Here are some of the takeover targets mentioned in the media today:

• Allstate (NYSE:ALL) was mentioned by the Chicago Tribune - quoting a Morgan Stanley report - as a potential financial-services consolidation play.
• Armor Holdings (NYSE:AH) was mentioned in BusinessWeek's Inside Wall Street column as a potential takeover target for Lockheed Martin (NYSE:LMT).
• Boyd Gaming (NYSE:BYD) was also mentioned in BusinessWeek's Inside Wall Street column as a possible gaming consolidation play after Harrah's and Aztar recently closed such transactions.
• Sangamo (NDAQ:SGMO) was also mentioned in BusinessWeek's Inside Wall Street column as the next biotech takeover, with partnerships already in place with Pfizer and Dow Chemical.
• Technip (NYSE:TKP) was mentioned in La Tribune (a French newspaper), which stated Italian oil company Eni SpA may make a bid for the company.

Strong corporate performance and favorable economic conditions have spurred record M&A numbers this year. Until conditions change this trend is likely to continue, particularly in financial services and gaming. As a result, these stocks are definitely ones worth watching as any buyout would come at a significant premium to the current market price.

Northwest Airlines (OTC:NWACQ) moved up over 30% today after Owl Creek Asset Management - a 5% holder in the company - said that the company could be worth as much as $19.75-$33.50 per share in the event of a merger with Continental Airline (NYSE:CAL). How do they come up with this valuation?

Let's take a look at their 13D/A filing with the SEC that details their analysis:

"Though it is early to value Northwest for recovery purposes, Owl Creek submits that, based on Wall Street analyst reports, the trading markets value Northwest's legacy carrier peers (American, Continental, United, and US Airways) at 5-1/2 to 6 times "EBITDAR."(3) Carriers like Northwest with a higher likelihood of being a merger candidate trade for more than 6x EBITDAR and carriers with a lower likelihood of being a merger candidate trade closer to 5.5x EBITDAR. Based on similar 2007 fuel price assumptions to those underlying the comparable company valuations, Owl Creek forecasts Northwest's 2007 EBITDAR to be $2,700,000,000. Given a valuation of 6.0x 2007 EBITDAR, Northwest should have a total enterprise value of over $16,200,000,000 at the time of its expected emergence from bankruptcy protection in September of 2007. With a cash build up of over $1,000,000,000 during the remaining pendency of the bankruptcy cases, this would result in an equity value of $19.75 per share AFTER covering all claims with interest and the preferred stock.

Furthermore, US Airways' hostile offer for Delta Airlines last week -- aside from signaling directly the consolidation trend in the legacy carrier market from which Northwest's value undoubtedly will increase -- demonstrates the inherent value, recoverable by Northwest's equity holders, that a merger of Northwest with a strategic partner will create. US Airways announced that it expects the combination to generate $1,650,000,000 of annual synergies, which is 6.2% of the combined Delta/US Airways passenger sales. Assuming comparable proportional synergies to a Northwest merger with Continental (Continental Airlines is the most logical partner, but this analysis would be equally applicable to another carrier), then the synergies generated by a combination of Continental Airlines with Northwest would be approximately $1,250,000,000 annually. Valuing the company at a post-merger multiple of 5.25x EBITDAR including one half of the synergies accruing to Northwest (the other half to the merger partner) results in an implied stock price of $33.50 per share.

This is not a "what if" analysis. Experts have been calling for consolidation for some time, and US Airway's offer for Delta Airlines suggests the starting point. SEE, E.G., Benjamin Silverman and Susan M. Donofrio, TWO EVENTS MAY TRIGGER AIRLINE CONSOLIDATION THIS FALL, Cathy Financial Industry Report, September 22, 2006; Jeff Bailey, A REVITALIZED US AIRWAYS IS CREATING A MERGER BUZZ, N.Y. Times, July 31, 2006, at C2 ("The surprising early success of US Airways Group, the result of a merger last year, has led to some behind-the-scenes talks among investors and airline executives that could lead to more industry consolidation in the months ahead"); Susan Carey and Melanie Trottman, MERGER TALKS BRING OUT FEAR OF FLYING, Wall Street Journal, April 21, 2006, at C1 ("Most airline investors agree that consolidation would be great for an industry with too many airlines chasing too few dollars"). The value of the mergers becomes immediately apparent in the change in trading prices of Delta Airlines unsecured bonds following the November 15, 2006 announcement of US Airways' offer. The trading price of Delta Airlines bonds increased by fifty percent in the week after the announcement, and Delta's board has neither accepted nor closed that transaction yet." (Read More)

