surveillance is trading below its value for several reasons. First, the company is traded over-the-counter which makes it much less liquid and thus less preferable for investors. Secondly, there is very little in terms of analyst coverage or investor relations, which makes it difficult for investors to find the company. Combined, these factors have led to a company that is trading at just 12.1x consensus 2008 EPS with a PEG of only 0.4x - making the stock extremely undervalued given management's execution!

The Clinton Group offered to help the company obtain a timely listing on the New York Stock Exchange (NYSE) that would help it enable it to offer investors greater liquidity while also attracting more attention. More, E-House China's recent IPO on the NYSE and subsequent dramatic rise is a clear indication of Wall Street's appetite for successful Chinese firms. Shareholders are hoping for similar results from this company after a listing.

The Clinton Group offered to support and advise the company in finding two independent directors as well as introducing the company to equity research analysts and prominent investment banks. If successful in generating additional interest and liquidity in the company, CSCT could see a substantial rise in share value. This makes the stock one worth watching!

Cypress 50% Undervalued (CY)

SECInvestor.com — Fri, 10 Aug 2007 12:21:44 GMT

Cypress Semiconductor (NDAQ:CY) shares rose over three percent yesterday after Daniel Loeb's Third Point disclosed a 5.1 percent stake and demanded that the company address its undervaluation sooner. The activist investor insisted that the value of the company's semiconductor business has eroded an additional 15 percent and suggested that the company explore immediate options to unlock value.

Daniel Loeb believes that the company's shares are undervalued by as much as 50 percent, based on key metrics such as price-to-sales, price-to-earnings and free-cash-flow-yield as compared to its relevant semiconductor peers. Consequently, if the company were to take action to unlock this value, shares could rise as much as 25 percent in the near term.

Meanwhile, Cypress has already agreed to sell off its stake in Sunpower (NDAQ:SPWR) but set a timetable of no later than 2009. Daniel Loeb insists that there are tax-efficient ways of expediting this process to realize the value of this stake before 2009 and the company should immediately explore them. Since Sunpower makes up approximately 80 percent of the value of Cypress' stock, it is extremely important for them to find a way to effectively diversify their stake.

In the end, Cypress continues to be a great company dragged down by a chronic undervaluation. Shareholders are hoping that Daniel Loeb can successfully convince the company to sell its stake in Sunpower and unlock value for shareholders. This makes CY a stock worth watching!

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Texas Instruments Inc. (TXN)
National Semiconductor Corp. (NSM)
Integrated Device Technology (IDTI)

Trico Seeks to Unlock Value (TRMA)

SECInvestor.com — Wed, 01 Aug 2007 16:29:55 GMT

Trico Marine Services (NDAQ:TRMA) shares rose $0.82, or 2.31%, to $36.27 today after the company announced a $100 million share buyback program in which it will repurchase around 20% of its outstanding shares during the next 12 to 18 months in privately negotiated and open market transactions. Shareholders have been pushing for the overcapitalized company to return some of its $16/share in cash to its owners and this buyback is a great step forward.

Share buyback programs are one of the most popular ways for companies to return extra cash to shareholders. Repurchasing shares off of the open market both increases the stock price and improves financial ratios. Stock prices tend to increase since demand presumably remains the same while supply is shortened which causes price to rise. Meanwhile, the company's EPS is typically increased since there are less shares in the equation which improves ratios like P/E, ROE and ROA.

Shareholders also recently voiced concerns over the company's future direction. Sources in Norway told one investor that the company received an offer to sell their North Sea fleet at very attractive prices but the company failed to explore the opportunity. The same shareholder also said they had reason to believe that the company failed to exercise an option associated with a newbuilding contract despite the fact that the option itself could have been resold for a profit of $5-6 million. Clearly, the company has missed opportunities to invest and missed opportunities to divest - where is the company headed?

In the end, Trico is a healthy company with a large amount of cash on its books that failed to take advantage of some great opportunities at the expense of shareholders. Now the company appears to be turning itself around, however, with the introduction of a substantial share buyback program. TRMA is definitely a stock to watch going forward given their strong industry and new actions to unlock shareholder value!

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Peltz Hungry for a Buyout at $41/Share (WEN)

SECInvestor.com — Wed, 01 Aug 2007 15:31:24 GMT

Wendy's International (NYSE:WEN) shares jumped more than 7 percent yesterday after Nelson Peltz disclosed that Triarc would be willing to pay between $37 and $41 per share for the third largest fast food chain in the U.S. and the bid could go even higher if he was allowed to see confidential information. Shareholders have been waiting for such a buyout since April 24th, when the company first began exploring strategic alternatives.

The problem Peltz has been facing deals with the way financing on the deal is structured. Certain conditions in staple financing created a disadvantage for Triarc and other strategic buyers. Peltz wants to explore other means of financing, but is facing problems with the way the terms are structured. Meanwhile, he is also concerned about the confidentiality agreement that Wendy's is seeking to have signed as part of the sale process. The activist investor threatened to take more hostile actions against the company if they do not revamp the agreement to more reasonable terms.

Peltz's Triarc Cos (NYSE:TRY) is the parent company of competing chain Arby's and has long been considered a strategic buyer for the Wendy's chain. The activist investor also runs Trian Fund Management, which owns a 9.8 percent stake in the company and has been pushing the company to maximize shareholder value, including the spin-off of Tim Horton and the sale of Baja Fresh. The company is also considering the sale of Cafe Express.

In the end, the idea of a $41 per share or possibly higher buyout is great news for shareholders. And luckily, with Nelson Peltz behind the company, it will not likely give up in pursuing an acquisition despite difficult financing terms and an unreasonable confidentiality agreement. Combined, these factors make WEN a stock worth watching!

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Cache Trading at 30% Discount (CACH)

SECInvestor.com — Tue, 31 Jul 2007 15:17:04 GMT

Cache Inc. (NDAQ:CACH) shares rose $1.94, or 12.62%, to $17.31 today after the company announced a 6 percent rise in same-store sales along with a one million share buyback. The news comes just one day after Vardon Capital Management noted that the company was trading at 2/3 its private market value with $4 per share in cash and therefore should implement a share buyback program. Shareholders are extremely satisfied with the jump in same-store sales and clearly applauded the buyback announcement.

Cache is a specialty retailer of social occasion sportswear and dresses targeting style-conscious women. This month, the company acquired Adrienne Victoria Designs in a move that many applauded. There is some speculation that it was this acquisition that has provided the boost to sales and may help boost the company's operating margins and net profit going forward.

Meanwhile, Vardon Capital, which owns 9.1 percent of the company, said that the share buyback should help close the gap between the current market pries and its intrinsic value. The move will also help boost the company's earnings per share and ROA/ROE ratios. Finally, the company's mid-single digit operating margin has the potential to reach double digit levels through such initiatives as well.

So, why are shares up today? Well, the company's acquisition of Adrienne Victoria turned out to be a great decision while the company's share buyback announcement helps ensure that the company has confidence in itself going forward and is dedicated to closing the discount gap in its valuation. Combined, these factors make CACH a stock worth watching!

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Nabi Turnaround on Track (NABI)

SECInvestor.com — Mon, 30 Jul 2007 18:04:51 GMT

Activist investor Robert Chapman is betting big on Nabi Biopharmaceuticals (NDAQ:NABI) while pressuring the company to implement a three step plan aimed at maximizing shareholder value. Chapman's hedge fund revealed a 9.4 percent stake in the company with several large purchases made throughout the month of July. Investors are carefully watching this situation as any successful initiative to maximize shareholder value could pay some large dividends!

Chapman's proposed plan would involve three steps: (1) Pursuing an FDA approval of Nabi's BLA for Nabi-HB Intravenous, (2) distributing the proceeds from a sale of Nabi Biologistics to shareholders, and (3) partnering/licensing Nabi's vaccine pipeline. Recently, the company announced that it the second of two planned strategic business units while eliminating 5 percent of its workforce (resulting in a $3.3 million annual savings). Widespread shareholder support and pressure ensure that the restructuring will continue on schedule.

"These and other actions recently taken by the company are designed to facilitate our strategic alternatives and partnership process that maximize the value of Nabi and our pipeline," said CEO Leslie Hudson.

