Applebees, Inc. (NDAQ:APPB) shares moved down $0.08, or 0.32%, to $24.74 today after Breeden Partners criticized the company's performance and governance and made several recommendations to the company's board of directors in a Schedule 13D/A filing with the SEC. This is not the first time that Breeden has become involved with Applebees either; back in December, the 5% holder pointed out similar problems with the company and threatened to nominate its own candidates to the company's board of directors.

The hedge fund began its letter by pointing out APPB's chronic under-performance compared to other company's in its peer group. They noted Applebee’s performance was 113.3% worse than Darden, 51.7% worse than the S&P 500, and 47.4% worse than the 75th percentile of the casual dining peer group. Next, Breeden pointed out the company's deteriorating fundamentals by showing declining same-store sales (5.2% to -1.0%), declining operating margins (16% to 12.4%), and declining return on capital invested (16% to 10%). The hedge fund noted that many of these problems stemmed from:

1. A fundamentally flawed growth strategy
2. Ineffective leadership during several years prior to Dave Goebel becoming CEO
3. Serious ongoing internal weaknesses in marketing and finance
4. Poor capital allocation policies
5. Excessive overhead costs
6. An ineffective board
7. Poor governance practices of various types
   
8. Inability to make timely decisions of consequence

The letter then moved into an area that is generating an increasing amount of press coverage - executive compensation. Breeden noted that even while the company has lost million in value over the past few years, executives were still granted over $30 million in bonuses! They also uncovered some other highly questionable executive perks, including personal use of corporate aircraft and even the use of shareholder funds to pay executives' personal income taxes. Perhaps the hedge fund said it best:

"We do not believe that shareholder interests are served by turning corporate aircraft into flying limousines for senior executives’ personal vacations. Just as importantly, this practice is inconsistent with the wholesome “neighborhood values” that Applebee’s claims to embody as a company. I am quite certain that most Applebee’s customers would be shocked to find out that a portion of the cost of their meal goes to fly the former CEO back and forth to his beach house aboard a corporate plane ... In addition to not requiring executives to pay any of the costs for their personal travel, the Committee has taken the extraordinary step of requiring shareholders to pay the income taxes owed by the CEO and other senior executives for their aerial vacation tours."

Clearly, there is a disconnect here between management and shareholders that the board is failing to correct. To address these issues, Breeden made several recommendations to the company's board of directors:

1. There should be a moratorium on any incentive compensation for any tier one executives so long as TSR remains negative. Similarly, incentive compensation should be zero if the company remains in the fourth quartile of relative performance in generating TSR.
2. A large proportion of incentive compensation (such as 50-75%) should be based on relative measures of performance compared to the company’s publicly traded casual dining competitors shown on page two of this letter.
3. Growth in average per restaurant royalty fees from franchise operations should be included as an incentive target for relevant executives (including the CEO and CFO), since franchisees represent 73% of the company’s system.
4. The level of free cash flow would be a healthy measure for some portion of incentive opportunities, especially for the CEO and CFO.
5. Minimum relative performance in generating TSR or EVA (such as being in the top 20%) should be a significant part of every executive’s target incentive eligibility. All executives should have a vital stake in the company outperforming its peers.
6. Personal use of corporate aircraft should be banned. Tax gross-up payments made during the last three years should be repaid to the company.
   

In a past filing, the hedge fund also made several recommendations on how to improve the company's performance:

1. Significantly reduce the number of company-owned restaurants by re-franchising a substantial number of restaurants in a multi-year program
2. Cease all further capital expenditures to open new company-owned restaurants, and minimize capital expenditures to renovate company-owned restaurants pending their sale
3. Reduce overall expense levels, especially in corporate level overhead, and dispose of non-core assets
4. Use excess cash generated from these steps and improved performance to increase the return of free cash flow to shareholders
5. Improve various governance practices, including reducing the number of insiders on the company's board, precluding former CEOs from continued board service strengthening independence requirements, eliminating the personal use of corporate aircraft and abolishing your staggered board

Combined, hopefully these changes will be implemented by the company's board of directors and management in order to protect the company's integrity and restore shareholder confidence in the company. The changes could also help the Applebees boost their performance and better motivate management to deliver shareholder value. This makes APPB a stock worth watching closely over the next few months.

