ADESA, Inc. (NYSE:KAR) shares moved up $0.76, or 2.69%, to $29.00 today after Royce Associates LLC voiced their concerns about the company's current merger plans in a Schedule 13D filing with the SEC. The company recently agreed to be acquired for $27.85 per share in a multi-sided deal worth approximately $3 billion. Royce Associates, however, believes that the company's shares are worth more than the buyout price and questioned the company's accountability to shareholders. This notion was then supported today by Gabelli & Company, Inc., who said in a press release that they agreed with Royce Associates' analysis of the company. With shares currently trading around $29.00, investors are betting that this opposition will be enough for the company to reconsider its plans.

Just how much are KAR shares worth? Well, Royce Associates provided us with an excellent analysis in their Schedule 13D filing with the SEC:

On a valuation basis (Enterprise Value/TTM EBIT), the company is being acquired at a 24% discount to a "peer group" of publicly-traded comparables (including Copart [CPRT] and Ritchie Brothers [RBA]), and a 37.5% discount to the private equity purchase multiple of Insurance Auto Auction, Inc (IAAI) which was announced in February 2005. Using another valuation methodology (EV/TTM EBITDA), a similar disparity results, with the company being acquired at a 26% discount to the same group of comparables, and a 13.7% discount to the IAAI deal. More distressing is the fact that IAAI's EBIT margins and returns were well below KAR's, yet IAAI still commanded a higher take-out valuation from private equity investors.

On a Sum-of-the-Parts basis, if you apply the public company comparable multiple average (15.8x TTM EBIT) to KAR's Auction Services TTM EBIT (of $164.7m = $2,602m) and 8x TTM EBIT to the Dealer Services segment EBIT (of $86.1m = $689m), subtract SG&A ($23.4m), add back Cash ($211m) and subtract Long Term Debt ($330m), divided by shares outstanding (90.2m), we arrive at a target price of $35.00.

Royce Associates also brought up some other major problems with the transaction. Why, for example, didn't an auction process begin with strategic buyers, as opposed to financial buyers? Furthermore, why was the one strategic buyer, which had expressed an interest earlier, not included in the bidding process? These concerns are supplemented by a host of other issues brought up by the hedge fund, including:

1. Adesa, Inc has agreed to indemnify officers and directors against "any personal liability that may result from this transaction "
2. Adesa, Inc entered into Change of Control agreements with members of senior management as recently as 12/21/06, to pay lump sums in cash of up to 3x the base pay and annual bonus, if these employees are terminated after this deal. We already know (press release dated 1/16/07) that several members of existing management are likely to be terminated. Are these recent Change of Control agreements a meaningful incentive to enter into this sub-par transaction?
3. One of the acquiring private equity investors also happens to be one of the largest public shareholders at 9/06. Common sense suggests that one would only go to the trouble of "taking private" an existing holding, if he believed it was meaningfully undervalued.

Adesa shares have significantly underperformed its peers since going public, rising only 7.1% annualized. Now, management wants to hand over the business to financial buyers at a mere 16% premium to its IPO price, instead of extracting maximum value by either breaking up the company into its three components or making the investment decisions that should have been made years ago to help the stock's price reach that of its peers. Royce Associates' said it best: "We urge the board, as part of its fiduciary duty, to revisit the price as well as the process by which Adesa will be acquired, in order to obtain a more equitable price for all current shareholders. Based on our calculations outlined above, using a sum-of-the-parts methodology, a price of $35.00 per share would be more in line with industry comparables, excluding any strategic acquisition premium." If the company decides to listen to this advice, it could mean significant share appreciation for savvy investors - this is definitely a stock worth watching!

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Cost-U-Less, Inc. (NDAQ:CULS) responded to requests made by two activist hedge funds yesterday in an 8-K filing with the SEC. The two hedge funds had pointed out the many problems with Cost-U-Less operations and suggested that the company consider putting itself up for sale in order to unlock shareholder value. They suggested that shares of CULS could be worth in excess of $12 per share in the event of a buyout. After not receiving any communication from the company, they threatened a proxy contest in order to more actively generate a response or action.

This worked today as the company finally issued a press release explaining its position. The company explained that its board of directors had contacted investment banks and other advisers in several instances in order to help them evaluate strategic alternatives and increase shareholder value/liquidity. Clearly, most of these evaluations did not result in anything material; however, their most recent financial adviser proves to be quite interesting. The company revealed that in November 2006, it engaged its current financial adviser, Cascadia Capital, LLC, to assist the board in exploring a range of strategic alternatives.