Robert Chapman was also satisfied, commenting, "Unlike many of our activist targets, Nabi is not yet worthy of our disdain or disgust. The company has taken the necessary steps to prepare for its restructuring and recapitalization. Nabi has bifurcated itself into two strategic business units that facilitate the successful completion of its strategic alternatives process being overseen by Bank of America Securities, and has committed to reduce further its cost structure and cash burn. These developments give Chapman Capital confidence that Nabi CEO Leslie Hudson is a man of his word, with that word being "execution" and not the formerly insuperable one of "vision" (talk)."

In the end, shareholders will have to wait to see whether or not this turnaround is successful. However, given the involvement of such large and successful activist investors along with support of the company itself, NABI is certainly a stock to watch during the next few months!

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Kraft Gets More Famous (KFT)

SECInvestor.com — Fri, 27 Jul 2007 17:53:53 GMT

Kraft Foods (NYSE:KFT) is now home to yet another famous investor as Warren Buffet joins the ranks of famed activist investors Carl Icahn and Nelson Peltz who have already built up sizable stakes in the company. Shareholders are hoping that the involvement of all these famed investors will result in extraordinary gains.

It is unclear whether Buffet, who owns less than 5 percent of the company, will side with the two activists in their plans for the company. Icahn and Peltz proposed a divesture of key brands in an effort to provide quicker returns for shareholders. There is speculation that they could face some problems with Buffet, however, given his track record of investing in companies undergoing a restructuring brands internally - he might be siding with management.

Many others insist that Buffet may simply be interested in the prospects of the spin-off combined with a strong brand. Historically, spin-offs have tended to outperform the larger market in their first few years as an independent company, especially when the company possessed a leading brand. Clearly, Kraft is a great fit for this type of strategy and so far the company's shares are up over 11% since the spin-off was completed last March.

In the end, this is definitely a unique situation given the involvement of so many famous investors that may even be on opposing ends of the spectrum when it comes to plans for the company's brands generating poor operating results. Combined, these factors make KFT a stock that is definitely worth watching!

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Citadel Pushes Against Sale of Gemstar (GMST)

SECInvestor.com — Thu, 19 Jul 2007 15:25:10 GMT

It's not often that an activist hedge fund pressures a company not to sell, but Gemstar TV Guide International (NDAQ:GMST) appears to be the exception to the rule! Citadel Equity Fund, the company's largest shareholder, noted in a letter to the board that they fully support the company's board and management but caution that their recent decision to explore strategic alternatives may be in error given the company's unique market position and strong prospects for the future.

Citadel believes that Gemstar is uniquely positioned at the nexus of exciting changes taking place in video entertainment consumption, including the transition from analog to digital distribution, new platform developments (IPTV, broadband and mobile), and significant opportunity to monetize hundreds of billions of impressions garnered each year on IPG (interactive program guide) through both advertising (display and search) and transaction based services.

Despite the company's strong position in this arena, the hedge fund insists that the company's stock fails to reflect (1) the current improved state of Gemstar's operations or (2) the opportunity for independent value creation over the next several years as an increasing number of platforms take advantage of Gemstar's unique intellectual property. While the hedge fund commends the board's decision to explore options, it does not believe any bids will be made that reflect the billions of dollars of incremental equity value that could be realized over the next few years.

Citadel is one of the world's largest hedge funds with its flagship funds returning nearly 30 percent per year. It was also the first hedge fund to go public to raise funds and allow owners to cash in on their stake. Given their strong equity performance and extreme confidence in management (so much so that they would forgo an immediate premium), we have good reason to add GMST to our stocks worth watching!

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Pirate Chops Down Angelica's Rebuttle (AGL)

SECInvestor.com — Wed, 18 Jul 2007 19:00:25 GMT

Angelica Corporation (NYSE:AGL) shares rose $0.24, or 1.08%, to $22.44 today after the company responded to Pirate Capital's request for the company to explore strategic alternatives. The news comes after the activist hedge fund pushed for the company to put itself up for sale in order to unlock shareholder value.

The textile rental company announced that it has already hired Morgan, Joseph & Co. to explore strategic options including a sale. As a result, the company requested that Pirate Capital immediately remove its proposal from the company's next proxy statement or it would request that the SEC allow it be removed due to redundancy.

Pirate Capital responded today, however, by saying that it had requested a nationally recognized investment bank to explore options - not a small firm that has pre-existing connections with the company. The activist hedge fund noted that Joseph Morgan has been involved with the company for more than 17 months now and nothing has been accomplished. Shareholders are not simply looking for more analysis; rather, they are looking for an investment bank that is willing to search for strategic alternatives to help unlock shareholder value.

In the end, Pirate Capital and many other investors remain unsatisfied with the company. In fact, the hedge fund threatened to take action by nominating its own candidates to the company's board of directors. Investors must now wait and see how the company will respond to see what the odds look like for a possible sale of the company. This makes AGL a stock worth watching!

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Pomeroy Makes Governance Changes (PMRY)

SECInvestor.com — Mon, 16 Jul 2007 15:52:35 GMT

Pomeroy IT Solutions (NDAQ:PMRY) is quickly turning into an interesting restructuring play for opportunistic investors. The national IT solutions provider has faced several issues over the last few years stemming from poor governance practices by key executives and management personnel. Many investors are hoping that several recent changes to the company's governance will help unlock value for shareholders and jump the company's share price.

Flagg Street Capital, who owns approximately 9.8 percent of the company's outstanding shares, took notice of these inefficiencies and has been pressuring the company towards several governance reforms. The activist hedge fund believes that such reforms could help the company increase its focus and cut down on its expenses. Earlier this year, Flagg Street Capital announced a proxy contest aimed at installing its own nominees to the company's board and enforcing change.

This move quickly caught the Pomeroy's attention. Earlier this month, the company fired its President and CEO Stephen Pomeroy after an independent committee found that certain, non-illegal conduct and actions were adversely affecting shareholder value. Even better, the company agreed on July 12th to give two Flagg Street Capital representatives seats on the company's board of directors. Combined, these events are great news for shareholders as they could lead to a much more efficient company. This makes PMRY a stock to watch!

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Ackman Shuns Ceridian's $36/Share Offer (CEN)

SECInvestor.com — Fri, 13 Jul 2007 14:54:55 GMT

Ceridian Corp. (NYSE:CEN) shares rose marginally this morning after Bill Ackman's Pershing Square disclosed a 14.9% stake in the company and updated shareholders on its plans in a Schedule 13D/A filing with the SEC. The Minneapolis, MN-based company announced a $36/share management-led buyout earlier this year that Ackman finds grossly inadequate. The activist investor proposed a range of alternatives that it believes would likely result in greater value for shareholders. Investors are watching the situation closely, but the hedge fund still faces an uphill battle against the board and management.

Bill Ackman's heated battle with Ceridian has been taking place for several months now and he shows no signs of letting up. The activist investor initially proposed that the company spin-off its Comdata division as it is undervalued and shares few synergies with the rest of the company's business segments. Ackman also proposed a recapitalization of the company that would enable it to issue a special dividend or institute a share buyback. Finally, he also believes that the company could attract a greater premium if it continued to shop itself. In fact, his firm reportedly knows of several interested parties!

Many investors share Ackman's belief that these transactions could provide substantial returns; however, the Ceridian board has remained resistant. As a result, Ackman was forced to nominate a slate of directors to replace the incumbents and enforce change. A recent shareholder lawsuit also led to a lower threshold for a "superior proposal" and the elimination of a buyer's walkaway rights in the event that the incumbent board loses in the next proxy season. In the end, if Ackman is successful in nominating his own candidates to the board or directors there is a good possibility that we could see a higher share price.

So, what are the changes that these proposals will be adopted? Well, a lot rides on Ackman's ability to win the upcoming proxy contest. With nearly 15 percent of the company's shares in his hands along with call options that he disclosed in the past, there is a distinct possibility if he can garner other institutional support. The activist investor asked the company yesterday for additional information to make its case, even if it would require a confidentiality agreement. Consequently, the next thing investors should watch for is an 8-K filing by the company disclosing that they have entered into such an agreement. Combined, these factors make CEN a stock worth watching!

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Authentidate On Track for a Turnaround (ADAT)

SECInvestor.com — Thu, 12 Jul 2007 17:17:29 GMT

Authentidate Holding Corporation (NDAQ:ADAT) shares rose $0.04, or 2.68%, to $1.46 today after Coghill Capital disclosed a 9.9% stake and made several recommendations to the company's board of directors. The Chicago-based investment firm is seeking to restructure the board of directors while also working to improve the company's capital structure.