NWACQ is currently trading at just $3.49 per share, making the above valuations seem somewhat outrageous. In reality, the assumptions above are correct; however, everything depends on the airline's ability to pull itself out of bankruptcy and successfully orchestrate a merger. It is this risk premium that is keeping the stock at its low levels. This is definitely a stock to watch; however, prudent investors may want to wait until the bankruptcy picture clears up before investing a significant amount of capital.

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Continental Airlines (CAL)

Blockbuster Inc. (NYSE:BBI) moved up 12% in mid-day today after Chairman/CEO John F. Antioco disclosed a 220,000 share purchase at $4.66 after the bell yesterday in a form 4 filing with the SEC. This move marks a continuation of BBI's bullish run from $3.74 in mid-October to its current level of $5.10. The $1 million transaction also came just before today's news that Papa John's and Blockbuster would be teaming up to promote their online properties - an area in which Blockbuster is struggling. The new agreement allows Papa John's customers to sign up for a free trial of Blockbuster's online DVD rental service by going to Papa John's website - in exchange, the pizza maker is offering a $10 gift card.

Also worth noting, Fitch also boosted the company's outlook from "stable" from "negative" earlier this week citing improved financial flexibility, a stronger liquidity position and cost-cutting efforts. The ratings firm also warned, however, that Blockbuster's revenue growth continues to be hurt by structural changes in the industry, competitive factors and its 2005 decision to eliminate late fees. Clearly, there are still a lot of problems left for this company to address; however, improvements to their online renting program and strong insider buying may prove to be the forumla to success. This stock is definitely one worth watching in the coming months.

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MGM Mirage (NYSE:MGM) moved up almost 10% today after receiving a $825 million tender offer for 15,000,000 shares at $55/share from billionaire investor Kirk Kerkorian's Tracinda Corporation. The move would up Tracinda's stake from 56.3% to 61.7% with over 173 million shares. MGM Mirage owns the MGM Grand, Luxor, Bellagio and other casinos in Las Vegas along with gaming properties in other Nevada cities and Atlantic City. The moves comes as the entertainment industry has been witnessing increased M&A activity after Harrah's private equity takeover. According to the SC TO-C filing by Tracinda: "This tender offer demonstrates our confidence in MGM MIRAGE and its management and our commitment to the company’s future." While the transaction has yet to be completed, this move does strengthen confidence in the company's future given the billionaire investor was willing to tender these shares at a 12% premium to the going market price. Moreover, in an industry where there has been so much M&A activity lately, we can't rule out the possibility of a buyout or transaction that reward shareholders. Combined, these facts make MGM a stock to keep a close eye on.

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Parlux Fragrances Inc. (NDAQ:PARL) may soon find itself in trouble as 12.2% holder Glenn H. Nussdorf steps up his efforts to turn around the company. Many may remember our coverage of this story in October, after Nussdorf said he is interested in potentially acquiring the company. His most recent filing today is aimed at speeding up this process by removing the Board of Directors and reinstating his own members in an effort to unlock shareholder value through a potential sale of the company.

According to the 13D/A filing:

"As the beneficial owner of a substantial percentage of the outstanding shares of Parlux, I believe that much can be done to increase shareholder value and that it is time for immediate change at both the Board and management levels. The decline in the Company's share price from a high closing price of $18.96 earlier this year (after adjusting for a 2-for-1 split in June 2006) to the current $6.26 level (a decrease in shareholder value of 67%), the Company's recent disclosure of decreased sales and earnings for the quarter ended September 30, 2006, and the allegations in the recently amended class action lawsuit that the Company improperly recognized revenues on sales to related parties, have led me to conclude that the Board of Directors is failing to act in the best interests of the Company's shareholders and is not exercising appropriate oversight of management. I am convinced that a continuation of the status quo risks a further destruction of shareholder value and, accordingly, I intend to protect the value of my significant investment in the Company through a consent solicitation to replace members of the Board of Directors.