Related Companies
Darden Restaurants, Inc. (DRI)
The Cheesecake Factory, Inc. (CAKE)
Mexican Restaurants, Inc. (CASA)

Nasdaq Stock Market Inc. (NDAQ:NDAQ) shares moved down $0.13, or 0.38%, to $33.94 today after the company said that they have not been contacted by the London Stock Exchange and do not have enough time to revise its $5.3 billion offer, which is due to expire on Saturday. Even after the Nasdaq threatened to sell off its nearly 30% stake in the exchange, the LSE still maintained that it was worth more than $5.3 billion even on a standalone basis. Meanwhile, LSE shareholders remain unconcerned as the stock trades at roughly even, retaining the buyout premium.

While the exchange has the ability to extend the offer until February 11th, it is more likely that they will simply attempt to gain control of the LSE by continuing to purchase shares. The Nasdaq currently owns approximately 30% of the company, while several hedge funds have also upped their stake. These hedge funds are hoping to accumulate a stake that they could later sell to the Nasdaq at a premium to help them quickly obtain a controlling stake. Among them is U.S. corporate raider Samuel Heyman who recently announced a 10.44% stake in the LSE.

If the Nasdaq is able to successfully acquire the LSE, it would create a trans-Atlantic exchange comprising over 6,400 companies with a total market capitalization of $11.8 trillion. Meanwhile, NYSE Group, Inc. (NYSE:NYX) has already agreed to a merger with Euronext and said it was working towards and agreement with the Tokyo Stock Exchange. Given the NYSE's successful transition abroad, it is becoming increasingly critical for the Nasdaq to establish itself. This situation is definitely one worth watching...

Related Companies
NYSE Group, Inc. (NYX)
CBOT Holdings, Inc. (CBOT)
Chicago Merchantile Exchange Holdings (CME)

Cost-U-Less Inc. (NDAQ:CULS) shares continued their rise today after Delafield Hambrecht demanded that the company immediately put itself up for sale in a letter attached to their Schedule 13D filing with the SEC. These demands come after Monarch Activist Partners - a 5.4% holder in the company - made similar demands for the company to put itself up for sale in order to deliver value back to shareholders.  They both argue that the company would be better off being private as it is incurring heavy costs associated with being a public company while failing to realize the benefits with an illiquid, under-performing stock.

Just how much is Cost-U-Less actually worth in their eyes? Well, Delafield Hambretch reasons that given the company's current enterprise value of $30 million, and using EBITDA estimates of $7 million for 2006 and $7.5 million for 2007, pro-forma EBITDA for a prospective buyer should be $8.5 million (after adding back public company expenses). If this assumption is correct, then the company currently trades at only 3.5x EBITDA. What does all of this mean? Well, Monarch Activist Partners noted that Pricesmart (the company's self-acknowledged closest competitor) trades at a multiple of almost 16x. This means that even after taking an extremely conservative approach and valuing the company with a 40% discount from the industry mean, CULS is worth in excess of $12 per share. This translates into a 40% or greater premium to today's stock price!

Delafield Hambrecht also indicated that while a strategic buyer would likely pay more for the company, financial buyers would still pay a significant premium to the current market rates. On that note, the hedge fund said that it would likely participate as such a bidder if the company were put up for sale. Many investors also insist that there could be other strategic buyers, given the company's low market cap and deep discount to its peers.

But will any of this materialize? Well, given the nearly 15% combined stake in company by these two hedge funds, management may decide to respond to shareholders rather than risk a confrontation with the two hedge funds. Indeed, both hedge funds said that if they did not hear back from management, they may seek to replace members of the board in a proxy contest, which should set off some alarms at company headquarters. Unfortunately, the company's Investor Relations personnel were unavailable for comment today when we called; however, we will follow-up and post any developments here at SECInvestor.com. Meanwhile, this is definitely a stock to keep a close eye on as this situation unfolds, especially given the deep discount in the company's share price.