Authentidate, which provides secure enterprise workflow management solutions, is trading well off its 52-week high of $2.61 but appears to be working to turn itself around. The company recently sold off its Document Management and Systems Integration businesses in order to focus more on their core competencies. Meanwhile, the company reported broad success with its new initiatives in domestic healthcare and foreign partnerships.

Coghill Capital Management is an activist investment company that employs a bottom-up fundamental analysis approach to identify companies in the highly inefficient small cap universe. They target small cap companies with specific, time-bound catalysts for stock price movement. The firm has a strong track record in this area and is a great fund to follow - especially in strong positions like these.

Authentidate's new business initiatives combined with a potential change in capital structure makes it a stock with great potential. The involvement of Coghill only solidifies the potential as they will likely provide the company with the advice and financing that they need to succeed. Combined, these factors make ADAT a stock worth watching!

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Advanced Medical Optics Faces Buyout Opposition (EYE)

SECInvestor.com — Wed, 11 Jul 2007 15:11:25 GMT

Advanced Medical Optics (NYSE:EYE) may face some opposition to its proposed acquisition of Bausch & Lomb (NYSE:BOL) from its largest shareholder. ValueAct Capital, who owns 14.7% of the company's outstanding shares, said the $4.75 billion bid would reduce their returns and expose the company to "unacceptable risk"

ValueAct Capital insisted that the proposed acquisition increases business risk by further concentrating cash flows in a consumer contact lens and lens care business that is clearly prone to product recalls and that has a long-term demand profile that is much more questionable than EYE's surgical business. The debt financing reduces the margin for error operationally and, together with the proposed issuance of collarless equity, subjects current shareholders to significant capital market risk.

Many investors purchased stock in Advanced Medical Optics due to its diverse revenues and the strength of its surgical assets. Favorable demographics support solid secular growth rates, which the hedge fund and others believe will be augmented by less emphasis on reimbursement-based demand and more emphasis on consumer-based demand.

Unfortunately, this transaction will destroy these strengths and consolidate its cash flows in the consumer contact lens market. If ValueAct Capital is able to breakup this proposed transaction, it could save shareholders a significant amount of money in the future. This makes EYE a stock worth watching!

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Angelica Faces More Heat from Activists (AGL)

SECInvestor.com — Tue, 10 Jul 2007 18:10:47 GMT

Angelica Corporation (NYSE:AGL) may face more heat from Pirate Capital's Thomas Hudson after the activist hedge fund disclosed a 9.8% stake and expressed strong disappointment with the company's operating results. The Chesterfield, MO-based company recently posted a first quarter loss of $1.14 million on revenues of $107.8 million compared to a loss of $1.5 million on $107 million during the same period last year.

The largest concern that many shareholders have is the disconnect between the intrinsic value of the company and the current market valuation of its shares. Specifically, many are concerned that the aggregate price of Angelica's 11 bolt-on acquisitions between 2003 and 2006 is substantially higher than the value that the market currently assigns to these assets. The company ended up paying 1x sales while the company remains valued at just 0.5x sales. Clearly this is a problem with either the market's mis-valuation or management's recklessness.

Pirate Capital is a well-known activist hedge fund but had some troubles in the past when lackluster returns led to multiple limited partners pulling their money out of the fund. The hedge fund is now trying to turn itself around, however, amid a healthy M&A market that has seen more deals than ever before. While Pirate Capital never indicated that they were specifically seeking a sale, the hedge fund did say that they would actively pursue strategic alternatives. Combined, these factors make AGL a stock worth watching!

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Is Borders Group an Activist Target? (BGP)

SECInvestor.com — Tue, 10 Jul 2007 17:16:13 GMT

Borders Group (NYSE:BGP) may soon become an activist target after Spencer Capital disclosed a 6.8% stake in the company along with communications it had with management. The investment management firm disclosed in a Schedule 13D filing with the SEC conversations that it had with the company's Chief Financial Officer while announcing its intent to have further discussions with the company's management and board of directors.

The books, music and movies superstore chain was also targeted not long ago by Bill Ackman's Pershing Square - an activist hedge fund that also owns a large stake in Barnes and Noble (NYSE:BKS). There was speculation that the famous investor may be interested in merging the two competitors in an effort to strengthen their position against key competitors like Amazon.com (NDAQ:AMZN).

The involvement of another activist shareholder reignited hopes that the company may be exploring a merger or other strategic transaction aimed at unlocking shareholder value. But just how far fetched is this idea? Well, the company has already seen interest from Pacific Equity Partners - a private equity firm that expressed interest in the Australian unit of the company. If there are other interested buyers, BGP could see itself split-up and sold at a substantial premium to the current market price. Combined, these factors make BGP a stock worth watching!

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Barnes and Noble (BKS)
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Chapman wants ACPT Liquidation at $25/Share (APO)

SECInvestor.com — Tue, 03 Jul 2007 18:56:50 GMT

Chapman Capital sent a letter to American Community Property Trust (AMEX:APO) today demanding that the company re-evaluate the activist hedge fund's $25/share liquidation proposal. The hedge fund, which specializes in small cap restructurings and turnarounds, has been fighting for a liquidation since REITs went out of favor causing substantial discounts to net asset values. Chapman is hoping that it can talk some sense into the resistant controlling Wilson family and unlock significant value for shareholders through a liquidation at roughly a 25% premium.

In a heated letter to ACPT today, Mr. Chapman commented, "The management team in place is implementing a long-term strategy that IS NOT WORKING. If you understood, even slightly, that your job is not to develop real estate but to build shareholder value in the public markets through real-estate related development, this would be patently obvious to you. Instead, your response, like all those that preceded it, confirms every fear I have about the Wilson family's role in the tragic underperformance of this asset-rich enterprise. Like TrizecHahn and others in the 'Old Economy', selling assets to the private market rather than waiting for the public market to realize the estimated $25/share in intrinsic value is the only viable option. Thus, on behalf of the public shareholders of ACPT, I demand that you begin an orderly liquidation of the company immediately."

Many shareholders have been disappointed with the trust's performance during the past year and are ready for change. Unfortunately, the Wilson family holds a controlling stake in the company and has openly stated that it would not support a liquidation. Usually this would eliminate any possibility of returns; however, Chapman Capital has a lot of experience in these situations and may be able to force change. If successful, the resulting liquidation would result in around 25% return to shareholders based on today's market price. This makes APO a stock worth watching!

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Wendy's Moves up on Peltz Demands (WEN)

SECInvestor.com — Tue, 03 Jul 2007 15:28:17 GMT

Wendy's International (NYSE:WEN) shares moved up $1.63, or 3.64%, to $38.75 today after Nelson Peltz disclosed a 9.8% stake and identified Triarc as a "natural, strategic buyer" for the struggling restaurant chain. Many investors are hoping that Nelson Peltz will be able to use his weight on the board to pursue the best value for shareholders.

Nelson Peltz is a successful activist investor that was responsible for Wendy's earlier decisions to spin-off its Tim Horton subsidiary and sell off its Baja Fresh chain to an investment group. These efforts provided healthy returns to shareholders in the past and many are hoping that the activist investor's new push to remove substantial barriers for a sale of the entire company will yield similar results.

Nelson Peltz expressed his concern today over Wendy's restrictive one-year standstill clause that drew criticism from Triarc. The activist investor believes that the company has a strong bias against Triarc but should work to include them in the sale process despite these differences - as the board has a fudiciary to shareholders to pursue the greatest value.

While there are no official bids for the company yet, clearly we have two parties that may be interested in putting a bid together. Nelson Peltz request that the standstill clause be removed (which should be followed given his board presence) which should pave the way to more bids from a wider audience. Whether or not these bids materialize at a substantial premium remains to be seen; however, WEN is definitely a stock worth watching in the meantime.

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FairPoint-Verizon Deal Moves Forward (FRP)

SECInvestor.com — Mon, 02 Jul 2007 16:15:06 GMT

FairPoint Communications (NYSE:FRP) is one step closer to its purchase of Verizon's (NYSE:VZ) land lines businesses in Vermont, New Hampshire and Maine. The $2.47 billion deal will provide FairPoint with 1.48 million access lines - more than eight times the company's current 248,000 lines. The telecommunications company hopes that this deal will give them a larger footprint in key markets; however, many investors are concerned that the transaction will put the company in a weak financial position.

