Travelzoo Inc. (NDAQ:TZOO) owners and brothers Ralph and Holger Bartel revealed continued dumping on TZOO stock in a series of Form 4 filings with the SEC. The two sold 1,560,000 shares - or almost 10% of the company - in open market transactions. Meanwhile, the company increased its float by 52%, from 3 million to 8 million shares. This selling and dilution erased the 20% gains that TZOO saw after it released an earnings report last week that beat street EPS estimates, showing strong growth in net profit margins. However, the increased float and 1.5 million share sale should have had a greater impact on the stock price with everything else constant; this indicates that there are buyers accumulating shares and holding the stock up. Some are even going so far as to speculate that the Bartels sold their shares in order to increase the float (which is currently only 2.94 million shares) to enable institutional buyers to participate in the action.

While these events are unusual, they are not uncharacteristic of Travelzoo. The stock has been a roller coaster ride for investors, having dropped from its 2004 highs of $95 to $17 before recovering to its current levels in the $30s. If this isn't evidence enough, all it takes is one look at the stock's beta of 6.77 to see that it is highly volatile! With 30% of the float shorted and 83% institutional ownership, more volatility is certainly on the horizon as this company continues to move forward.

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ICOS Corp. (NDAQ:ICOS) has at least one party that is now opposed to its merger plans with Eli Lilly and Company (NYSE:LLY). Five percent holder HealthCor Management said in a 13D filing with the SEC yesterday that it would oppose the merger, stating that they thought the buyout price significantly undervalued ICOS shares. In a letter to the company, they make several valid points regarding the company's relationship to LLY and why the merger is bad news for investors:

"On October 17, 2006, the Company announced that it had entered into a merger agreement whereby it would be acquired by Eli Lilly and Company ('Eli Lilly') and on November 1, 2006, the Company filed a preliminary proxy statement with the Securities and Exchange Commission whereby the Company’s management recommended that the Company’s shareholders vote to approve the merger with a consideration of $32 per share of Common Stock. After reviewing the terms of the merger and the financial condition of the Company, the HealthCor Group, as of the date hereof, has determined that it intends to vote against the merger as it does not believe the consideration offered adequately compensates the Company’s shareholders for their interest in the Company. On November 2, 2006, HealthCor Management mailed via overnight delivery service (and by facsimile transmission) a letter to the Board of Directors of the Company explaining its reasoning for not supporting the merger with Eli Lilly (the 'November 2, 2006 Letter').

The proposal by Eli Lilly to acquire the outstanding shares of ICOS for $32 per share does not fully compensate the shareholders of ICOS for its 50% share of Lilly ICOS LLC, future clinical opportunities for Cialis and other Company assets of value. Specifically, the current proposed transaction price of $32 per share values ICOS at approximately $2.0B . By applying any number of industry accepted valuation methodologies, we calculate a value of ICOS that is well in excess of $40 per share. Clearly, Eli Lilly is attempting to purchase the ICOS assets at bargain prices. Twice in the last two years, the ICOS share price has suffered short-term downward price movements. Both times, Eli Lilly has approached ICOS in an attempt to purchase the assets of Lilly ICOS LLC as well as the whole of ICOS.

We are also very troubled by the 'Amended and Restated Change in Control Severance Agreement' (the 'Amendment') as well as the 'ICOS Corporation Retention, Sale and Special Recognition Bonus Plan' (the 'Special Bonus Plan') filed with the SEC on October 20, 2006. This 'Amendment' and 'Special Bonus Plan' effectively provides greater financial gains for senior management as a result of the anticipated sale of the Company, to which management was not previously entitled.

These changes result in ADDITIONAL COMPENSATION  for senior executives in excess of $13.6 million simply for completing the transaction. Specifically, Paul N. Clark, Chief Executive Officer, will receive a minimum of $4.3 million of additional new benefits bringing the already handsome sum he will receive to more than $30 million. Similarly, other senior executives will receive substantial financial benefits on top of the amounts they are scheduled to receive. We cannot imagine how the Compensation Committee could have possibly justified this audacious hand-out or how the Board of Directors failed to stop it. We remain confused as to how the Board of Directors of ICOS can so generously calculate the value of management performance yet simultaneously so conservatively undervalue the assets of the Company that is being managed by this same group." (Read More)

Clearly there is a lot going on here. Eli Lilly controls 50% of the company, which to date has been a joint venture. LLY has also attempted to buy the company several times in the past when share prices were depressed. Now, they are offering management more than $30 million to go through with the transaction while again failing to solicit other bids for the company or consider whether the buyout price is sufficient for investors (some of which are sitting on a 30% loss). If HealthCor is successful in raising awareness of these issues and is able to derail this merger, ICOS may be a stock worth watching.