Related Companies
Costco Wholesale Corporation (COST)
PriceSmart, Inc. (PSMT)
Wal-Mart Stores, Inc. (WMT)

Equity Office Properties Trust (NYSE:EOP) shares moved up $1.67, or 3.16%, to $54.36 today after the Blackstone Group raised their bid by 11%, from $48.50 per share to $54 per share. This new bid is now that highest on the table after a consortium of investors led by REIT Vornado Realty Trust (NYSE:VNO) had the previous high bid of $52 per share. The board of trustees continues to recommend the Blackstone deal and will hold a special shareholder meeting scheduled for February 5th to vote on the merger agreement. The company said it can close the Blackstone deal on or about Feb. 8.

Equity Office also noted that Blackstone's termination fee has been raised to $500 million from $200 million; however, the company said it would continue to provide diligence information to the Vornado group so that it can submit a definitive counteroffer, if it desires, by January 31st for consideration. The company was also quick to point out that the $500 million termination fee represented just 2.1% of the offer, and therefore would not significantly discourage any future bids for the company. Meanwhile, shareholders remain cautiously optimistic as shares of EOP current trade at $54.36 - above the $54 high offer. The final price of this highly irregular bidding war remains to be seen; however, this is definitely a stock to keep an eye on over the next couple of weeks.

Related Companies
Reckson Associates Realty (RA)
Highwoods Properties, Inc. (HIW)
American Financial Realty Trust (AFR)

eBay Inc. (NDAQ:EBAY) share rose $3.20, or 10.67%, to $33.12 today after the company surprised investors with a strong finish to a mixed year. The company's 8-K filing with the SEC revealed record net revenues of $1.7 billion with a net income of $346 million, or $0.24 per share. eBay also announced that it had repurchased $1 billion worth of stock and planned to expand its program to an additional $2 billion.

Meg Whitman, President and CEO of eBay, commented, "Q4 was an excellent quarter for eBay, bringing 2006 to a very good close. All three of the company’s business units delivered impressive results this quarter, including record net revenues from our Marketplaces business, strong total payment volume on PayPal, and a triple-digit increase in the number of Skype users." Specifically, eBay saw a 24% growth in net revenues from its Marketplaces business, a 57% increase in total payment volume for its PayPal segment, and a 129% increase in the number of Skype users.

Meanwhile, Bob Swam, Chief Financial Officer, stated, "Overall, Q4 was a great quarter, with strong results across all of our businesses. The $1 billion share repurchase we executed this quarter, in addition to expanding the program for another $2 billion, further underscores our confidence in the long-term outlook of the business." These share repurchases will continue to increase the company's earnings per share, as it now expects to make between $0.28 to $0.30 for Q1 2007 and $1.25 to $1.29 for FY2007. Combined, these aspects make eBay a stock worth taking a look at over the next few months.

Related Companies
Amazon.com, Inc. (AMZN)
Google, Inc. (GOOG)
Microsoft Corporation (MSFT)

Bristol-Myers Squibb Co. (NYSE:BMY) reported Q4 EPS of $0.19, three cents better than estimate. The company foresees a FY07 EPS of $1.20-$1.30, versus the consensus of $1.22.

Baxter International Inc. (NYSE:BAX) reported a Q4 EPS of $0.66, five cents better than estimates. Revenues were $2.8 billion versus the $2.72 billion consensus. For the first quarter 2007, the company expects organic sales to grow five to six percent, and earnings of $0.54 to $0.56 per diluted share. The current consensus is $0.53. The company expects earnings for full-year 2007 to be $2.47 to $2.53 per diluted share versus the consensus of $2.48.

Lockheed Martin (NYSE:LMT) reported Q4 earnings of $1.64 per share, eighteen cents better than the consensus. Revenues came in at $10.84 billion versus the consensus of $10.77 billion. The company predicts a FY07 EPS of $5.80-$6.00, versus prior guidance of $5.60-$5.80, with the consensus at $5.87.

AT&T Inc. (NYSE:T) reported a Q4 EPS of $0.61, two cents better than estimates. Revenues came in at $15.9 billion. The outlook was reaffirmed for continued double-digit adjusted earnings per share growth with growing free cash flow after dividends in 2007 and 2008; expected BellSouth merger synergies revised upward, estimated net present value increased from approximately $18 billion to approximately $22 billion.

