Ceridian Corporation (NYSE:CEN) shares remained roughly even during the past two days after activist investors Bill Ackman's Pershing Square and Relational Partners LLC stepped up their efforts to convince the company to unlock value through a Comdata spin off and stronger focus on the company's grossly underperforming HR business. The most recent development began on January 18th when Ackman filed a DEF14A consent solicitation (the first step in a proxy battle) aimed at replacing the company's board during the next annual meeting. This came after Ackman held a three hour meeting with the new CEO in which she effectively shot down Ackman's proposal to spin-off Comdata and seemed unconcerned about the possible loss of Mr. Krow - a key figure in the company. Immediately after this DEF14A was filed, the company responded with a letter stating they were "very surprised" by the concerns in their letter and called the solicitation "unfounded and unwarranted". However, this appears to be too little, too late as Ackman continued to acquire substantial blocks of shares (revealed in a recent Form 4 filing with the SEC).

Relational Investors fired their own shots today in a letter saying that they had tried to contact management for over four months without success, and had begun selling their stake in the company as a result. The fund also voiced their support for Bill Ackman saying: "We want to make sure that the Board knows that we unequivocally support each of the points made in Pershing Square's letter. In particular, we think it was a major error to bring in a Chief Executive Officer who would stifle and frustrate the entrepreneurial and highly successful management team at Comdata instead of focusing on the woefully under performing HR business. We believe, as we have explained before, that Comdata should be liberated from the Ceridian business solution and that all focus, including the Board's, should be on restoring operational excellence to the HR business. We intend to vote our remaining shares in support of Pershing Square or other shareholders' efforts to correct these errors."

So where does it go from here? Well, sometimes activist hedge funds will make consent solicitations in order to get things accomplished faster than they would be through other meetings. An example of this strategy occurred today when Nussdorf acquired seats on Parlux's board without having to go through with a proxy battle. However, other times a proxy battle is the only way to get things done. Regardless, we will know whether or not Ackman successfully obtained board seats by the company's next annual meeting. If he is successful, we could very well see a spin off of Comdata as well as renewed focus on the company's HR division - developments which should increase CEN's shares substantially over the next year or two!

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Parlux Fragrances Inc. (NDAQ:PARL) shares moved up $1.08, or 17.22%, to $7.35 today after the company issued a press release stating that it had reached an agreement with Glenn Nussdorf. The history between these dates back to last September when we noted that Glenn Nussdorf had acquired a 15% stake in the company. Shortly after, Nussdorf expressed interest in acquiring the company (most likely for his E Com Ventures). Later that year in November, the activist shareholder expressed interest in obtaining board seats in order to prevent the company from materially modifying the company (in case he decided to acquire it) and make "immediate" changes at both the board and management level. And finally, in December he filed preliminary consent forms aimed at actively replacing the board through a proxy battle.

Today, the company finally bent to meet Nussdorf's demands. Under the terms of the new agreement, all lawsuits would be dropped between the two parties, the consent solicitation would be abandoned, CEO Ilia Lekach would immediately resign, and Nussdorf's nominees would be appointed to the board of directors. Regarding the agreement, Nussdorf commented: "My consent solicitation was about performance at Parlux, and the value of the shares which I and every other Parlux stockholder own. It was never about me. With a reconstituted Board of Directors and with Neil Katz serving as interim CEO, I am satisfied that I have achieved our goals. Our settlement agreement demonstrates the commitment of the Parlux Board to addressing stockholder interests in a positive way."

Under new management and direction, shareholders are hoping that the company will be able to return to its prior highs after falling almost 50% this year alone. The possibility also remains open that Nussdorf could orchestrate the buyout that he has talked about so much in the past. Combined, these two factors make PARL a stock that is definitely worth watching over the next few months!

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Lear Corporation (NYSE:LEA) shares rose $2.24, or 5.8%, to $40.88 in early trading today after Pzena Investment Management LLC voiced its opposition against Icahn's $36/share buyout offer, suggesting the stock's real value is closer to $60/share. Pzena sent a letter to the company's board of directors suggesting that earnings are likely to recover to more than $4.00 per share over the next few years from consensus analyst estimates of $2.00 per share for 2007, pegging the company's value closer to $60 per share.