The majority of the concerns over the deal stemmed from unions representing the bulk of Verizon's workers in the three states who are worried that the $1.7 billion in debt assumed may hinder promised investments and endanger the workers' pensions and benefits. Meanwhile, other shareholders are worried that the large acquisition will necessitate additional infrastructure spending that will significantly impair the company's financial condition.

FairPoint executives addressed these concerns on Thursday by reassuring investors that the existing $1.2 billion revenue stream from Verizon's operations in these states will support operations, capital improvements, dividends and interest on debt. Management also predicts that the transaction will be immediately accreditive to the company's earnings. Many large investment banks have also offered opinions on the transaction that is being spearheaded by Morgan Stanley.

Overall, the transaction should significantly increase FairPoint's footprint in the Eastern United States while increasing the company's revenues. Management's estimates also suggest that the transaction will leave the company in a strong financial position. Plans do not always turn out perfect, however, so investors should pay close attention to the company's costs through the process. In the end, this is a big move by the company that could either reward shareholders with a much larger entity or hurt them with excessive debt.

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Pirate Demands Changes at Angelica (AGL)

SECInvestor.com — Mon, 02 Jul 2007 14:59:51 GMT

Angelica Corporation (NYSE:AGL) shares rose $0.94, or 4.46%, to $22.03 today after Pirate Capital disclosed a 9.8% stake and urged the company to hire an investment banker to explore strategic alternatives. The activist hedge fund insisted that the company's failure to improve operating results has eroded shareholder value and demanded that the company explore how to unlock this value.

Pirate Capital's letter to the Board of Directors indicated a disappointment in management's ability to improve operating results. The company painted a picture of a turnaround by projecting a 7 to 10 percent increase in organic growth in April 2006; however, actual numbers for subsequent quarters turned out to be 0.2%, 0.6% and 0.7%. This prompted the activist hedge fund to recommend that the company hire an investment banker to explore ways in which value could be unlocked through a sale of the company, an asset sale or other extraordinary transactions.

Pirate Capital is well known in the markets as one of the premier activist hedge funds, but experienced some problems late last year when lackluster returns led to a pullout by many of its investments. Regardless, the hedge fund is now back on its feet and working to re-establish its trackrecord by focusing on niche activist opportunities in the marketplace. The strong M&A environment along with optimism amongst shareholders may help them with their push to put AGL up for sale without a fight. However, Pirate Capital said it would nominate its own slate of directors at the company's next annual meeting if necessary.

Overall, Angelica Corporation is an under-performing stock trading at a discount to its peers. Pirate Capital, a well-known activist, is acting as a catalyst to help push the company to explore strategic alternatives. If they eventually comply, shareholders could see significant upside from any sale, asset sale or other extraordinary strategic transactions. This makes AGL a stock worth watching!

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Investor Wants KVH Buyback Program (KVHI)

SECInvestor.com — Fri, 29 Jun 2007 18:52:26 GMT

KVH Industries Inc. (NYSE:KVHI) shares moved up $0.24, or 2.82%, to $8.76 today after Roumell Asset Management disclosed an 8.31% stake in the company and urged the company to explore a share buyback. The activist hedge fund insists that the company remains extremely undervalued and that the company (along with other investors) should consider investment.

Roumell Asset Management encouraged the company to weigh any acquisition opportunities against the compelling investment opportunity present in buying their own shares at its current levels. After all, a staggering 40% of the company's market cap is in cash while the enterprise value to sales ratio is less than 1x. Meanwhile, they are generating plenty of cash flow on strong business and defense programs only provide more reason for optimism.

Overall, the company is clearly undervalued and that is ample reason for the company to explore buying its own shares as opposed to an overpriced acquisition. Meanwhile, the company is definitely one to watch for other investors looking for undervalued opportunities. Combined, these factors make KVHI a stock worth watching!

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Shareholder Demands Sale of Fair Isaac (FIC)

SECInvestor.com — Fri, 29 Jun 2007 18:07:19 GMT

Fair Isaac Corporation (NYSE:FIC) shares rose $2.58, or 6.9%, to $39.96 today after Sandell Asset Management disclosed a 5% stake in the company and expressed concerns over the company's restructuring plans. The activist hedge fund insisted that the company may be better off exploring a possible sale or conducting a leveraged recapitalization.

Sandell Asset Management said they were encouraged by management's plan to improve operating and financial results but questioned the board's decision to opt for a turnaround instead of trying to sell the company to a strategic or financial buyer. The hedge fund noted that such extensive turnarounds tended to be fraught with risk and they feel strongly that such actions may be best undertaken as part of a larger organization or in a private ownership context.

As a result, Sandell Asset Management made several recommendations to Fair Isaac going forward in order to help them more quickly and safely unlock shareholder value. The hedge fund first recommended that the company attempt to sell itself as a whole, but if it was unsuccessful it could separate its three divisions and attempt selling them separately. And if those efforts are unsuccessful, the hedge fund recommended a leveraged recapitalization as a public company. Finally, Sandell requested that the company to be aggressive with its existing share repurchase program and extend the program when appropriate.

Overall, these efforts would unlock significant value if the company agrees to follow through with them. Unfortunately, the board seems bent on attempting to turn the company around, which can be a very risky procedure. While some turnarounds are successful, we know that almost every sale of a company comes at a premium! This makes FIC a stock worth watching!

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Griffon Shareholder Fights Back (GFF)

SECInvestor.com — Fri, 29 Jun 2007 15:24:01 GMT

Griffon Corporation (NYSE:GFF) rejected a proposal by the Clinton Group earlier this month to lead a public recapitalization of the company and now the activist hedge fund is fighting back. Shareholders are hoping that the hedge fund will be able to successfully convince management to institute at least some of their measures in order to unlock shareholder value.

The Clinton Group's initial May 31st proposal called for a $25/share public recapitalization in which half of the company's outstanding shares would be repurchased through a tender offer. The activist hedge fund noted that the debt financing to accomplish this would be "easily obtainable" in today's market. Clinton Group also suggested that the company make several governance changes, declassify the board and address excessive executive compensation issues.

Griffon Corporation responded several days letter by calling the Clinton Group's proposals "completely without merit" and noting that it has made no decision to pursue a recapitalization or any other specific course of action. The company insisted that the hedge fund was trying to takeover the company while focusing on the short-term at the expense of long-term shareholders.

The Clinton Group responded yesterday to the unfavorable response saying they were "extremely disappointed" with the company's response, which it said mischaracterized their proposals and painted them in a bad light. The hedge fund countered that they were not trying to takeover the company with a mere $65 million investment but rather trying to return control to shareholders. Moreover, they insisted that they are long-term shareholders aimed at helping shareholders realize intrinsic value through their recapitalization.

The Clinton Group was also quick to note that even if the company disagreed with their recapitalization proposal, they should still work to correct several other problems facing the company. In particular, they believe the company should eliminate their classified board structure and work to reign in excessive executive compensation by instituting performance-based compensation plans.

Finally, the hedge fund threatened to take matters into their own hands if the company failed to take action. Unfortunately, a proxy battle may be difficult with a classified board but it is still possible to win shareholder support. Combined, these factors make GFF a stock worth watching!

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Clinton Group Targets HealthSpring (HS)

SECInvestor.com — Thu, 28 Jun 2007 15:01:37 GMT

HealthSpring Inc. (NYSE:HS) shares moved up marginally today after the Clinton Group disclosed a 5.05% stake in the company, expressed their concerns over the company's valuation and recommended ways in which the company could better structure their balance sheet to unlock value for shareholders.

The activist hedge fund sent a letter to the company's Chairman and CEO on June 15th expressing its support of the management team and view of the company as an attractive long-term investment. The letter also noted that HS' stock price has retreated to levels below that of its February 2006 IPO and is currently undervalued.

Consequently, the Clinton Group suggested that the company institute a leveraged recapitalization and a Dutch tender offer in the $22 to $23 per share range for 30% of the company's outstanding shares in order to better optimize their balance sheet and take advantage of the appealing debt financing markets in an accretive transaction. The hedge fund estimates that this accretion would amount to 13.8% and translate to a post-leveraging share price of $23.42.

The Clinton Group also offered to help the company explore strategic alternatives, which could include a potential privatization in which he would participate. The investment group has a private equity wing that it indicated would be interested in such a transaction. One would assume that any such transaction would take place not only at value ($23), but also at a premium to this value that could reach as high as $28 per share or higher.