As I have publicly disclosed in my Schedule 13D filing, I am exploring the possibility of making an acquisition proposal to acquire the Company in a business combination transaction. While I have not made a decision at this time whether to pursue such a proposal, I strongly urge the Board not to take any action (such as the previously announced and subsequently abandoned sale of the Perry Ellis brand) which would materially modify or impact the Company's business, products or assets and could adversely effect the Company's value. In addition, the consent solicitation will present Parlux shareholders with a unique opportunity to express their views on the future direction of the Company." (Read More)

A lot of people have incurred substantial losses on PARL and Mr. Nussdorf contends that the only way to bring the company back is through replacing the Board of Directors. Although proxy battles can be long an arduous, shareholders will finally be able to take action against the Board of Directors that has watched this company decline for so many months. This is definitely a stock to watch; however, it is important to remember that the turnaround process takes a long time to complete, so it may be best to stay on the sidelines until the picture clears up.

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Pogo Producing Co. (NYSE:PPP) moved up over 6% in today's trading after Daniel Loeb's activist hedge fund Third Point LLC disclosed a 7.2% stake in the company. The hedge fund most recently succeeded in its attempt to gain a seat on the board of Nabi Biopharmaceuticals (NDAQ:NABI) after it threatened management with a proxy battle.

Pogo also saw interest from Texas billionaire Robert Rowling who disclosed a 9.21% stake in the company on October 6th of this year. Although Third Point's 13D filing does not mention any particular plans as of yet, the hedge fund is very well known for taking an active role in unlocking shareholder value. Typically activist hedge funds focus on selling the company, selling off specific assets, returning excess cash to shareholders, and/or working with management to improve the company's bottom line. This makes PPP a stock worth watching closely over the next few months.

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Brinks Co. (NYSE:BCO) may find itself in hot water soon as Pirate Capital suddenly took a more active role in its investment. In a 13D/A filing with the SEC today, the 8.5% holder demanded that the company (i) take immediate steps to unlock long-term shareholder value by retaining an investment bank to explore the sale of the company and initiate a large Dutch tender offer for the shares, and (ii) immediately appoint Thomas R. Hudson Jr. to the board. This move comes after Brinks failed to listen to Pirate's past requests to retain an investment bank and instead announced plans for its own acquisitions.

According to a letter attached to the filing:

"The purpose of this demand is to enable the Fund and its affiliates to communicate with the Company's shareholders on matters relating to their interests as shareholders or beneficial owners with respect to a shareholder proposal set forth in the Fund's notice to the Company of even date herewith and, possibly, to facilitate and support a proxy solicitation of the Company's shareholders to elect one or more members of the board of directors of the Company, including the undersigned, which the Fund is contemplating but has not decided upon." (Read More)

Nobody wants a proxy battle, as they are a long and expensive process (and Pirate has a lot of experience!). Therefore, it is likely the company will take this as a hint and start a dialog between the two parties. In the end, it is likely that hedge fund will receive a spot on the Board and head a committee to explore strategic alternatives. If the company is indeed undervalued and this idea has merit, then this proposal will be put to a shareholder vote at an annual meeting. Although this is all a very long process, it definitely makes BCO a stock worth watching, since any buyout comes at a premium to market prices.

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Carmike Cinemas Inc. (NDAQ:CKEC) revealed today in a Form 4 filing with the SEC that Chairman/CEO Michael Patrick purchased 48,100 shares in a transaction valued at over $900,000. This transaction brought his stake in the company to 360,313 shares. We first started covering this company back in September, when we noticed Watershed's interest in the company. Since then, the stock has moved up over 15% as the company recently announced plans to raise refreshment and ticket prices at its theaters in an effort to increase revenues. The company also said that its pre-showing advertising revenues rose, while they are implementing new technologies to help the ease of switching show times and movies. Investors were also pleased to hear that there would be no more fees from restatements, which plagued the company's earnings for several quarters in the past. News of the insider's purchase helped the stock move up over 4% today in intraday trading.