This could prove to be interesting because Cascadia Capital is a Seattle-based investment bank is a nationally recognized M&A advisory practice, which suggests that they may be exploring an M&A transaction. This could include a possible sale of the company or perhaps an acquisition or merger of their own. Unfortunately, the company has a policy in place that prevents it from commenting publicly on the nature or content of their ongoing deliberations, so it's impossible to tell which options they are exploring. However, given Delafield's offer to purchase the company and other interest, we can hope that a sale of the company is at least being considered. This makes CULS a stock that is worth following over the next few months!

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Feldman Mall Properties, Inc. (NYSE:FMP) shares moved down $0.14, or 1.18%, to $11.69 in today's trading after Mercury Real Estate Advisors LLC again demanded that the company immediately hire an investment banker and put itself up for sale in a Schedule 13D/A filing with the SEC. In December, the hedge fund filed their initial Schedule 13D with the SEC requesting inclusion in the company's next proxy statement and recommending that the company's consider putting itself up for sale. They supported this request with the following:

1. The corporation has failed to match returns reflected by certain industry benchmarks. Since going public on December 15, 2004, the corporation has posted a total return of negative 4.79%. The MSCI US REIT Index has achieved a total return of positive 55.77% over this same period. This reflects substantial underperformance of 60.53%.
2. The corporation lacks the sufficient size required to operate as a public company. In our view, shareholders’ equity is being wasted on general and administrative expenses that are not commensurate with the size of the company. General and administrative expenses at the corporation totaled 13.6% of revenues during fiscal 2005 while the ratio of G&A to revenues in the Corporation’s Peer Group average 4.3%.
3. The corporation has suffered a series of earnings misses and downward revisions to guidance. The first downward revision of guidance came in November 2005 with regards to third quarter 2005 results. The corporation lowered FFO/share guidance 17% from a range of $0.28-$0.30 to $0.23-$0.25. Fourth quarter 2005 FFO/share guidance was also lowered from a range of $0.25-$0.27 to $0.17-$0.18. This is a 32% decrease from the guidance that was offered just a few months prior. In our view, management has lost credibility with investors as a result of being overly optimistic and not realistic on a number of occasions.
4. The corporation is an attractive acquisition candidate for a national or regional mall owner/operator. While we believe that the corporation is too small to generate economies of scale with its widely dispersed portfolio, several of the national or regional owner/operators could achieve operating synergies through an acquisition of the corporation. Further, we believe the corporation is trading at a significant discount to its intrinsic or liquidation value.
   

Since then, the hedge fund said that it had received numerous inquiries from well known and established, national and regional mall owners and operations interested in exploring a purchase of the company and its assets. Given that the company trades at a significant discount to its liquidation value, Mercury Real Estate Advisors continues to insist that a sale of company is the best course of action to maximize shareholder value. Moreover, Mercury Real Estate Advisors' willingness to put itself on the next proxy statement illustrates their motivation to make this happen. Combined, these factors make this a great stock to watch for opportunistic investors!

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Pogo Producting Company (NYSE:PPP) shares moved up $1.77, or 3.37%, to $49.55 today after Third Avenue Management LLC voiced their concerns about the company in a Schedule 13D filing with the SEC. This news follows previous concerns about the company's underperformance and valuation voiced by Daniel Loeb's Third Point. Combined, the two activist investors now control roughly 14% of the company's outstanding shares and have both pledged to take further action if necessary to unlock shareholder value. The significant stake in the company along with the threat of a proxy battle may finally warrant a meaningful response from the company's management and board of directors.

What issues do these hedge funds have with the company? Well, Daniel Loeb pointed out in December that the company's stock has appreciated less than half the rate of its peers for every time period in the past decade (on a cumulative basis)! Moreover, he questioned the company's Northrock Resources acquisition in Canada in which spent over $350 million (approximately 20% of the purchase price) in capital trying to improve; however, production in this segment has actually declined 10% from 30,000 barrels of oil equivalents per day to 27,000! Given these failures by management, Third Point recommended that the company immediately put itself up for sale or they would pursue a proxy battle to do it themselves.