So, what is the stock worth? Well, based on peer multiples (TEV-EBITDA and PE), the company is trading at a substantial discount. The company is currently trading at 14.9x 2007 earnings while its peers are trading at 16x and its IPO was priced at 19.5x. A similar disconnect is seen when looking at projected 2008 earnings. Clearly there is an issue here with the company's valuation, which should stand between $22 and $23 at the very least.

Combined, these factors make HealthSpring a stock worth watching!

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FLWS Blooming into a Strong Stock (FLWS)

SECInvestor.com — Wed, 27 Jun 2007 16:35:44 GMT

1-800-FLOWERS.COM Inc. (NDAQ:FLWS) has been a strong performer recently with shares nearly doubling since the middle of last year. The gift retailer announced strong earnings in April and shareholders are starting to take notice. RLR Capital disclosed a 5.1% stake and praised the company's acquisition of Fanny May's candy business last May.

The activist hedge fund believes that the company's acquisition of Fanny May's candy business was truly a transformative deal and they are excited by the strength of the brand, management team and the manufacturing footprint that come with it. Further, they see Fanny May as a strong compliment to the company's existing Gourmet Food and Gift Basket brands as the company looks to build an online strategy for these segments that will mimic their success in the flowers segment. RLR Capital also expressed their satisfaction with the company's broad cost-cutting measures and prospects for growth in margins as a result. And finally, the activist hedge fund supported the company's plans to re-examine the Home and Children's Group segment given its lower growth and margins.

Overall, it appears as if this company is on the right track with its business and plans for the future. All of their business segments are performing very well with the exception of its Home and Children's Group segments - and the company is looking into ways of solving this problem. It's hard to ignore a company posting 18% quarterly earnings growth and such strong performance across the board! This makes FLWS a stock worth following!

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Sonesta on Track for Sale (SNSTA)

SECInvestor.com — Wed, 27 Jun 2007 15:07:51 GMT

Sonesta International Hotels (NDAQ:SNSTA) received some advice from Mercury Partners today in a letter to the company's board. The advice comes after the company decided to hire Goldman Sachs to explore strategic alternatives, which could include a potential sale of the company.

Mercury Partners announced their support of this decision to explore strategic alternatives, arguing that a company with only $115 million in equity is simply too small to be a public company due to the costs of Sarbanes-Oxley compliance. The hedge fund went on to say that the modest net debt associated with the well-located 400 room Royal Sonesta Hotel Boston and the significant value embedded in the unique Key Biscayne property (with land conservatively valued at $160mm) equate to a significantly higher value than reflected in the company's shares. Mix that with a strong M&A market for hotel real estate (see recent WSJ article "Hotel Buying Frenzy Intensifies") and it's easy to see why a sale right now makes sense.

A sale does not necessarily mean a good value for shareholders, especially in a company that is controlled by one family. Knowing this, Sonesta issued three recommendations to the company to help ensure a fair sale process with a healthy premium for shareholders. First, they asked the controlling family to consider taking the company private. Secondly, they asked any proposals received to be put past non-family shareholders to evaluate. And finally, they asked for the company to resist any breakup fees or other measures that may inhibit future bidding. Combined, these efforts would lead to a fair sale of the company with a potentially very healthy premium. This makes SNSTA a stock worth watching!

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Lancaster Shareholders Demand More Rights (LANC)

SECInvestor.com — Mon, 25 Jun 2007 16:44:52 GMT

Lancaster Colony (NDAQ:LANC) faced criticism on Friday over its governance policies from a group of investors led by Barington Capital. The investors asked the consumer products maker to substantive changes to its governance policies as well as remove several takeover defenses that violate shareholder rights. Changes to these policies could enable shareholders like Barington to push for changes aimed at unlocking shareholder value.

In a letter to the board of directors on Friday, Barington Capital criticized Chairman and CEO John Gerlach and the company's founding family for consolidating their control of the company, saying, "We believe that the numerous defenses the company has in place are excessive and demonstrate disregard for the interest of Lancaster's public shareholders by facilitating the entrenchment of the company's directors and executive officers and minimizing the influence that shareholders have on the board."

Removal of these provisions could pave the way for shareholders like Barington Capital to unlock value. What might these actions include? Well, Lancaster said in April 2006 that it was exploring strategic alternatives, including a possible sale of its glassware and candles businesses. Meanwhile, Barington also pressured the company to take on $300 million in debt to finance and self-tender offer or similar transaction to create value for shareholders. If either of these transactions materialized, it could mean significant returns for shareholders. Combined, these factors make LANC a stock worth watching!

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Nelson May Target Kraft (KFT)

SECInvestor.com — Fri, 22 Jun 2007 17:45:27 GMT

Kraft Foods (NYSE:KFT) shares moved up yesterday on news that billionaire investor Nelson Peltz took a 3 percent stake in the company. Shareholders and analysts had long been speculating that an activist investor could get involved with the company and force it to institute a massive share buyback, revive its first tier brands and sell or spin-off its second tier brands.

Nelson Peltz is well known for his past work with companies like Wendy's, whose shareholders experienced a more than 50% rise in value since his first involvement. Most of his larger prior deals have been in the restaurant and food business as well, adding to the probability that his Kraft involvement isn't simply putting money away for the kids!

So, what are his plans? Well, many analysts and investors expect the activist investor to first leverage up since it has debt amounting to less than two times EBITDA. Secondly, Peltz will likely demand that the company sell off its second tier brands in order to focus on reviving its best in class. These brands could include Post cereals and Maxwell House. And finally, he will likely boost spending in frozen foods and cheese in order to strengthen the company's two best product lines.

Combined, this is all good news for investors - but the timing couldn't have been worse for Peltz. The activist investor was not required to disclose his stake until it reached more than 5 percent of the company - this leak reportedly angered him. Now that investors know what he's likely up to, it may become much more expensive for him to purchase shares. Regardless, this is definitely a stock worth watching!

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Vertrue Bid is Flawed (VTRU)

SECInvestor.com — Fri, 22 Jun 2007 15:12:14 GMT

Vertrue Inc. (NDAQ:VTRU) share rose today after Brencourt Advisors disclosed a 28% stake in the company and expressed their concerns over the company's proposed buyout. The hedge fund believes that the marketing company's current $48.50/share buyout price is insufficient and demanded that the board immediately reject the proposed offer. Shareholders are hoping that this effort will lead to a higher buyout offer.

Vertrue appears to be banking on a growing trend in the investment community - under-priced buyouts build to transfer wealth from shareholders to management and private equity interests. Addicted to quick gains from buyouts, many investors fail to take into account the long-term value of the company when considering buyout offers. Brencourt is hoping to bring the facts to light in order to convince investors that they can hold out for much more.

So, what's wrong with the $48.50/share buyout proposal? Well, Brencourt pointed out four different flaws in the bid:

Use of a size opinion in the WACC calculation - Broadview applied a "size premium" in order to boost the company's cost of equity and thereby lower the valuation. Investors were baffled by this as it is not accepted financial theory to include such a premium.
Incorrect cost of debt- Broadview used 9.25% as its cost of debt which is the coupon to the senior notes due 2014. The problem is that the cost of debt is actually the companies yield on its fixed securities, not its coupon!
Incorrect market premium - Broadview used a market premium of 7.8% to calculate the cost of equity. If anyone else used this market premium, there would be no leveraged buyout today that could be justified on a DFC basis. It simply doesn't make sense.
Absurdly low terminal value - Broadview used a terminal value of 6-7x EBITDA, which is an absurdly lower range.

Overall, the buyout process was flawed and led to a bid that is substantially below the true value of the company. Investors are hoping that Brencourt can force the company to seek a higher bid or maybe even hire another investment banking company to conduct a whole new sale process. If successful, it could mean significant upside for shareholders!

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How to Legally Rob Shareholders (ITCD)

SECInvestor.com — Thu, 21 Jun 2007 17:47:10 GMT

ITC Deltacom Inc. (OTC:ITCD) has performed extremely well during the past year after shedding many of its unprofitable businesses while expanding the profitable ones. The telecommunication company's stock is up from a 52-week low of $0.70 to a high of $7.09. ITC hit a nerve with investors last week, however, when it proposed a recapitalization that would provide a massive payday for management while short-changing small non-controlling shareholders.

H Partners Capital disclosed a 6.4% stake in the company and detailed their concerns over the recapitalization in a letter to the company's board of directors. According to the company's 8-K filing with the SEC, the purpose of the recapitalization was to make the balance sheet more transparent by eliminating the confusing overhang of convertible preferred shares and warrants. H Partners insists, however, that this is completely unwarranted and the resulting dilution would hurt common stock shareholders.