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The exchanges continued their move higher today as Nasdaq Stock Market Inc. (NDAQ:NDAQ) made yet another bid to acquire the London Stock Exchange (LON:LSE), revealed in an 8K filing with the SEC. The world's second largest stock exchange upped its bid by 25% to $1.5 billion in an attempt to create the world's largest trans-Atlantic exchange, however the LSE again rejected its bid as inadequate. But the Many are saying that the LSE is holding out for a white knight that will acquire the company; however, the Nasdaq recently upped its LSE holdings by an additional seven million shares, which makes rival bids even more unlikely. At this point, it is likely that the LSE will solicit other bids for the company from other potential candidates and/or demand a higher premium from Nasdaq. The company refused to comment, but said it would issue a press release later today on the matter.

This move comes as many of the exchanges have been making moves to consolidate, driving up prices to new record highs and helping the Nymex Holdings Inc. (NYSE:NMX) set a new record on its IPO. Stock exchanges in particular have been looking to expand overseas as an increasing volume of new issues are taking place outside of U.S. borders. While Nasdaq has been targeting the LSE, NYSE is in the process of acquiring Euronext (based in Paris), which it struck a deal with earlier this year, pending shareholder approval. It is likely that this consolidation will continue, driving up the exchanges even more going into 2007. These are all definitely stock to keep a close eye on!

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Triad Hospitals Inc. (NYSE:TRI) received yet another letter from TPG-Axon Capital Management encouraging the board to implement changes to help increase shareholder value. This new letter expands on what the fund previously stated ahead of its talks with management to take place later this year.

In the letter, the fund states:

"We are focused on the company's strategy and execution, which RELATIVE to industry peers has delivered sub-par returns. We believe Triad's hospital assets are high quality, and generally well-positioned. As such, the company should trade at favorable valuations to industry comparables. HOWEVER, INSTEAD, TRIAD HAS REGULARLY TRADED AT A SIGNIFICANT DISCOUNT TO INDUSTRY PEERS, AND CURRENTLY TRADES AT THE LOWEST VALUATION IN THE INDUSTRY. Why? In stark contrast to its peers, Triad has achieved poor return on investment and diluted its shareholders. Unfortunately for shareholders, capital spending and management compensation have been high relative to the industry, but growth (per share) and returns have been low. We believe that it is time to put an end to this dilutive strategy, and that the Directors and management must finally begin to show discipline, and focus on creating value for shareholders." (Read More)

To accomplish these goals, the fund created a more indepth outline of what needs to be done:

• Significantly amending the composition of the board, in order to improve the depth of financial sophistication, and also to include representation from shareholders. The current board is simply not credible as a guardian of our capital.
• The company should focus on improving and optimizing existing assets. It is critical that focus be placed on improving the company's analytical tools and controls. Margins must be improved, capital expenditures must be rationalized, and issues like bad debt must be analyzed carefully. Ultimately, until the current assets have been optimized and management control has been enhanced, it does not appear sensible to continually expand, and increase complexity.
• Capital usage strategy should be dramatically altered. Instead of aggressive spending on capital expenditures and acquisitions, the company should reduce expenditures to levels needed to optimize existing assets. Excess cash flow should be returned to shareholders, via dividends or share buyback.
• The company has the flexibility to increase leverage significantly without impairing operating flexibility, or increasing risk to imprudent levels. Rather than keeping this capacity as a 'war chest', the company should instead use it to optimize the capital structure, and generate return for shareholders. With these steps, the company could comfortably implement a capital reduction of $1.0 to $1.25 billion, and still have leverage ratios and coverage metrics that would be prudent and manageable.

If the company listens to Axon and successfully executes these strategies, it could mean significant share appreciation in the long-term. Again, the company is trading below enterprise value with strong cash flow and a PEG of right around 1 - well below the industry average. This is definitely a stock to keep an eye on.

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