The hedge fund also said that was concerned with the recent trend towards private equity firms teaming up with management to "steal" companies from their owners at the expense of shareholders. Consequently, Pzena reminded the board of its fiduciary obligation to shareholders and urged them to seek other offers for the company and exclude management from this process (since preserving their jobs and enriching themselves comes at the expense of shareholders). Combined, Pzena makes several valid points and shareholders seem to be applauding the idea as LEA shares are trading substantially higher than the buyout premium. Now that there could be additional offers for the company or a raised bid by Icahn, this is certainly a stock worth keeping an eye on over the next few weeks!

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NetManage, Inc. (NDAQ:NETM) shares moved up $0.08, or 1.53%, to $5.32 after Riley Investment Management LLC expressed concerns with the company's operating and financial condition and recommended that the it immediately review a standing offer to acquire the company at $5.25 per share. The 6% shareholder believes that the company should no longer operate as a stand-alone public company, given their expensive public compliance costs relative its size and its operating performance over the last several years. Just how bad is it? Well, over the last 10 fiscal years NetManage’s revenues have shrunk by approximately 66% while net losses amounted to approximately $176 million. This caused the company’s stock to lose about 33% of its value throughout the last five years while the NASDAQ added 28%. Even more troubling was the fact that executive compensation rose 14% during this period, while the CEO received 486,393 options, or enough to cover around 5% of the shares during that period!

Riley Investment Management summarized the situation best in their letter attached to their Schedule 13D/A filing with the SEC:

We wish to conclude by reminding directors of their duty to maximize and realize shareholder value. All of NetManage’s directors, aside from one, have served on the board for more than 9 years and some have held seats for over 15 years. This group of directors oversaw the strategy that led to NetManage’s disappointing performance and endorsed management’s decisions during the deterioration of the last decade.  Furthermore, none of the directors aside from the CEO are major shareholders of NetManage. We therefore call on the board to change course and acknowledge that NetManage’s operational plan is not working for the benefit of its owners. We believe that the board of directors should move swiftly towards realizing the value that still exists in NetManage’s legacy customer base and recurring revenue sources, through a sale of the Company to a strategic or financial buyer. With an installed base of more than 10,000 customers, NetManage presents potential buyers with a strong stream of maintenance revenues that command an estimated gross margin in excess of 90%. Leveraging this customer base can offer strategic buyers a solid platform on which to grow additional products while utilizing a larger sales force and spreading the cost of research and development over an expanded revenue base. Alternatively, NetManage’s highly profitable recurring cash flows can offer financial and private buyers excellent returns as they eliminate the unnecessary costs of public filing, as well as what we view as excessive management compensation and under-scaled general and administration expenses currently incurred by NetManage.

Clearly, there is a strong argument for the company to put itself up for sale. A strategic buyer would be able to realize far more value than is currently reflected in the current share price. This makes NETM a stock worth keeping an eye on over the next few months!

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Flow International Corporation (NYSE:FLOW) shares moved down $0.57, or 4.57%, to $11.90 today giving up Friday's gains after the company announced its financial results and announced that CEO Stephen Light would be retiring as soon as a successor has been found. The turnaround CEO was initially hired to help the company relieve its enormous debt load, reverse the declining sales, return the company to profitability, and restore investor confidence - goals which were all since accomplished. However, the CEO was so instrumental in the success of the company that many investors are beginning to question how well the company will be able to perform without him.

Among these is Daniel Loeb's Third Point, the company's largest shareholder, who expressed their disappointment with Stephen Light's decision to leave the company in a Schedule 13D/A filing with the SEC. The hedge fund noted that they began accumulating their stake two years ago, based on their view of the fundamental strength of the company's target market and technology, and their personal confidence in the leadership of Stephen Light as CEO, based on his record of success in his previous career with much larger companies, as well as his keen analytical ability and communication skills.

Now that Light has left, Third Point believes that the company should be sold rather than continue operating independently under new leadership. Why? Well, the relatively small scale of the company's operations and its disproportionate amount of general and operating expenses (due to being a public company) means that a strategic buyer or private equity fund may be able to unlock far more value than is reflected in the current share price. Based on recent conversations Third Point had with industry participants and a financial adviser, they believe a sale could be transacted at a "significant premium". Whether this happens or not remains to be seen, however this is definitely a stock to keep an eye on over the next few months.