So, why would the company do it? Well, the recapitalization would enable the company's controlling shareholder and other interested parties to convert their preferred shares and warrants to common stock at a more than 50% discount! According to H Partners, "The recapitalization is nothing more than the controlling shareholder and those acting in concert with it, reapprotioning equity to itself at the expense of non-controlling shareholders to the detriment of the company."

In the end, ITCD serves as a great example of how powerful shareholders and the board of directors can work in conjunction to enrich themselves at the cost of non-controlling shareholders. Rights offerings, recapitalizations and other financing techniques are often filed deep within SEC documents in ambiguous terms - rarely are we so lucky to have an investment firm outline the problems in plain English in a public complaint. This is something all investors in speculative companies should watch for on a regular basis as it could have severe negative implications for the companies involved.

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Shareholder: PHH Is Worth $51 Not $31 (PHH)

SECInvestor.com — Wed, 20 Jun 2007 15:09:15 GMT

PHH Corporation (NYSE:PHH) may face increased criticism from shareholders concerned over its decision to pursue a sale of the company despite a poor valuation. Pennant Capital Management disclosed a 7.8% stake in the company and issued a letter to the board outlining their belief that the company's shares could be worth as much as $51/share - significantly higher than the current buyout premium of $31.50/share.

The outsource provider of mortgage and fleet management services issued their proxy statement on June 18th that paint a picture of a seller in panic mode as bidders were dropping out and even Blackstone blinked at the eleventh hour. Interestingly, the issues that caused the panic were all irrelevant or self-inflicted and temporary; the two main concerns were of the sub-prime meltdown and the inability to file financial statements on time. These factors led to a proposed buyout of just $31.50/share.

Pennant believes that the real value of the company can be pegged closer to $51/share within two years. The New Jersey based hedge fund proposed that the company separate its mortgage and fleet management segments via a tax-free spin-off, which could alone bring the stock price close to $36/share. Using deferred tax liability related to mortgage servicing rights, the company could also prevent around $10/share in tax leakage that they would experience in the event of a sale of the company.

PHH also reported better than expected results for full year 2006 and the first quarter of 2007. Using a 15x to 17x multiple of free cash flows, Pennant estimated that the fleet segment alone is worth between $17 to $20 per share. Incredibly, this valuation implies a sale of the mortgage segment at approximately 0.7x tangible book value! Meanwhile, the hedge fund values the company's mortgage business at $26 to $34 per share, which is an 8x to 10x multiple of the combined servicing and production after-tax earnings. Combining these two numbers, Pennant believes the company is worth $51 to $68 per share and could realize that value over the next two to three years.

In the end, Pennant believes that the proposed sale of the company is being conducted at a price far below the true value of PHH. Additionally, the company's preliminary proxy statement fails to address many critical issues including the benefits of rejecting the proposed sale of the company. Consequently, the hedge fund demanded that the company immediately amend its preliminary proxy statement to reflect these sentiments and give shareholders a fair view of the transaction. Combined, these factors make PHH a stock worth watching!

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Nabi Under Increased Pressure from Activists (NABI)

SECInvestor.com — Tue, 19 Jun 2007 18:09:11 GMT

Nabi Biopharmaceuticals (NDAQ:NABI) may be in for a fight after nearly 40% of its ownership base filed Schedule 13Ds with virtually identical activist platforms - the conversion of the company into a royalty trust following a special dividend financed by divisional asset sales. Chapman Capital noted today that while the company has outlined plans to this end, they have yet to actually execute their plans and unlock shareholder value.

Just how much would this deal be worth for shareholders? Well, Chapman Capital estimated in their letter to the board that the divisional asset sale of Nabi Biologics alone should be able to return around $5/share - conveniently, around the price they averaged in at. The subsequent focus on developing the company's new drugs should provide a welcome boost for its shareholders. And finally, the change in structure to a royalty trust will greatly improve its financial ratios and subsequently their valuation.

In the end, activist hedge funds are circling this stock for a reason - there is substantial value that can be unlocked through a combination of divisional asset sales and a change in the company's overall structure. Many shareholders are banking on the stock at least doubling in the long-term following these efforts while simultaneously cashing out a hefty dividend from asset sales. Shareholders also have the comfort of knowing that they are supported by Chapman Capital, who has essentially threatened a proxy fight if the company doesn't follow through. All in all, this is definitely a stock worth watching!

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Bulldog Demands Sale of North Pittsburg (NPSI)

SECInvestor.com — Mon, 18 Jun 2007 08:28:23 GMT

North Pittsburg Systems (NDAQ:NPSI) shares moved up $0.68, or 3.49%, to $20.14 late Friday after Bulldog Investors disclosed a 7% stake in the company and again urged the company to put itself up for sale. The activist hedge fund argued that given CT Communication's recent buyout price, the company could fetch between $28.50 and $31 per share in the event of a sale.

Bulldog Investors noted their increasing concern regarding the accelerating consolidation in the RLEC industry that the lack of participation by North Pittsburg Systems. They insist that continuing to delay an inevitable sale of the company puts shareholders at risk of permanent capital loss. And with the recent weakness in NPSI's stock, the hedge fund believes that there would be many shareholders interested in a sale of the company for a 46 to 59 percent premium.

So, what does this mean for shareholders? Well, as Bulldog noted, the company's share price has been stagnant while companies around it have been acquired at substantial premiums. This means that many shareholders are likely willing to sell the company at the right price. Moreover, the activist hedge fund noted that while they would like to avoid a costly proxy contest, they cannot sit idly by while NPSI's value deteriorates. Combined, these factors make NPSI a stock worth watching closely over the next few months!

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Opportunity Abound at Adaptec (ADPT)

SECInvestor.com — Thu, 14 Jun 2007 15:10:58 GMT

Adaptec Inc. (NDAQ:ADPT) is a struggling technology company that designs, manufactures and markets storage products and software. The company recently reported weak financials, including a 28% decline in year-over-year revenues and a bleak outlook for 2008. So, why is this company one worth a second look for investors?

The first thing worth noting about Adaptec is their cash stockpile. The company currently has approximately $572 million in cash, which amounts to $4.81 per share. Compare that to a stock price of $3.71 and it is easy to see why the cash is appealing! The problem is that the company has embarked on an acquisition-driven strategy that could burn through this cashpile. Luckily, there is an activist hedge fund that is hoping to prevent this from happening and unlock value for shareholders!

Late last month, Steel Partners disclosed a 12.7% stake in the company and demanded representation on the Board of Directors. The activist hedge fund conveyed its disappointment in the company's recent performance and insisted that the company's acquisition-driven strategy was illconceived. Steel Partners also threatened to nominate an entire slate of new directors at the 2007 annual meeting if they are not granted representation. Given Steel Partners' successful track record with activist investing, this is definitely good news for shareholders!

The final thing that Adaptec has going for it are it's restructuring efforts and net operating loss carryforwards. The company has been embarking on efforts to reduce its costs for the past several years. Recently, these efforts have resulted in the company's first net savings of $9 million beginning in the second quarter of 2007. These reductions in spending help preserve the cash stockpile that represent the real value in this investment. Also, thanks to the company's previous spending, they have built up significant net operating losses that can be carried forward to offset future tax on gains!

Overall, these factors make ADPT a stock worth watching closely over the next few months as Steel Partners works to unlock value!

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Investors Demand Change at Sunrise (SRZ)

SECInvestor.com — Thu, 14 Jun 2007 14:35:06 GMT

Sunrise Senior Living (NYSE:SRZ) management faced some harsh criticism from Millenium Partners today after the hedge fund disclosed a 2.5% stake in the company and a critical letter to the Board of Directors. The activist hedge fund demanded that the company either eliminate the current management team or immediately put the company up for sale.

Millenium Partners began their letter by stating that the current management does not belong as a participant in the public securities market. Accordingly, they petitioned the Board of Directors to take one of three actions: (1) sell or merge the company either in a public transaction or a going private transaction; (2) restructure the company in a transformative way so that its different elements - primarily real estate development and ownership on one hand and healthcare facility operation on the other - can be more readily appreciated and valued by the market or; (3) recruit new management that is more professionally compotent at successfully managing a public company.

The biggest problem facing these shareholders are the various defensive measures that the company has in place. These poison pills may have been useful in the past when the company was small, it now just impedes investors from forcing value-creating options for shareholders. But if Millenium Partners is successful, it could mean significant share appreciation for shareholders. So far the company has yet to respond, but this company is definitely one worth watching in the meantime.