Quest Diagnostics (NYSE:DGX) reported a Q4 EPS of $0.77, three cents better than estimates. Revenues were $1.5 billion versus the $1.57 billion consensus. For the full year 2007, the company expects results from continuing operations as follows: earnings per diluted share of between $2.70 and $3.00; and revenues of $6 billion to $6.2 billion. The current FY07 EPS consensus is $3.21 and the revenue consensus is $6.41 billion.

Lear (NYSE:LEA) reported a Q4 loss of $8.90 per share, which does not compare to the consensus of a $0.19 loss. Revenues came in at $4.28 billion versus the consensus of $4.14 billion. The company foresees FY07 revenues to be $15 billion versus the consensus of $16.3 billion.

SunPower Corporation (NDAQ:SPWR) reported a Q4 EPS of $0.18, one cent better than estimates. Revenues came in higher at $74.5 million versus the consensus of $71.85 million. The company predicts a Q1 EPS of $0.18-$0.20, and Q1 revenues to be $125 to $135 million.  The guidance for the FY07 EPS is $0.90-$1.00 and FY07 revenues to be $640 to $670 million.

Nucor Corporation (NYSE:NUE) reported a Q4 EPS of $1.35 versus the consensus of $1.13. Revenues were $3.47 billion versus the $3.34 billion consensus.

Midwest Air Group, Inc. (AMEX:MEH) reported a Q4 EPS of $0.16, five cents better than estimates. Revenues were $168.3 million versus the $168.35 million consensus. For the full year of 2007, Midwest is projecting non-GAAP net earnings per diluted share to be in excess of $1.70. The current consensus is $0.89. Midwest is also projecting that 2007 revenues will exceed $825 million, with the current consensus of $746.6 million.

Brunswick Corporation (NYSE:BC) reported a Q4 EPS of $0.47 versus the consensus of $0.38. Revenues were $1.37 billion versus the $1.35 billion consensus. For 2007, the company is estimating earnings to be lower, in the range of $1.65 to $2.00 per share, with the current consensus at $2.11.  

McKesson (NYSE:MCK) reported a Q3 EPS of $0.79, eleven cents better than estimates. The company foresees the FY07 EPS to be between $2.75-2.85 versus the $2.74 consensus.

MEMC Electronic (NYSE:WFR) reported a Q4 EPS of $0.68, nine cents better than estimates. Revenues were $420.5 million versus the $416.09 million consensus. The company predicts FY revenues of $1.9 billion and an EPS over $3.00 per share. The FY revenue consensus is $1.84 billion and the EPS consensus is $2.55.

Microsoft (NDAQ:MSFT) reported a Q2 EPS of $0.26, three cents better than estimates. Revenues were $12.54 billion versus the $12.08 billion consensus.

Callidus Software (NDAQ:CALD) reported a Q4 EPS of $0.00, five cents better than estimates. Revenues were $24.1 million versus the $20.4 million consensus. The company predicts Q1 revenues between $20.5 and $22 million, versus the $18.2 million consensus.

Synaptics (NDAQ:SYNA) reported a Q2 EPS of $0.32, three cents below the consensus of $0.35. Revenues were $76.1 million versus the $71.22 million consensus. The company foresees Q3 revenues between $58 and $61 million versus the $55 million consensus.

Columbia Sportswear (NDAQ:COLM) reported a Q4 EPS of $1.06, eight cents better than estimates. Revenues were $361.8 million versus the $357.20 million consensus.

New York Times Company (NYSE:NYT) shares fell $0.37, or 1.55%, to $23.47 today after Morgan Stanley indicated their disappointment with the company's decision to retain their dual-class voting structure. Morgan Stanley's Schedule 13D filing with the SEC noted that "by excluding the proposal from the proxy, the company has left the Class A shareholders with limited avenues for expressing their dissatisfaction with the poor performance of the managers of their business." Investor concerns about this dual-class voting structure are not new; in fact, during last year's annual meeting 30% of the company's Class A votes were withheld in protest.