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Lear Corporation (NYSE:LEA) shares rose $4.34, or 12.52%, to $39.01 in early trading today after Carl Icahn's American Real Estate Partners LP made an offer to acquire the company at $36 per share in a Schedule 13D/A filing with the SEC. The proposal letter was sent on Friday evening and the terms of the deal were discussed with key senior executives over the weekend. While there are no guarantees that any transaction will ultimately result, the substantial premium paid and 17% stake Carl Icahn owns in the company both make it extremely likely.

The move comes after Carl Icahn had amassed a 16% stake in the company back in November, which he acquired at around $23 per share. He reasoned that troubled auto parts suppliers could be bought cheaply and restructured to boost profits. Lear lost $2.1 billion over the past two years, but said it planned to focus on more profitable manufacturing such as seats and electrical systems. Since receiving antitrust approval to boost his stake to 16%, the stock has risen from $23 to $33 before today's buyout at $36. This was definitely an interesting stock to follow since we initiated coverage, and we continue to follow other companies that this billionaire investors is involved with.

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Lear Corp.'s (NYSE:LEA) shares surged as much as 15% Monday, rallying after the auto-parts supplier said billionaire financier and top shareholder Carl Icahn has made an offer to buy all of the company's outstanding stock. Lear's stock finished up $3.97 at $38.64 after notching a 52-week high of $39.88 earlier in the session. The $36-a-share offer from Icahn represents a 3.8% premium over the stock's Friday closing price. Icahn currently holds nearly 12 million shares of Lear, which amounts to 17.8% of the total. He bought into the company with a $200 million stake in October, when the stock was trading below $25 a share.

Argonaut Group Inc. (NDAQ:AGII) shares rose 5.2% Monday after the company reported Q4 earnings of $31.4 million, or $0.92 a share, up from a year-ago profit of $25.4 million, or $0.76 a share. Total revenue rose 14.5% at the San Antonio specialty insurer in the three-month period to $243.1 million from $212.4 million in the same period a year earlier.

Asyst Technologies Inc. (NDAQ:ASYT) shares climbed 6.3% after the company was upgraded to buy from neutral at American Technology Research.

Cognizant Technology Solutions Corp. (NDAQ:CTSH) shares rose 8.3% after the company said their Q4 net income rose 21% to $69.5 million, or $0.46 a share, from $57.7 million, or $0.39 a share, a year ago. Q4 revenue rose 65% to $424.4 million from $256.9 million. It is estimated that the company will earn $0.43 a share on revenue of $405.5 million for the latest Q4.

Hanover Compressor Co. (NYSE:HC) shares surged 18% while shares of Universal Compression Holdings Inc. jumped 16% after the companies announced their boards have approved a merger that will create a combined company with a market capitalization of $3.8 billion.

Herbalife Inc. shares soared 21% after the company said it has received an acquisition offer of $38 a share from Whitney V L.P. and its affiliates. Whitney and its related parties already own roughly 27% of the Los Angeles-based vitamin and nutritional supplement company's outstanding stock. Herbalife said it has formed a special board committee to review the offer.

Rambus (NDAQ:RMBS) shares soared 24% after the Federal Trade Commission ordered the company to license some of its older computer memory-chip technology and set maximum royalty rates it can collect for licensing.

Shares of The Mills Corp. (NYSE:MLS) surged 16% after Simon Property Group Inc. and private equity firm Farrallon Capital Management LLC disclosed a joint proposal to acquire the company for $24 per share. At present, Mills has an agreement in place to be acquired by Brookfield Asset Management Inc. for $21 per share. Farralon manages funds that currently own roughly 10.9% of Mills' outstanding common stock.

Columbia Laboratories' (NDAQ:CBRS) shares plummeted 68% after the Livingston, N.J.-based company announced that its Phase III clinical trial of progesterone for the prevention of preterm birth did not achieve any reduction in the incidence of preterm birth at week 32, the primary endpoint.