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Biomet Inc. (NDAQ:BMET) moved up 3% today after Smith & Nephew (NYSE:SNN) addressed rumors that it was contemplating a merger/buyout of the company. According to a 6K filing made with the SEC:

"Smith & Nephew plc (LSE: SN, NYSE: SNN) is constantly looking at opportunities to maximise shareholder value, including looking at potential strategic acquisitions. In response to recent press speculation, the Company can confirm that it has held very preliminary talks with the US medical devices company, Biomet Inc. No agreement has been reached, and there can be no assurance that any transaction will be proposed or completed.  Smith & Nephew does not intend to make any further comment, or respond to any enquiries, unless or until there is further information to report." (Read More)

Meanwhile, Biomet said that it remains divided on any third party deals, after hiring Morgan Stanley & Co. to explore strategic alternatives last April. If the company does decide to go through with a merger, it would likely be at a premium to today's prices. This makes Biomet a stock worth watching over the next few weeks as the companies mull over the details of a possible merger.

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Triad Hospitals Inc. (NYSE:TRI) found itself under pressure yesterday by TPG-Axon Capital Management, who disclosed a 6.5% stake in the company and made several demands yesterday in a 13D/A filing with the SEC.

In the filing, Axon said:

"The Reporting Persons believe that the Common Stock is significantly undervalued and represents an attractive investment opportunity. The Reporting Persons believe that the Issuer has valuable and well-positioned assets, whose value is  significantly greater than the current market capitalization  of the company. However, the valuation of the company, and of those assets, is being depressed and diluted by poor capital discipline. The Reporting Persons believe that in order to avoid further  dilution of shareholder value, the Issuer must substantially improve its capital discipline and focus on maximizing return on capital.

Since the merger with Quorum Health Group in 2001, the Issuer has spent all available funds on expansion,  resulting in negative free cash flow and dilution to shareholders. The Issuer has been unable to analytically demonstrate that this acquisition strategy is in the interest of shareholders, and does not appear to have sufficient focus on calculating  return on investment, and ensuring its adequacy. As a result, growth of cash flow, EBITDA and net income, MEASURED ON A PER SHARE BASIS, have significantly lagged behind comparable companies.

The Reporting Persons believe the Issuer should take actions to increase shareholder value, including, but not limited to, the following:

1. significantly reduce capital expenditures and acquisitions;
2. implement rigorous analytical standards for capital expenditures;
3. increase its focus on margins and efficiency of existing assets; and
4. significantly increase stock buybacks, in place of risky and unproven
   gambles on acquisitions and new facility construction." (Read More)
   

The company is trading below enterprise value with strong cash flow and a PEG of right around 1 - well below the industry average. Investors applauded these moves as the stock rose today almost 2% in morning trading. This is definitely a stock to keep an eye on as management decides whether or not to implement these changes.

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Lone Star Steakhouse & Saloon Inc. (NDAQ:STAR) is facing pressure again from Barington and other shareholders who are demanding that the company take the time to revalue the company before any definitive transaction is announced. These shareholders have stated on multiple occasions that they believe the buyout premium put forth by a Dallas private equity group seeking to buy the company is simply not enough. The Board, however, has remained silent on the issue prompting Barington to send yet another letter (in a 13D/A filing today) in which they stated:

"We question the judgment of the Board in approving the transaction without having first obtained an appraisal of the real estate holdings of the Company. We estimate that the value of the Company’s extensive real estate assets (including land and buildings) exceeds $400 million and believe that it is misleading for the Company to disclose on page 28 of the Proxy Statement that the actual market value of the Company’s owned real estate holdings could be 'higher or lower' than such assets’ net book value of approximately $245 million. We also note that neither of the two financial advisors that opined as to the fairness of the proposed transaction made an independent appraisal or valuation of the Company’s real estate holdings or were furnished with an appraisal of such assets (as disclosed on pages 30 and 36 of the Proxy Statement), causing us to question the ultimate utility of the fairness opinions that have been rendered.

Furthermore, we question the thoroughness of the sale process, including the decision of the executive committee of the Board to only conduct a 'targeted' market check of six potential purchasers, as opposed to a more thorough assessment of interest from a broad range of potential financial and strategic buyers. We also question the effectiveness of this 'targeted' marketing process when the six potential purchasers were given less than a month’s time to review non-public information concerning the Company. It is our belief that it is unreasonable to expect a potential purchaser to complete its due diligence review of the Company in such a short time period ... It is therefore no surprise to us that once these potential purchasers had the sale process abruptly shut down on them in March 2006, none of them had an interest in further pursuing a transaction with the Company when contacted again in August 2006.

In light of the sale process that was conducted by the Board and the modest merger consideration being offered, please be advised that it is our intention to vote against the merger and that we may seek appraisal rights in connection with the transaction." (Read More)

This comes about a month after the hedge fund sent its first demands to the company back in September. So far, both Barington and Deutsche Bank have expressed their dissatisfaction with the company's sale process. Combined these two hold about 20% of the company's outstanding shares and they both plan to vote against the transaction unless their demands are met. If the two are able to convince other shareholders to vote similarly, it could put a significant road block in the way of STAR's planned merger.