Third Avenue Management expressed similar concerns today over the company's mismanagement and poor valuation. The hedge fund pointed out that the company's 2003 net debt has increased by more than six times and net debt per MCFE of proved reserves has increased by more than five times. While this amount of debt may be manageable, TAM pointed out that levering up during a period of historically high commodity prices could cause some major problems in the future. Next, TAM noted that company's production per share has dropped by more than 20% while, on a unit of production basis, lease operating expense has increased by 178% and G&A has tripled. The hedge fund insisted that this combination of higher debt, lower production, higher operating costs, and the underwhelming results from the company's recent acquisition of Northrock Resources were the main factors behind the poor relative performance of Pogo's stock over the last three years. And to top it all off, despite Pogo's poor performance over the past several years, the TAM noted that the company's compensation has been rising! In fact, company executives received an 11.8% increase in their base salary with a bonus that grew by 25% in 2005! The company also issued a restricted stock award valued at approximately $2 million to executives, up a staggering 55% compared to 2004! As a result of all of this, Third Avenue Management said that they would begin talks with other shareholders or take actions on their own in order to solve these problems and unlock shareholder value.

Clearly, if Third Avenue Management and/or Third Point are able to take convince the company to put itself up for sale, it could mean significant share appreciation for investors in a relatively short period of time. While we were not able to get a response yet from either of the two hedge funds, we will keep SECInvestor updated on any new information we receive. Overall, this is definitely a stock worth watching!

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Brooks Automation Inc. (NDAQ:BRKS) shares moved up $0.17, or 1.22%, to $14.08 today after Nierenberg Investment Management said that they strongly disagree with the decision made by Institutional Shareholder Services and Glass Lewis to withhold their votes from several incumbent BRKS directors. Details regarding this proxy vote were disclosed in the company's recent Schedule 14A proxy filing with the SEC. While the company's shares have stalled somewhat during recent years, the stock is trading 32% higher than its 2006 lows.

In their Schedule 13D filing with the SEC, Nierenberg noted:

"We believe that the Board of Directors of BRKS has improved dramatically the quality of its corporate governance in the past year. First, the Board announced that former Chairman and CEO Robert Therrien would not be re-nominated for another term on the Board.  Second, when the Wall Street Journal broke the story last March about the appearance of  back-dated stock option grants made to Mr. Therrien, the Board immediately appointed a special committee  of  newer, independent  directors to examine the matter and empowered the special committee to engage independent legal and accounting counsel. Later, after several months of intensive examination of the Therrien and other suspect stock option grants, the two board  members who had been the Board's compensation committee  at the time the Therrien grants were made resigned from the Board of Directors. Now BRKS' Board has a capable new Chair; the former Lead Director is no longer on the Board; and BRKS' compensation committee and its nominating and governance committee also have new Chairs. The company is publicly committed to cooperating fully with federal examinations of past option practices and to never repeating the unfortunate practices of the past. Fundamentally, we believe that BRKS has a strong balance sheet, a sensible corporate strategy, and excellent management to execute the strategy ... We believe that the formulaic approach taken by ISS and GL would, if followed in this case, cause shareholders  to withhold votes from directors who have been doing difficult work exceptionally well. We believe that doing the right thing should be rewarded, not punished."

Overall, this shareholders meeting will be one to watch closely as many large shareholders are beginning to question the company's leadership. Meanwhile, the company's stock continues to perform well into 2007 and is definitely one to keep an eye on over the next few months.

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Motorola Inc. (NYSE:MOT) shares moved up $0.16, or 6.39%, to $19.47 in early trading today after the company confirmed that it had received notice of Carl Icahn's intent to nominate himself to the board of directors at the next annual meeting. The Schedule 14A filing with the SEC offered no additional information regarding his intentions; however, we know that Carl Icahn is an activist investor that is not afraid to take action to unlock shareholder value. He currently holds a 1.39% stake in the company, which is below the reporting threshold (so no Schedule 13Ds have been filed). We believe, however, that Icahn may intend to take advantage of the company's large cash position (currently standing at around $6 per share). It is not uncommon for activist shareholders to request special dividends, share buybacks, or other measures designed to utilize extra cash to increase the stock's price. Motorola told us that all they are unaware of Mr. Icahn's intentions as stated in the filing, and would not comment on any past communications between the two. However, this is definitely a stock worth keeping an eye on!

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News and Events

Motorola, Inc. (NYSE:MOT) shares moved up today after Carl Icahn disclosed a small stake in the company and said that he wanted a seat on the company's board of directors. Mr. Icahn is well known for his shareholder activism in company's as large as Time Warner. Many expect him to institute a share buyback or special dividend if he attains a seat.