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Ryerson May Face Day of Reckoning (RYI)

SECInvestor.com — Wed, 13 Jun 2007 18:39:23 GMT

Ryerson (NYSE:RYI) may finally be forced to face the music today after 9.6% holder Harbinger Capital Management announced that they would be suing the company for failing to hold its annual meeting. The activist hedge fund had recently announced its own slate of directors when the company suddenly cancelled their annual meeting to "review strategic alternatives". Many shareholders are hoping that they can finally rid the company of poor management and unlock shareholder value.

This fight between Ryerson management and shareholders is nothing new. Harbinger and other investors have been unhappy with Ryerson's performance for some time and have been trying to change management or perhaps find a private equity buyer willing to pay a premium for the company. Ryerson management - realizing that they were in danger - have delayed their annual meeting as long as possible while searching for a buyer that would keep the current management in tact. This has proven to be quite the challenge, however, as the company has not yet found a buyer agreeing to such terms!

Now, Harbinger is trying to finally force a day of reckoning for management. Deleware law states that companies must hold their annual meeting no later than 13 months after their last. While there are few exceptions, Harbinger announced today that it is suing in hopes that they can force an annual meeting within the next 45 days. The company's Chief Financial Officer said that they are aware of the lawsuit and are consulting with their lawyers. Whether or not we will finally see an annual meeting remains to be seen, but this is definitely a situation to keep an eye on in the meantime!

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Ackman Rejects Ceridian Bid (CEN)

SECInvestor.com — Wed, 13 Jun 2007 14:10:04 GMT

Ceridian Corporation's (NYSE:CEN) selling price may not be enough to satisfy one of Wall Street's best hedge funds. Bill Ackman's Pershing Square voiced its opposition to the bid today calling it low and suboptimal for Ceridian shareholders. The activist hedge fund also said it has hired financial and legal advisors as it intends to pursue one or more value-maximizing alternatives.

Ackman's hedge fund had been pushing for the company to either sell itself or divest its Comdata division for many months and recently went hostile a proxy contest. To avoid problems, the company quickly found a consortium of buyers willing to purchase the company for $36 per share. The activist hedge fund believes that this was an illsuited response to their proxy contest and that the price is simply too low.

Consequently, Pershing Square recommended a series of alternatives aimed at increasing shareholder value even if it does't equate to a direct sale of the company. First, Ackman suggested that the company continue to shop itself in an attempt to get a higher price. Secondly, he recommended that the company simply spin-off its Comdata unit. And if all else failed, he recommended that the company consider a recapitalization, dividend or self-tender transaction where significant value could be returned to shareholders.

So, what does this all mean for shareholders? Well, the worst case scenario is a sale of the company at $36 per share. Ceridian may have standstill orders on the table that it could consider at higher prices. Also, if the company took one of the other alternatives available to it, including a spin-off of Comdata or a recapitalization/dividend/buyback, significant long-term value could be unlocked for shareholders. A spin-off would also create great opportunities for investment in the new entity. Combined, these are all reasons why CEN is a stock worth following while this situation unfolds!

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ITG Investor Bets on Further Brokerage Consolidation (ITG)

SECInvestor.com — Wed, 13 Jun 2007 01:57:46 GMT

Investment Technology Group> (NYSE:ITG) shares moved up $2.86, or 7.25%, to $42.30 after D.E. Shaw disclosed a 6.2% stake in the company and urged the board to explore strategic alternatives for some or all of its operating segments. Shareholders are betting that any sale of the company would result in a substantial premium to the current market price.

The activist hedge fund believes that while the company´s management has done an exceptional job in building a market position, the stock price fails to reflect the intrinsic value of the company. This underperformance is apparent in that during the past year equity market volumes have increased 40% causing revenues to increase 34%, yet the stock´s price declined 17%. In fact, using the EBITDA multiples of its major competitors, ITG appears to be trading at a 30% to 40% discount.

Consequently, D.E. Shaw believes that the company should immediately put itself up for sale. The activist hedge fund maintains that the company could see significant interest from both strategic and financial buyers. Numerous large financial institutions may be interested due to the significant synergies they could realize from the integration of ITG´s trading products and services into their own platforms. These institutions could also realize significant cost savings by putting their current trading volume onto the ITG platform.

Meanwhile, D.E. Shaw could also see interest from financial buyers including private equity and hedge funds. There is not only a strong leveraged buyout market and a great track record of private equity investments in this sector but ITG would also have the ability to invest in long-term future expansion without being penalized in today´s markets. This is great news for many financial buyers who tend to take a company private, only to leverage it up an re-IPO it several months later at much higher prices.

Finally, D.E. Shaw recommended that the company institute a large scale share buyback program if they are unable to find a buyer. They insist that one of the major reasons for the discount in market value is the company´s large cash position amounting to nearly 10% of their market cap. After all, this large cash position depresses the company´s ROE. The activist hedge fund beliveves that the company should not only put all of this cash towards a buyout, but also leverage up and take on additional debt in order to improve its financial ratios.

Overall, D.E. Shaw is just interested in unlocking value and taking this stock to the level of its major competitors. If they are successful, this could mean a 40% appreciation in share price over the short term plus any buyout premium on top of that. This makes ITG a stock worth watching!

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Sometimes Less is Better (MVCO)

SECInvestor.com — Mon, 11 Jun 2007 16:32:18 GMT

Meadow Valley Corporation (NDAQ:MVCO) may face increased shareholder scrutiny over its recent shareholder proposal. CD Capital Management LLC disclosed a 5.7% stake in the company and demanded in a letter to the Board of Directors that the company rethink the terms of the proposal, sell it's Ready Mix subsidiary, and explore a possible sale of the company as a whole.

CD Capital Management said that although the company's shareholder proposal would unlock value, it is flawed in its requirement to return the cash upon sale to shareholders without considering whether the cash could be more effectively reinvested in the business. Moreover, Meadow Valley's small market capitalization and "two asset" existance only complicates the situation.

The hedge fund also noted that it was pleased with the recovery in the company's stock price and management's progress towards improving operating margins while growing revenues. However, they noted, there is also a very strong market right now for construction and material assets. Consequently, the hedge fund said that they would support a sale of the company for a price higher than $18 per share when the Board of Directors is ready to explore that option.

So, what does all of this mean for shareholders? Well, the company has already announced a proposal to unlock shareholder value through a series of strategic transactions, including the sale of Ready Mix. Given that the Board of Directors is already supportive of such initiatives, it would not be far fetched to assume that they would be open to a potential sale of the company - which CD Capital's prior analysis pegs at about $18 per share or more. Combined, these factors make MVCO a stock worth watching!

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Vodafone Feels the Pressure

SECInvestor.com — Thu, 07 Jun 2007 17:25:28 GMT

Vodafone Group plc (NYSE:VOD) is headed for turbulent waters with activist investors despite moving up over 40% off of its 52-week lows. ECS Assets is pushing the telecommunications company to unlock as much as $76 billion in a restructuring effort aimed at returning value to shareholders.

The activist hedge fund is the latest in a growing trend of investor activism aimed at unlocking value through the exploration of strategic alternatives. ECS argues that the company's inefficient structure has prevented the stock from trading at its intrinsic value. The battle is predominantly centered around Vodafone's 45% joint venture stake in Verizon Wireless, which is valued at around $50 billion.

ECS wants the Verizon Wireless stake to be spun off into its own publicly traded entity, which would become one of the ten largest stocks traded on the London Stock Exchange. If the process is successful, the hedge fund insists that the stock could rise nearly 50%. The idea may be an uphill battle for ECS, however, given the fact that the company has refused to sell the stake several times in the past. Regardless, this is definitely a stock worth watching!

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CAO Worth More than $30/Share

SECInvestor.com — Thu, 07 Jun 2007 14:28:12 GMT

CSK Auto Corporation (NYSE:CAO) is a specialty retailer of automotive parts and accessories that has performed extremely well during the last year despite difficulties in the sector. The stock currently sits about 70% above its 52-week low and only cents away from making new highs. Some investors are convinced, however, that the stock is trading well below its intrinsic value...

Karsch Capital Management currently holds a 9.32% stake and is one of these investors. The activist hedge fund demanded this morning that the company's board of directors immediately conduct a review of strategic alternatives in which it would weigh the relative merits of selling the company versus giving a new management team time to turn around the company.