NewMarket (NYSE:NEU) shares fell 18% after the Richmond, Va.-based maker of chemical additives late reported Q4 net earnings of $4.5 million, or $0.26 a share, down from $11.1 million, or $0.64 a share, in the year-ago period. Revenue rose to $306.2 million from $293.7 million.

Royal Caribbean Cruises (NYSE:RCL) shares fell 5.1% as investors focused on a tempered 2007 outlook and looked past the cruise-line operator swinging back into the black during Q4.

Transmeta Corp. (NDAQ:TMTA) shares tumbled 11% after the company said it's streamlining its operations to focus on its core business of intellectual property licensing. The company plans to decrease its workforce by roughly 39% as part of the restructuring, shedding about 75 employees, mostly in its engineering services businesses.

State Street Corp. (NYSE:STT) shares lost 6.5% after the company said it plans to buy fellow Boston-based Investors Financial Services Corp. for about $4.5 billion in stock.  

SLM Corp. (NYSE:SLM) shares tumbled 8.8% after the White House proposed a 50-basis-point cut in student lender rate subsidies and increasing lender risk as part of a plan to save the government $95 billion in entitlement spending by 2012.

Natural gas for March delivery closed up 2.1%, adding 15.8 cents to close at $7.634 per million British thermal units on the New York Mercantile Exchange, after the contract reached as high as $7.93 in earlier dealings. Overnight, prices rose past $8 to their highest level since Dec. 14.

Hitachi Ltd.'s (NYSE:HIT) Hitachi Data Systems unit announced that it intends to buy Archivas Inc. for undisclosed terms. The Tokyo electronics company's unit said Archivas, of Waltham, Mass., makes software that allows user to store, protect and manage fixed-content data, such as document, email, database, image and audio files, in order to meet corporate governance, legal discovery and compliance regulations.

Diana Shipping Inc. (NYSE:DSX) is a relatively boring business - they operate a fleet bulk carrier vessels that transport iron ore, coal, grain and other dry cargoes along worldwide shipping routes. However, their stock is a completely different story having risen sharply off of its 2006 lows to its current levels! The company interests many investors because it offers what they call a "chindia" play - that is, an investment that takes advantage of both the Chinese and Indian emerging markets.

Is Diana Shipping an attractive investment? Well, two thirds of the world's goods travel by sea with 40% of that being dry bulk goods, and growth in Chinese and Indian import demand for cement, coal, iron ore, grain and other commodities have helped increase the number of shipments significantly. There are also reports that the company recently added a new ship to its fleet, which is due for delivery in May at a cost of $99 million. The vessel is reportedly going to be chartered out on a five year schedule at $41,000 per day. While the impact on EPS and dividends largely depends on the type of financing used to acquire the ship, many expect that debt financing will enable the company to realize the gains on future earnings. From a valuation standpoint, the company trades with a forward P/E of just 10.61x and margins beating most of its industry competitors. Combined, these factors make DSX a stock that is definitely worth putting on the watchlist!

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The New York Times Company (NYSE:NYT) shares rose $0.51, or 2.17%, to $24.02 today after it's controlling Sulzberger and Ochs families withdrew most of their investments with Morgan Stanley after a fund manager criticized their control over the publisher. Fortune Magazine reported earlier today that these assets included the families $640 million stake in the NY Times. Morgan Stanley's main concern was with the company's dual class voting structure, which was first brought to the publics attention in April. Since then, they've been successful in garnering additional support which led to 28% of NYT shares being withheld during the company's last annual meeting. This latest move by the two families underscores their reluctance to change, which Morgan Stanley said has already led to the company's shares being undervalued by 50%. Meanwhile, other investors are concerned about the larger issue of conflicts of interest; many investors did not know that Morgan Stanley had such a significant contact with the two families owning the NY Times. Regardless, this is definitely a story to follow as shareholders continue their battle to unlock value.

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Columbia Equity Trust Inc. (NYSE:COE) entered into a definitive merger agreement with JPMorgan Asset Management's Special Situation Property Fund whereby they would be acquired for $502 million (or $19 per share). The agreement was announced back in December while the date for the vote is set for Tuesday, February 27, 2007. The story gets interesting because two large shareholders have recently voiced concerns that management intentionally failed to consider four competing unsolicited bids in order to secure lucrative compensation agreements and to ensure their own job safety. The company fired back in their proxy arguing that JPMorgan understood their "complex" business and offered a low enough termiantion fee to enable any other bidders to participate. In reality, there are far more complex REIT transactions than this one (including the current Equity Office buyout) and the risks associated with efforts to interfere in a definitive merger situation may be too great for other bidders.