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Evergreen Energy, Inc. (NYSE:EEE) reported wider than expected losses today in their 10Q filing with the SEC due to plant startup costs and higher operating expenses. The losses totaled $17.4 million (or $0.22 per share) compared to last years loss of only $4.9 million (or $0.07 per share). The company said it spent $17.2 million in plant startup costs (bringing the total spent to over $166 million of the years) and $31.3 million in capital expenditures in the nine months ended September 30, 2006. After all of this, its new fuel only generated $192,000 in income for the company. The company also announced that its deal with Arch Coal Inc. (NYSE:ACI) had expired. The stock is trading down 22% today after the company held its conference call.

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Banta Corporation (NYSE:BN) was facing its deadline to either accept or reject Cenveo's bid for the company last night when a new bidder suddenly jumped on the scene and purchased the company for $1.3 billion. RR Donnelley & Sons Co. and Banta announced the Board-approved merger at around midnight last night, not long after Cenveo had withdrawn its bid for the company. The buyout is valued at $52.50 per share, a 17% premium to Tuesday's closing price, and is expected to close in the first quarter of 2007.

All of this news comes after Banta had so adamently insisted that it was not for sale after rejecting several bids from Cenveo, including the latest one for $50 per share. For more history about the battle between Cenveo and Banta, see our prior articles. When Cenveo withdrew their offer last night, they included a letter to management:

"I am disappointed (but not surprised) that Banta has not accepted or even entered into discussions with us regarding our proposal to acquire Banta for $50 per share (or $34 per share if the acquisition is completed after the record date for your "special" dividend). Since you have had plenty of time to review our proposal and have not responded at all, Cenveo has no other choice but to withdraw its current and all prior proposals to acquire Banta... After you pay a dividend that no one wants and your stock price drops down to the twenties, you will understand what I have been trying to tell you all along -- Banta's senior leadership is not experienced and does not fully understand what is happening in the printing industry today. Your people just don't get it. Our management team's skill set of reducing expenses and delivering results over many years is the perfect solution for Banta's future success and your obligations to Banta's shareholders. Under its current leadership Banta is a ship floating on borrowed time that is about to sink."

The follow-on bid by RR Donnelley was almost a slap in the face for Cenveo, who could not understand why the company would not sell itself. Ofcourse now we know that it was because they had another buyer all along. But why was this deal kept so secret and inked overnight? Well, many believe that the company likely kept the bid secret to discourage Cenveo from making any possible counter-offers, which may have been difficult for RR Donnelley to match. While this may work out for management and employees, it is simply not in the best interest of shareholders who could have received a higher buyout price in the event of a bidding war. Regardless, it appears as if Banta's life as a seperate company is coming to an end.

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Berkshire Hathaway (NYSE:BRK) revealed yesterday in a 13F/A filing with the SEC afterhours that it had taken a 5.5% stake in Target Corp. (NYSE:TGT) with purchases dating back to June 30th. This news isn't particularly suprising given Buffet's investment in competitor Walmart; however, share in the retailer climbed over 1% today on the news as investors look to follow the Oracle of Omaha's lead. According to the filing, Buffet's average price was $50.30, which means he is already sitting on a nice 17% profit as shares near $60. Buffet is known for investing for the long-term in significantly undervalued companies, meaning that he is likely expecting much more upside. Investors should keep an eye on future SEC filings by Buffet, in particular Form 4s which indicate further purchasing of TGT shares.

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Merck & Co. Inc. (NYSE:MRK) agreed to buyout Sirna Therapeutics (NDAQ:RNAI) at a 100% premium yesterday in a transaction worth $1.1 billion. This acquisition is noteworthy because it is the first time that a large pharma player recognized RNAi technologies as a key technology. RNA interference (RNAi) technology selectively catalyze the destruction of the RNA transcribed in a single gene, allowing the drug to produce a highly specific, potent, and long-lasting effects to treat diseases much more effectively. Most notably is its potential for treating cancer, which is the reason Merck gave for the buyout.

This acquisition helped boost other RNAi players, like Alnylam Pharmaceuticals Inc. (NDAQ:ALNY), which rose 20% in today's trading, and Nastech Pharmaceutical (NDAQ:NSTK), which rose 5% today. If other larger pharma players take interest in the RNAi technologies, these two companies would be likely acquisition targets, which makes them stocks worth keeping an eye on!

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Marsh & McLennan Companies, Inc. (NYSE:MMC) has found itself engulfed a whirlwind of M&A activity as yet another buyer has surfaced that is interested one of its divisions. This time the Sunday Times has reported that founder Jules Kroll is interested in buying back Kroll Inc. for $1.9 billion, a company which MMC purchased from Jules just two years ago.

The company has also been under pressure from shareholders to sell off its Putnam Investments division, which has been the subject of many acquisition offers and partnership requests. Finally, the Sunday Times also reported a few weeks ago that the Willis Group had made an offer with backing from Kohlberg Kravis Roberts LLC, which was later rebuffed by MMC and said to be merely "conjecture and speculation" by the Willis Group. Combined, all of these factors are causing shareholders to consider the notion of breaking up the company, which could result in substantial premiums to the current market prices. This is definitely a stock worth keeping an eye on!

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