Karsch acknowledges that both options would be viable alternatives for the company. A sale of the company would be successful because (1) the company is highly attractive to other auto-parts retailers given its past success with mergers, strong potential synergies and unique real estate on the West Coast, and (2) the company is highly attractive to private equity firms because of the strong cash flows and recent strength of the auto M&A market. The hedge fund also noted that it had received several inquiries from private equity firms showing interest in the company and believes any sale would come at a substantial premium even to today's price.

Interestingly, Karsch is not only interested in a quick sale of the company. The hedge fund admitted that with the leadership and vision of an above-average CEO, they believe CSK Auto could execute an easily achievable operating margin of 9% in 2009 and retain its current 8x forward multiple on their EBITDA projections, which would result in a share price well above $30/share over the next 18 months. CSK Auto will also be able to eliminate a number of one-time expenses that hit the stock last year. And finally, the auto industry is one in which turnarounds have historically seen a higher rate of success.

These days hedge funds and private equity firms are pulling in billions of dollars each year, earnings enormous rates of return for their clients. These returns are not made by overpaying for companies; rather, many investors opt for a quick sale instead of a long-term turnaround that would yield far more value. Karsch has outlined both options today in its letter to the board. A sale of CSK Auto may still be the best options, but it would depend on the bids and various execution risk factors associated with a new management team.

In the end, CSK Auto is a great potential investment given the involvement of a hedge fund that understands how to unlock shareholder value. Unfortunately, the company's board of directors doesn't have the best track record after two accounting probes, a near bankruptcy and chronic underperformance relative to competition. Consequently, Karsch has demanded to be an active part of any turnaround process and threatened a proxy fight if they are cut out. Great news for investors.

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Vikings Set Sail on Quest to Sell LFG

SECInvestor.com — Mon, 04 Jun 2007 14:59:00 GMT

LandAmerica Financial Group (NYSE:LFG) shares moved up last Friday and held their gains today after Viking Global disclosed a 7.9% stake in the company and expressed their belief that the company should be sold. LFG has been a solid performer during the past year, moving up over 70% since the end of 2006. The gains can be attributed to several new programs and initiatives designed to boost earnings during a tough market.

Viking Global said that while it is pleased with management's initiatives to improve the company, a large scale acquisition of the company could add $7 to $8 per share via synergies. This would double the company's earnings per share and create a substantial buyout premium. The activist hedge fund suggested that the probability of a deal would be high and that the board should carefully evaluate whether shareholder interests would best be served through a buyout or by remaining independent. Either way, this is definitely a stock to keep on the radar.

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Shareholders Still Want More (CYPB)

SECInvestor.com — Fri, 01 Jun 2007 17:52:21 GMT

After a quick double in price last week Cypress Biosciences (NDAQ:CYPB) is again in the news after Black Horse Capital Advisors disclosed a 1.2 million share stake and said it opposed the company's plan to sell 4.7 million shares of stock in a public offering and urged the company to consider adopting a share buyback plan instead.

The activist hedge fund said it was pleased with the company's very successful Phase III results Milnacipran in Fibromyalgia Syndrome and suggested that the drug should provide the company with substantial revenues in the future. However, the company now has too much cash - specifically, $100 million in cash with no debt and a low cash burn rate. Combine this with a successful late stage drug and it is difficult to see why the company would need to issue more shares to raise money!

What does this mean for investors? Well, a large scale share buyback combined with the avoidance of issuing any new shares would likely increase the company's share price and reward investors with cash that is simply being unused right now. And Black Horse also hinted that if these demands are not followed they may consider other options available to them as large shareholders - presumably a proxy fight. Combined, these factors make CYPB a stock worth watching!

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Third Point Targets Unconfliced Board Members (PDLI)

SECInvestor.com — Fri, 01 Jun 2007 14:56:25 GMT

PDL Biopharma Inc. (NDAQ:PDLI) moved up marginally after activist investor Third Point disclosed a 9.8% stake in the company and asked the unconflicted directors of PDL BioPharma to conclude their investigation into CEO McDade's suspected ethical and business breaches as quickly as possible. The hedge fund also nominated BioMarin Pharmaceuticals CEO Jean-Jacques Bienaime to their proposed slate of directors.

The letter address to board members was a follow up to one sent out privately three weeks earlier. In the letter, Third Point suggested that shareholders could best be served through the termination of CEO McDade, the addition of three shareholder representatives to the company's board, and finally the hiring of an investment bank to explore strategic options for the company.

The adoption of these three recommendations would substantially increase the company's share price. Obviously, if the company formally announced that it was exploring a possible sale it would cause a quick jump while the firing of McDade and inclusion of shareholder representation on the board is definition bullish in the long-term.

The problem is simply the McDade has tight control over the board as well as management - a classic agency problem. The only way to effect change may be through a proxy fight, which is always a possibility with Third Point. Combined, these factors make PDLI a stock worth watching!

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Is GFF Worth $34 per Share?

SECInvestor.com — Thu, 31 May 2007 17:32:23 GMT

Griffon Corporation (NYSE:GFF) shares moved up $1.54, or 6.97%, to $23.65 today after Clinton Group disclosed an 8.5% stake in the company and suggested that the company undergo a recapitalization. The proposal would tender 50% of Griffon's outstanding shares at a price of $25 per share, but has yet to receive a meaningful response from the company.

Clinton Groups proposal is contingent on financing from two lien bank loans and financing from the hedge fund and its affiliates. The proposal would also require the hedge fund to institute several of its own board members and implement a restructuring plan aimed at improving the profitability of Griffon's businesses.

In the end, Clinton Group believes that a recapitalization of the company combined with measures designed to reduce expenditures and improve the bottom line would drastically increase the stock's valuation. Using a multiple of 15x price to earnings on a tax affected $20 million of savings divided by a share count 43% less than the current number yields in excess of $9 per share in incremental value. Clearly, this would be great news for shareholders and makes GFF a stock worth watching closely!

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Riley Demands Liquidation of ESST

SECInvestor.com — Wed, 30 May 2007 20:06:26 GMT

ESS Technology (NDAQ:ESST) shares rose over 8% this week after Riley Investment Management disclosed a 1.3m share stake in the company and expressed their concerns over the company's management and valuation. The company operates in the semiconductor industry and services the consumer electronics and digital media marketplace. These have been the subject of many recent takeover attempts and could be an industry for further consolidation.

Riley believes that the shares are undervalued and that the current restructuring should be expedited with the ultimate conclusion being a liquidation of the company. Ultimately, the activist hedge fund believes that a liquidation of the company could result in a 100% appreciation of ESST shares; however, that value deteriorates every day the company functions in its current structure. The fund is also concerned that the company may make an acquisition that will further deteriorate the remaining equity value. Consequently, Riley will issue one more letter to the company's board describing their position in greater detail while threatening to replace members of the board if no action is taken. Combined, this is great news for shareholders as it could mean a significant increase in value over the short term. This makes ESST a stock worth watching!

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Building Chapman's Portfolio (BLG)

SECInvestor.com — Tue, 29 May 2007 15:12:19 GMT

Building Materials Holding Company (NYSE:BLG) shares moved up $1.92, or 13.38%, to $16.27 today after Chapman Capital disclosed a 7.4% stake and expressed their concerns over the company's performance. Specificially, the activist hedge fund suggested that the stock's value could best be unlocked through a sale of part or all of the company.

Chapman first noted that while management cannot be blamed for the steep correction in the U.S. homebuilding market, the board's generous reward distribution to management during this downturn should not be overlooked. Equally troubling is the fact that management and the board have very little stake in the company while much of what they do own was granted to them free of charge. This lack of a stake in the future of the company is certainly a cause for concern.

Chapman then argued that the company is undervalued. To unlock this value the hedge fund recommended that the company immediately hire financial advisors to explore selling all or part of the company. After all, the building materials sector is clearly amid a consolidation wave. Chapman has also recently made personal contact with BLG’s peers and leveraged consolidators of the building supply industry, and they can convey an extremely high level of interest from both private equity and strategic building supply players in the acquisition of the company.

Chapman Capital recognizes the unique value of BMHC’s assets, the years and efforts required to assemble and integrate them. As a result, they are not encouraging an inopportune, undervalued sale, but instead a methodical auction timed to consummate into the inevitable cyclical recovery. And this would be great news for the company's shareholders who have suffered since the downturn in 2006!

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