Lone Star Steakhouse & Saloon, Inc. (NDAQ:STAR) revealed today in a schedule 13D/A filing with the SEC that they were able to obtain the confidentiality agreement they had been seeking in the past. They had been seeking this information in connection with their efforts to solicit additional bids for the company. The hedge fund, along with several other shareholders, have opposed the transaction ever since it was announced.

According to the filing:

"On December 5, 2006, Barington Capital Group, L.P. ("BCG") and the Company entered into a confidentiality agreement (the "Confidentiality Agreement") which will permit BCG and its financial advisor to obtain certain confidential or non-public information concerning the Company in order to evaluate its position with respect to the $27.35 per share consideration being offered to stockholders of the Company by affiliates of Lone Star Funds. The execution and delivery of the Confidentiality Agreement has been consented to by the affiliates of Lone Star Funds that are party to the merger agreement entered into with the Company." (Read More)

Barington noted in the past that they knew of at least five other potential buyers for the company who were interested in purchasing the company for more than the standing $27.10 offer. However, due to the company's reluctance to release financial information, they were unable to complete their due diligence. With this new confidentiality agreement in place, Barington may be able to provide this information to other potential bidders and perhaps solicit higher bids for the company. This makes STAR a stock worth watching closely as this situation unfolds.

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Finish Line, Inc. (NDAQ:FINL) is quickly finding itself under increasing pressure from shareholders who are questioning the board's longterm strategies to unlock shareholder value. Standing at the head of this group is the Clinton Group, a 4.4% holder of the company who is actively pushing for changes. The hedge fund filed a schedule 13D/A with the SEC today containing yet another letter to management:

"We are disappointed that you have not responded to us formally since our letter dated September 7, 2006 ("September 7th Letter"). However, we are appreciative of the constructive  dialogue that we have had with your management  team regarding the business and the progress of turning around performance. Since our letter was filed, we have received  numerous inbound telephone calls from both investment bankers, other institutional investors and private equity firms who share our views on The Finish Line, Inc. ("Finish Line" or the "Company").

We would like to reiterate  that we are  supportive  of you and your  management team as operators of the Company who are capable of guiding  Finish Line through the temporarily difficult environment. We note the commencement of a turnaround as illustrated in your press release of last week. However, we are beginning to question you and your board's  intentions  for  building long-term  shareholder value. We believe that being "very, very open minded" in  consideration  of the "long-term  best  interest of all the  shareholders,"(1)  should  entail an open dialogue with one of your largest shareholders and greater consideration of the proposals that we have detailed." (Read More)

Then the hedge fund goes on to outline some suggestions they have for improving the company's situation:

"We continue to believe that Finish Line's stock price is negatively affected by the dual class voting structure  (Class  A/Class B) for the  Company's common shares. We note that merely "having always had such a structure" is no longer meaningful in today's more shareholder friendly environment.

When we met in your offices in Indianapolis, we discussed capital allocation for the business. Given the strong balance sheet position of the Company, we think that the board  should  consider returning cash to the shareholders by significantly increasing the dividend.

In our September 7th Letter, we described the reasonableness of a modest senior debt financing to commence a Dutch tender offer to optimize the capital structure. We would be willing to discuss with you terms and conditions of a new credit facility which includes a $75 million undrawn revolving credit facility and a $100 million term loan B syndicated through the efforts of Clinton Group, Inc. (Clinton Group).

We believe this course of action is accretive to continuing  shareholders while (i) still allowing for a prudent capital structure; (ii) not limiting the growth plans of the management team and (iii) not detrimentally affecting the level of float." (Read More)

If the Clinton Group is able to solicit a response from management and get these changes implemented, it could mean significant share price appreciation over the long run along with an increased dividend. With many other shareholders and investment bankers expressing their support for the hedge fund, this becomes a strong possibility. This makes FINL a stock worth watching over the next few months.

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HEELYS, Inc. (NDAQ:HLYS)
S-1 Filing by the Company
Reports from Reuters indicated that the IPO for HEELYS would be priced at $21, above the expected range of $16-$18 per share. The stock is expected to open tomorrow on the Nasdaq under the symbol "HLYS."  HEELYS is a brand designer, marketer and distributor of innovative, action sports-inspired products, targeted to the youth market. The company's primary product is wheeled footwear.  In 2005, the company's net sales increased over 106% from 2004. By the end of September of this year, net sales increased 303% to $117 million.

Oxigene Inc. (NDAQ:OXGN)
Form 4 Filing by the Company
In a Form 4 filing with the SEC, Per-Olof Soderberg bought 100,000 shares on December 5th at $5.02, bringing his stake to 636,330. OXiGENE is an emerging pharmaceutical company developing small-molecule therapeutics to treat cancer and eye diseases.

Yahoo (NDAQ:YHOO)
SEC Filings Watchlist
Rumors suggest that Yahoo might be the potential buyer of the Metacafe website, to be sold for an estimated $200-$300 million. Metacafe is a video-sharing website that competes with Google Inc.'s (NDAQ:GOOG) recently purchased YouTube service.