NYSE Group, Inc. (NYSE:NYX) is set to announce a strategic alliance with the Tokyo Stock Exchange tomorrow morning. NYSE Group Chief Executive John Thain and Tokyo Stock Exchange Chief Executive Taizo Nishimuro will attend a briefing to discuss the alliance; however, the company offered no additional comments on any specifics.

Altria Group, Inc. (NYSE:MO) is expected to report higher fourth-quarter results, but news of its plans to spin off its majority stake in Kraft Foods, Inc. (NYSE:KFT) is expected to overshadow these announcements. Some are concerned that Kraft's shares could experience some downside pressure as uninterested MO shareholders immediately sell off their stakes. Meanwhile, even though investors are widely expecting the Kraft news, it is likely to provide a further boost to Altria's share price.

Man Group plc (LON:EMG) said that it would be spinning off its brokerage arm through an initial public offering that could be one of the largest in Wall Street history. According to CNBC, the company has been interviewing investment banking firms to serve as underwriter for an IPO that could take place by the middle of this year, possibly as early as late spring.

US Airways Group Inc. (NYSE:LCC) said that it would stand by its Delta Airlines (OTC:DARLQ) deadline for its $9.87 billion takeover bid. Meanwhile, an unofficial group of Delta Air Lines creditors wants to postpone a February 7th bankruptcy hearing so that creditors can take a closer look at the offer.

Earnings Announcements
69 Positive, 0 Neutral, 40 Negative Expected

Axcelis Technologies, Inc. (NDAQ:ACLS) is expected to report earnings of $0.12 up 1,100% from last quarter's $0.01. The company's stock is up over 2% after-hours today prior to the announcement.

The Allstate Corporation (NYSE:ALL) said that its fourth quarter earnings rose 16.5%, but missed analyst estimates. The insurance company reported earnings of $1.78 per share, slightly less than the analyst consensus of $1.84 per share. The stock fell 2% after-hours.

SanDisk Corporation (NYSE:SNDK) reported higher than expected earnings of 87 cents per share, beating analyst estimates of 72 cents per share. The stock closed up 1.4% on the news today.

Novelis Inc. (NYSE:NVL) shares are up over 24% since last week on reports that Aditya Birla Group could make an offer for the company. The reports cited a $5 to $6 billion offer that would include the assumption of $2.4 billion in debt, which would would put a potential offer at $35 to $49 share. Analysts at Davenport also suggested that there could be other bidders for the company and maintain their belief that NVL shares could be worth around $68 per share on a takeover basis, based on the NPV of free cash flows through 2010. Officially, the company said it was "in discussions with various parties that could lead to a potential sale of the company". Meanwhile, the company's shares moved down today on reports that the company was interested in acquiring Hindalco. While the company has yet to comment, the acquisition would not make much sense for NVL on the surface, as the two would have very few synergies. Overall, this is definitely a stock to keep an eye on as the company continues its discussions with interested parties!

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PYR Energy Corp. (AMEX:PYR) shares moved up $0.13, or 14%, to $1.06 in mid-day trading today after Samson Investment Company made a $1.23 per share offer for the company. The Schedule 13D filing noted that the fund had attempted to contact the company's board several times without receiving a response and therefore decided to make their offer public. Samson said they would acquire 100% of the outstanding common shares at a cash price of $1.23 per share, which represents a 30% premium over Friday's $0.94 share price. Moreover, the investment company said that the buyout would be funded with cash on hand, so no financing would be required. Consequently, Samson said that it could quickly finalize an acquisition agreement and proceed without delay. Finally, they requested a response to the proposal no later than 4:00PM CST on February 1, 2007. Overall, this would be a smooth transaction for both the company and its shareholders. Given the substantial premium of the stock's current market price, the company will likely be forced to at least respond to the offer or risk alienating many of their shareholders. We could not reach the company for comment yet, but we will update this page if and when we hear back from them. Until then PYR is definitely a stock worth keeping an eye on as this situation unfolds!

UPDATE: The company's IR informed us that the they are currently reviewing the offer and offered no further comment.

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Bristol-Myers Squibb Co. (NYSE:BMY) shares moved up $1.72, or 6.56%, to $27.93 in early trading today after rumors surfaced that the company could be acquired by Sanofi-Aventis (NYSE:SNY). La Lettre de l'Expansion - a French newspaper - reported that a pre-merger memorandum has even been signed last week. Meanwhile, both Sanofi-Aventis and Bristol-Myers declined to comment on the speculation.

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