Carmike Cinemas Inc. (NDAQ:CKEC) revealed today that Watershed Asset Management had increased its stake in the company to 6.7% and nominated one of its own to the company's Board of Directors. Watershed has had an investment-only interest in the company for a long time. Back in October 2005, the fund made several recommendations to the Board in a letter attached to a 13D/A filing with the SEC:

1. Eliminate growth capital expenditures
2. Seek amendments to your bank documents and bond indentures to increase restricted payments flexibility
3. Buy back stock with excess cash; if consent from bondholders can not be secured, buy back bonds at a discount
4. Increase your dividend
5. Begin evaluating options to extract value from your real estate portfolio
6. Communicate your new free cash flow strategy

The fund summarized:

"In summary, we believe that,despite the troubles that Carmike has experienced over the last three quarters, the  compan has a number of practicalmopportunities to improve its return to investors. Moreover, with a rebound in box office performance to 2003 or 2004 levels, Carmike's EBITDA, adjusted for the GKC acquisition, could be $115 million or more. Free cash flow available for shareholders could exceed $60 million. With discipline on capital expenses and a commitment to deploy cash with a view to enhancing shareholder value, Carmike's shares would trade dramatically higher."

Since then, the stock has dropped further from a high of $35 to its current levels of $17 per share. Watershed is likely attempting to remedy the situation by electing its own member to the Board in an effort to further influence these changes within the company. In an 8K filing with the SEC yesterday, the Board announced that its current Director - James J. Gaffney - would not be running for re-election, and the company would recommend Watershed's Kevin D. Katari to shareholders. This Board spot will enable Watershed to help the company execute its plan to enhance shareholder value, and ultimately increase the stock price. This makes CKEC a stock definitely worth watching during the next few months.

Related Companies
Regal Entertainment Group (RGC)
The Marcus Corporation (MCS)

The Rowe Companies (AMEX:ROW) announced today that it would commence voluntary proceedings under Chapter 11 in an attempt to restructure the company and return it to profitability. The company has been beaten up from its highs of nearly $6 in 2005 to its current price of just $0.43. The company announced that it plans to sell off its retail division - Storehouse, Inc. - so it can focus on its core manufacturing operations. Meanwhile, Rowe intends to continue with business as usual with not even a payroll modification.

So, why is this company worth noting? Well it turns out that bankruptcies can provide investors with great opportunities to profit. The key is not in buying stock now, but rather after the company emerges from bankruptcy. Often times these companies will issue new shares to creditors, which the creditors have no interest in keeping. Therefore, there is almost always a sell off that floods the market with cheap shares. It is also important to look at the "new" company's financials once (and if) they emerge from bankruptcy. Rowe will likely report pro-forma earnings that will show whether the company is performing poorly overall due to bad management, or whether the retail segment was responsible. If it was only the retail segment causing trouble, and the company has sold it off, Rowe could be an attractive investment long-term.

Not all companies perform great after emerging from bankruptcy, but a combination of creditor selling pressure and a sale of any poorly performing segments tilts the odds in investors' favor. This stock is definitely one to watch as this situation unfolds...

Related Companies
La-Z-Boy Incorporated (LZB)
Hooker Furniture Corporation (HOFT)
Ethan Allen Interiors, Inc. (ETH)

Napster Inc. (NDAQ:NAPS) announced yesterday that it was hiring UBS AG to assist the Board of Directors in reviewing strategic alternatives, which could include a sale of the company. The company noted that this decision came as a result of unnamed third parties that expressed interest in a possible business combination or acquisition. In the press release, the CEO noted:

"Our goal is to enhance shareholder value which could potentially lead to a new strategic partnership or the sale of the company but in any event our primary focus will remain on growing Napster."

The CFO also highlighted the company's strong financial position:

"Napster has a strong balance sheet with a healthy cash position of $97 million as of the close of the first quarter and we are currently generating annual revenues in excess of $100 million."

While the company certainly is not cheap by traditional measures, it does have some things going for it. With the new flurry of new products and deals in the music industry, many were expecting this kind of consolidation. The online music market is only going to grow, and Napster has a strong brand name and a large customer base. The stock is currently up over 15% on the news. As of now, we can only speculate on a buyout price; however, any future announcements will come in the form of a press release or 8K filing with the SEC - this stock is definitely one to keep an eye on!

Related Companies
RealNetworks, Inc. (RNWK)
Apple Computers, Inc. (AAPL)
Yahoo, Inc. (YHOO)