Why is this such a major concern? Well, Morgan Stanley insisted in its letter that many independent analysts believe NYT is worth 50% more than the current stock price suggests; moreover, they contend that the difference between the company's intrinsic value and share price is due to mismanagement and poor governance. As a result, Morgan Stanley said that after patiently holding the stock for more than ten years, they don't think that they would be best serving their clients interests if they sold their stake at such a substantial discount to fair value. The fund said that if the company failed to act they may consider withholding their votes in future annual meets in protest. If shareholders succeed in eventually correcting the mismanagement, it could mean significant share appreciation for NYT investors. This makes NYT a company worth watching over the next few months.

Related Companies
The Washington Post Co. (WPO)
Gannett Co., Inc. (GCI)
Dow Jones & Company, Inc. (DJ)

Electro Scientific Industries, Inc. (NDAQ:ESIO) shares rose $0.45, or 2.19%, to $21.02 today after 11.6% holder Nierenberg Investment Management filed a Schedule 13D/A with the SEC that commented on Third Avenue Management's recent proposals along with the company's current actions. The hedge fund said that it was pleased with management's willingness to act on the proposals and was impressed by TAM's suggestion of a combined share repurchase and dividend program. Nierenberg also noted the fact that United Microelectronics Corp. (UMC) recently said that it would use its excess cash to retire 30% of its outstanding shares and pay shareholders a one-time cash dividend - actions similar to those proposed by the two hedge funds.

Nierenberg also offered an extension to TAM's plans:

"As Mr. Jensen's letter points out so powerfully, there are other perfectly acceptable ways to use excess cash to build shareholder value. If, for example, ESIO's Board and advisors were to conclude that the best way to improve ROE were to repurchase shares, we could support that decision with just two conditions. First, we would want the size of the repurchase program to be large enough that it would meaningfully boost both ROE and earnings per share, like we believe UMC's program will. And, second, we would like ESIO to make a continuing commitment to use excess cash flow to repurchase a significant percentage of shares on an ongoing basis. To illustrate the size of programs which could be acceptable to us, we could support a one time repurchase of six million shares, which is over 20% of the outstanding share count, succeeded by a continuing program to repurchase at least one million more shares annually."

Clearly, there are many ways in which the company could utilize its excess cash to benefit shareholders. The most important thing to watch, as Nierenberg pointed out, is the scale on which repurchases or dividends are handled. Many times companies will try and silence concerned shareholders by initiating insignificant share buybacks or small cash dividends, which ultimately do very little to deliver shareholder value. A program like UMC's, however, would significantly reduce the number of outstanding shares and consequently boost the company's EPS significantly. Moreover, the cash dividend would rid the company of its idle cash, which can actually be dangerous to have in some cases. Overall, this is definitely a stock to watch as management works to craft a meaningful response to these proposals.

Related Companies
GSI Group, Inc. (GSIG)
CyberOptics Corporation (CYBE)
Cognex Corporation (CGNX)

Altria Group, Inc. (NYSE:MO) shares rose $0.26, or 0.3%, to $88.02 in early morning trading after Merrill Lynch raised its price target from $92 to $98. This follows several other analyst recommendations, including Goldman Sachs who recommended buying the stock before the details of its Kraft spin-off are announced on January 31st. These analysts believe that Kraft spin-off combined with an improving international tobacco market will help propel the stock to new highs now that the company has cleared its legal plate.

But why is this such a great deal for shareholders? Well, the Kraft spin-off is expected to generate approximately $34 billion in cash, which the company could use to buyback a quarter of its outstanding shares, raise its dividends, or use to expand into international markets. Secondly, Altria shareholders will automatically receive shares in Kraft (NYSE:KFT), which have performed exceptionally well in 2006 moving up 22%. Finally, we know that Altria has always been a robust company; even in the face of several mega-lawsuits, the company has still managed to almost triple in value since 2000 while also paying a nice dividend. Combined, these factors make MO a stock worth keeping a close eye, especially on January 31st when the details of the spin-off are released.

Related Companies
Reynolds American, Inc. (RAI)
Carolina Group (CG)
Vector Group Ltd. (VGR)

Air Products (NYSE:APD) reported Q4 EPS of $1.03, ten cents better than estimates. Revenues were $2.43 billion versus the consensus of $2.29 billion. The company currently anticipates fiscal Q2 EPS in the range of $.98 to $1.03 per share. The current consensus is $0.98.  