Gap Inc. (NYSE:GPS) moved over 3% higher in today's trading session on news that the company's CEO may be replaced and renewed talks of a possible leveraged buyout of the company. The Gap's recent financial woes have caused unrest amongst shareholders and kept the stock relatively cheap throughout 2006. The company reduced its FY2006 profit forecast in November, citing momentum at Old Navy as the catalyst behind the Gap's slower-than-expected turnaround. It was around this time that the company's credit rating was moved to below investment grade after its fifth straight quarter of lackluster performance. Meanwhile, Pressler - the company's CEO - received a 100% year-over-year raise, bringing his salary to almost $17 million this year alone. However, the Gap noted that he was not awarded any bonuses due to his failure to reach financial objectives. It is not difficult to see why investors would applaud a new CEO, and combined with the possibility of a leveraged buyout, GPS is definitely a stock worth keeping an eye on.

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PACCAR Inc. (NDAQ:PCAR)
Announced a $300 million buyback program

Peoples Bancorp of North Carolina, Inc. (NDAQ:PEBK)
Announced a $2 million share buyback program

Rockwell Automation, Inc. (NYSE:ROK)
Raised buyback from 9 million to 12 million shares

Verizon Communications Inc. (NYSE:VZ)
Raised buyback from $1.5 billion to $1.7 billion

Friendly Ice Cream Corp. (AMEX:FRN) may soon find itself embroiled in a proxy battle as The Lion Fund vowed to solicit proxies at the company's next annual meeting in 2007 to institute two of its nominees onto the company's board of directors. The 14.92% holder has been engulfed in this battle with the board since August. Sardar Biglari, Managing Partner of The Lion Fund, also addressed shareholders in a letter attached to his 13D/A filing with the SEC yesterday. In this letter, he outlined the fund's frustrations with the company's performance and his intent to nominate new board members at the company's next annual meeting:

"The optimal avenue to achieve good corporate governance and to envision wise means to enhance long-term value is to place very significant shareholders on the board to ensure a proper alignment of interests between the board and the shareholders.

Our concerns over Friendly’s arise from its poor corporate governance, poor operational performance, poor stock performance, and its weak balance sheet. To illustrate, the company’s escalating legal costs directly result from poor judgment on corporate governance issues, which has led to extensive litigation. Good corporate governance contributes to good corporate health. If you are a long-term stockholder, you care about the health of the corporation, which cares about all of its constituencies — franchisees, employees, creditors, customers, and shareholders. Good corporate health will support long-term shareholder value creation, the ultimate objective of a company. Friendly’s must make better capital allocation decisions and improve its capital structure if it is going to survive and then thrive.

We seek alteration in the composition of the Board of Directors to provide greater presence of directors who are autonomous and who therefore are able to represent the best interests of all stockholders. As directors, Phil and I would be technically and psychologically independent.

Over the coming months we will be communicating with you regarding our ideas for Friendly’s. Our Web site, www.enhancefriendlys.com, will be the prime source of information that we will communicate to you on important matters. Our guideline is to tell you the facts that we would want to know if our roles were reversed. We are applying this principle in our communications with you now and will apply no lower standard when we serve as stewards of your capital in our role as board members. Shareholders are entitled to no lesser standards and consideration; all shareholders of Friendly’s should be treated equally. We encourage shareholders to visit our Web site regularly and to share their thoughts with us about Friendly’s." (Read More)

Although Friendly's stock has increased significantly so far this year, it can be partially attributed to the strong buying by The Lion Fund and other shareholders seeking changes in the company's direction. The company's relatively small float makes the share price vulnerable to this amount of buying or selling. If The Lion Fund is successful in obtaining board seats and implementing their solutions for the company, it could mean a justification for these prices and an even larger return in the long run. This makes FRN a great stock to keep an eye on into the 2007 shareholders meeting.

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Barners and Noble, Inc. (NYSE:BKS) moved higher by over 4% today after Credit Suisse upgraded the company from Underperform to Outperform citing valuation and possibility of a LBO. The stock has also seen accumulation lately from a number of notable investors, including Perishing Square Capital who disclosed an 8% stake in a 13G filing on November 13th. Billionaire investor George Soros also initiated a small 0.14% stake in the company a couple of months ago while Charles de Vaulx added to his position, which currently stands at 0.47%. The stock has been on an uptrend since August, rising from $32 to over $40 - a 25% increase. This is definitely a stock to keep an eye on as the LBO possibility and interest by Soros and others continue to propel the company to new highs; however, an upcoming internal review of the company's stock option practices along with mediocre quarterly results are some possible roadblocks.

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Deere & Co (NYSE:DE)
SEC Filings Watch
Citigroup analyst, David Raso, met with the company's management in which they held a discussion focused on potential areas for acquisitions/business build outs. Shares of Deere & Co., which is the world's largest agricultural equipment manufacturer, rose more than three percent today after the reports that the company had received and rejected a private buyout bid.

Ultra Clean Holdings (NDAQ:UCTT)
8K Filing by the Company
Leonard Mezhvinsky, President, and Deborah Hayward, Vice President, of the company entered into a Rule 10b5-1 trading plan to sell ordinary shares of the company that are owned or will be acquired on the exercise of stock options. Between the two, they plan on selling up to 725k in shares.

