AeroVironment, Inc. (NDAQ:AVAV) shares moved up $6.93, or 40.76%, to $23.93 on its first day of trading on the Nasdaq. This jump came after the stock priced at $17 per share, which was one dollar above the originally anticipated range of $14 to $16 per share. The company designs, develops, and produces advanced unmanned aircraft systems for the Department of Defense along with fast charge systems for industrial vehical batteries for commercial customers. AeroVironment believes that both of these markets are still in the early stages of development and have significant growth potential. Moreover, they insist that several other technologies that are in their research and development pipline will also emerge as new growth platforms in the future. Given their successful operation and impressive annual revenue growth rate of 71%, the company believes that they have proven their ability to invent and deliver advanced solutions to help government and commercial customers operate more effectively and efficiently. Whether or not this justifies the jump we saw today remains to be seen; however, this is definitely a stock to keep an eye on as it matures.

TNS Inc. (NYSE:TNS) shares moved up $0.19, or 0.98%, to $19.65 today after Shamrock Activist Value Fund disclosed a 5.02% stake in the company and urged the Board of Directors to consider a $6/share special dividend. This news comes after the company recently disclosed that there were several buyers interested in acquiring the company, including the founder and former CEO who has already made a $20/share offer for the company. To this end, the Schedule 13D filed with the SEC also contained a letter with several other requests directed towards the company's board.

These requests included:

1. Disclosure of Key Financial Targets: We propose that the Board disclose EBITDA, FCF (free cash flow: operating cash flow less maintenance capital expenditures) and ROIC (return-on-invested capital) targets for FY 2007 and FY 2008. With this critical information, shareholders can judge for themselves the performance of management and the Board and whether or not an offer for the Company is adequate.
2. Long-Term Incentive Compensation: A Board’s design and implementation of an overall compensation plan, particularly the long-term incentive elements, represent a vivid lens to its governance. We were disappointed that the most recent issuance of restricted stock had no alignment to internal financial metrics that, we believe, correlate to long-term shareholder value creation. I will send to you under separate cover a summary compensation “white paper” outlining a conceptual framework consistent with emerging best practices that seek to provide a meaningful relationship between pay and performance.
3. Capital Management Strategy: We urge the Board to consider distributing to shareholders approximately $150mm of cash or $6.00 per share. Because the Company has a solid customer base, and steady and recurring revenues, it should not require the current level of financial flexibility. We believe an overly capitalized balance sheet often results in poor capital allocation decisions and presents the opportunity for a financial buyer to capture value at the expense of the existing owners. Capital can be returned to shareholders through a variety of mechanisms: dividends, special dividends, share repurchase, etc. Importantly, the Board should seek to articulate a comprehensive capital management policy given the Company’s current corporate strategy.
4. Board Composition: We encourage the Board to recruit immediately two new independent directors. The directors should be selected through a disciplined process that specifies key skills and attributes that compliment those of the existing Board members and match well the strategic challenges and opportunities of the Company over the next several years. We also strongly suggest that you actively seek input in good faith from your shareholders during this process. Fresh perspectives seem vital and appropriate given the recent history at the Company.
   

Shamrock has clearly identified several key issues that need to be addressed before any M&A transactions. First, they noted that the company has an excess amount of cash that could be utilized by potential buyers at the expense of existing shareholders. To solve this issue, they recommended that the company issue a special cash dividend of $6/share to relieve the company of approximate $150 million worth of capital. Secondly, the activist hedge fund made requests aimed at increasing transparency and streamlining the company's costs in order to make it easier for investors to come up with a fair value for the company in the event that a buyer surfaces. Finally, Shamrock requested that two independent directors be found to assist the company in evaluating any strategic alternatives and actively represent shareholder interests in the future. Combined, these recommendations should help the company avoid low-ball offers while encouraging a fair valuation of the company's stock price. This makes TNS a stock worth keeping on the radar over the next few months!

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Electro Scientific Industries Inc. (NDAQ:ESIO) moved up $0.82, or 4.22%, to $20.26 this afternoon after the company's largest shareholder, Third Avenue Management LLC, changed their filing status from a Schedule 13G to a Schedule 13D. This more activist stance came as a result of the TAM's disappointment with the company's stock performance. Consequently, TAM recommended that the Board of Directors explore possible share repurchases and/or extraordinary dividends in order to unlock shareholder value. In a letter, the firm noted that "were the Board to consider a return of capital to shareholders, as I suggest it does, my sense is that some combination of a one-time dividend (say $2 per share) and a committed, long-term share repurchase program would effectively balance the needs of the corporation and those of the outside passive shareholders like TAM."

These demands come not long after Nierenberg Investment Management expressed similar beliefs in their Schedule 13D/A filing with the SEC. The hedge fund noted that ESIO shares could be worth as much as $40/share in three to four years if management took steps to unlock its value. In their analysis, they noted that ESIO has an additional $8 million of cash, not included in the cash and marketable securities lines of the balance sheet, $1 million from a subsequent insurance settlement and $7 million in a litigation bond in Taiwan, which increases cash per share to $7.73. Moreover they said that, if ESIO were to restore inventories and receivables to June 3, 2006 levels (and they believe both ultimately can be reduced even more), and if they were to add the above-mentioned $8 million cash, ESIO's total cash and marketable securities would be $8.21 per share, 43.2% of ESIO's share price at the close on January 9.

The fact is that ESIO is profitable, cash flow positive, and it has zero debt; however, its share price has dropped from a $25 high in 2006 to $19 before rebounding to its current levels. Consequently, two activist shareholders are now demanding that something be done to solve the problem, and this makes ESIO a stock that is definitely worth keeping an eye on over the new few months!

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