Corning Incorporated (NYSE:GLW) reported Q4 EPS of $0.31 Revenues were $1.37 billion versus $1.30 billion consensus. Corning said that it expects Q1 sales to be in the range of $1.26 billion to $1.31 billion and earnings per share in the range of $0.24 to $0.27. The current Q1 revenue consensus is $1.34 billion and EPS consensus is $0.28.  

AmerisourceBergen (NYSE:ABC) reported Q1 earnings of $0.65 per share, nine cents better than the estimates. Revenues came in at $15.7 billion. The company foresees FY07 EPS of $2.45-$2.60 versus prior guidance of $2.40-$2.55 and the consensus of $2.50.

Bank of America (NYSE:BAC) announced a 200 million share buyback.

Energen Corporation (NYSE:EGN) reported Q4 EPS of $1.31 versus the consensus of $0.72. Revenues were $380.8 million versus $326.68 million consensus. Energen reaffirmed its 2007 earnings guidance range of $3.80 to $4.20 per diluted share. The current FY07 EPS consensus is $3.94. 

Novellus (NDAQ:NVLS) reported Q4 EPS of $0.63, eight cents better than estimates. Revenues were $438.5 million versus $436.44 million consensus.

Symantec (NDAQ:SYMC) reported Q3 EPS of $0.26, one cent better than estimates. Revenues were $1.324 billion versus the $1.31 billion consensus. The company predicts Q4 Non-GAAP revenues of $1.25-$1.28 billion versus the consensus of $1.27 billion, with an EPS OF $0.18-$0.20 versus the consensus of $0.21. The company has also announced a $1 billion stock buyback plan.  

Ariba (NDAQ:ARBA) reported Q1 EPS of $0.13, four cents better than estimates. Revenues were $77.2 million versus the $75.92 million consensus.

eBay (NDAQ:EBAY) reported Q4 EPS of $0.31, three cents better than estimates. Revenues were $1.72 billion versus the $1.67 billion consensus. The company predicts a FY07 EPS of $1.25-$1.29 versus the consensus of $1.23.  

Textron (NYSE:TXT) reported Q4 EPS of $1.54, eight cents better than estimates. Revenues were $3.2 billion versus $3.10 billion consensus. The Q1 EPS  is below guidance with $1.15-$1.25 versus the consensus of $1.36 . The company foresees a FY07 EPS of $5.90-$6.10 versus the consensus of $6.28.

Intersil (NDAQ:ISIL) reported Q1 EPS of $0.34, two cents better than estimates. Revenues were $181.1 million versus the $185.02 million consensus. The company sees the guidance for Q1 EPS of $0.27-$0.29 versus the consensus of $0.30, with Q1 revenues of $162-$168 million versus the consensus of $183.2 million.

Varian Inc (NDAQ:VARI) reported Q1 EPS of $0.61, thirteen cents better than estimates. Revenues were $217.9 million versus $207.94 million consensus. Also, the company announced a $100 million buyback.

Polycom (NDAQ:PLCM) reported Q4 EPS of $0.36, six cents better than estimates. Revenues were $186.5 million versus $180.56 million consensus.

Bottomline Technologies (NDAQ:EPAY) reported Q1 EPS of $0.10, eight cents better than estimates. Revenues were $29.7 million versus the $27.16 million consensus.

Plexus (NDAQ:PLXS) reported Q4 EPS of $0.32, one cent worse than estimates. Revenues were $381 million versus $390.40 million consensus. The company foresees a Q2 EPS of $0.15-$0.19, versus the consensus of $0.35, with Q2 revenues of $345-$355 million versus the consensus of $403.14 million.

Semitool (NDAQ:SMTL) reported Q1 EPS of $0.18, six cents better than estimates.  Revenues were $68 million versus the $65.23 million consensus, while predicting a Q2 EPS of $0.02-$0.04 versus the consensus of $0.18. Q2 revs are to be $55-$57 million versus the consensus of $70.83 million.