Veritas DGC Inc. (NYSE:VTS)
10Q Filing by the Company
Veritas reported Q1 EPS of $0.68, above the consensus of $0.47. Revenues came in at nearly $231 million versus the consensus of $193.5 million. At the end of October of this year, the company's backlog was up to a record $550 million compared to $456 million at the end of July. Investors applauded the numbers as VTS stock rose on today's trading session.

Wilshire Enterprises (AMEX:WOC) may find itself in trouble soon as Bulldog Investors is more actively attempting to remove the company's poison pill. Poison pills - now more commonly referred to as "Shareholder Rights Plans" - are tools used by management to avoid hostile takeovers. They come in the form of provisions written into a company's charter that allow the company to dilute ownership, increase debt, grant options, or take a variety of other actions to make takeovers targets less attractive to potential acquirers. While these are useful in some cases, they are often seen as a tool to help managment and the board protect their jobs at shareholder expense. Bulldog Investors alleges that this is the case; they believe the company's current poison pill is too restrictive and should be removed in order to best serve shareholders.

In a letter attached to a recent 13D/A filing, they stated:

"As you know, Full Value Partners L.P. is a member of a group that owns almost 15% of the outstanding common stock of Wilshire Enterprises, Inc. (WOC) and is its largest outside shareholder.

When we met on September 26, 2006 I requested that the board either eliminate or raise the threshold of WOC's poison pill.  In general, we believe that poison pills act to insulate and entrench incumbent boards and managements thereby making them less accountable to shareholders.  The situation at WOC is particularly disturbing in that your father's estate owns over 21% of WOC stock, well in excess of the 15% threshold at which the poison pill would be triggered by any other shareholder.

During a subsequent telephone call we again asked you to recommend that the board eliminate or raise the threshold of the poison pill.  We have yet to get a response.

Our patience is not boundless.  Therefore, we have decided that unless the board acts by December 5, 2006 to eliminate or lift the threshold for WOC's poison pill to 21%, we intend to (1) present a proposal at the next shareholder meeting to eliminate the poison pill and to elect directors that will support that proposal; and (2) commence litigation to eliminate the poison pill.

It is unfortunate that one result of these actions will be that WOC will incur costs it can ill afford given its tiny size.  But what choice do we have given your failure to respond to our previous requests to address our concerns?" (Read More)

If the poison pill provisions are removed or lowered, it could mean potential bids for the company. This makes WOC a stock worth watching in the following months.

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Medtronic Inc. (NYSE:MDT) announced that it authorized the spin-off of its defibrillator unit to create a new publicly traded company, to operate under the name of Physio-Control, Inc. While the company's press release contains the only details we know to date, the company will eventually have to file a 10-12B with the SEC that will shed much more light on this new entity (watch for it). Let's take a look at what this deal entails...

According to their press release:

"Physio-Control will be the world’s leader in the $1 billion market for external defibrillation products, including automated external defibrillators (AEDs) and manual defibrillators used by hospitals and emergency response personnel. The new company will offer the current portfolio of external defibrillation and emergency response systems, data management solutions and support services, including the popular LIFEPAK® family of external defibrillators. The company will have approximately 1,200 employees and will operate in more than 100 countries around the world. The new company will continue to be headquartered in Redmond, Washington.

The spin-off is intended to take the form of a tax-free distribution to Medtronic shareholders of all the shares of Physio-Control, which will then trade as a new public company in the United States. The intended transfer of employees and assets to Physio-Control will be structured globally according to all applicable logistical, tax and legal requirements. Medtronic plans to structure the transaction to meet all of the requirements for a tax-free distribution and list Physio-Control’s shares on the New York Stock Exchange. The expected stock distribution ratio, including the record date for determining shareholders of record entitled to receive the distribution dividend, will be determined at a later date. Medtronic has retained Goldman Sachs to advise it on the transaction, which is expected to be completed in the first half of Medtronic’s fiscal year 2008."

Now this transaction is interesting for several reasons. First of all, spin-offs generally represent great investment opportunities for value investors. Tax-free spin-offs like this involve shares being distributed to parent company shareholders as opposed to a more traditional IPO process (roadshow, investment bankers, etc). It is this process that creates the value often seen in spin-offs. Many parent company shareholders may not have any interest in holding Physio-control shares and will sell them as soon as possible. Moreover, many mutual funds may not be authorized to hold these shares, and again may be forced to sell them. This downside pressure combined with the lack of an "IPO craze" creates a great buying opportunity for value investors. This is especially true for companies like this one, which are born as market leaders with a strong cash flow.

The second interesting part of this transaction has more to do with Medtronics. The company said they were spinning off this division in order to focus more on treatments of chronic medial conditions. Now, awhile ago there was speculation that Medtronics may be interested in acquiring Cyberonics, Inc. (NDAQ:CYBX) - a company that not only operates in this area but also has an angry activist shareholder on its back. While CYBX has appreciated in price significantly since the last mention of this rumor, the market still believes there is potential as the stock moved up over 3% in today's trading. These are definitely two stocks to watch as this situation unfolds.

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