The first large shareholder to voice concern was 9.4% holder Arnhold and S. Bleichroeder Advisers, LLC. On January 8, 2007, the hedge fund filed a Schedule 13D with the SEC containing a letter outlining its concerns. According to the letter: "Given the combination we have here of lucrative management compensation agreements, an acquirer that was already affiliated with the company, and the complete absence of a competitive bidding process, we are hopeful that the parties to the transaction will agree that implementing a 'go-shop' period is the appropriate course of action from a fiduciary point of view. As holders of approximately 9.4% of the outstanding shares of Columbia, we currently intend to withhold our support for the proposed merger until we are satisfied that company is being sold for the highest possible price that any market participant is willing to pay for our shares."

The second shareholder to voice concern was 9.1% holder Ramius Capital Group L.L.C. On January 9, 2007, the hedge fund filed their own Schedule 13D echoing the complaints issued a day earlier by Bleichroeder. The fund elaborated on the four ways in which the board had failed to protect shareholder interests:

1. The Board made an error by not shopping Columbia to more than one buyer. It is inexplicable that the Board did not instruct Columbia's investment banker, Wachovia Securities ("Wachovia"), to encourage "Company A", "Company B", "Company C" or "Company D" (as those entities are indentified in the Proxy Statement) to make a bid for Columbia while Columbia was negotiating with SSPF/CET. Columbia was not subject to any exclusivity arrangement with SSPF/CET at the time and these entities had previously expressed enough interest in Columbia to warrant a belief that one or more may have competed with SSPF/CET. Moreover, we believe that Columbia's management and Wachovia, at a minimum, could easily have approached a small set of additional likely bidders for Columbia that would have created a competitive bidding environment resulting in maximum current value for Columbia stockholders. Frankly, the disclosures in the Proxy Statement lead us to believe that the Board favored the SSPF/CET transaction and did not explore other bidders because of the value that Columbia's management will receive from an ongoing association with SSPF/CET after the Acquisition.
2. The five non-management Board members (the "Independent Committee") on September 8, 2006 instructed Columbia's "Senior Executive Officers" to help negotiate the merger agreement with SSPF/CET. We believe this was inappropriate given that Columbia's management was separately negotiating lucrative new economic arrangements with SSPF/CET concerning the terms of management's continued association with SSPF/CET after the Acquisition closes. Under these circumstances, it would have been customary and far more preferable for the Independent Committee to conduct sale negotiations without any influence from Columbia senior executives who are essentially part of the buyout group. At best, Columbia management's incentive to negotiate the highest possible price out of SSPF/CET was diluted by its future economic interests in SSPC/CET and "New Deal LLC" (an entity that gives Columbia management attractive upside to successful new investments made by SSPF/CET or Columbia after the closing of the Acquisition). At worst, Columbia management appears to have facilitated Columbia signing a merger agreement that undervalues Columbia to the benefit of SSPF/CET and management, itself.
3. The Independent Committee should have realized that management was not acting in a manner designed to maximize the value of Columbia for all stockholders. The best evidence of this is the fact that management waited until October 18, 2006 to inform the full Board that there were "recent unsolicited inquiries from Company B, Company C and Company D". As of October 18, 2006, the inquiry from Company B was not "recent" - it was seventy-seven days old! A serious inquiry from Company D, a company interested in buying all of Columbia, appears to have been kept from the full Board for six days despite the fact that negotiations with SSPF/CET by mid-October 2006 were at an advanced stage. It should have been obvious to the Independent Committee from such inquiries that these contacts were a sign that there was more upside than downside in pursuing an auction of the Company and that there were likely many potential serious
   bidders for Columbia.
4. The Board made a mistake in accepting at face value that $19.00 was SSPF/CET's highest bid price. This price was first offered by SSPF/CET on June 26, 2006. From June 26, 2006 until November 3, 2006 (the last trading day prior to the signing of the merger agreement), the Bloomberg REIT index increased by 14.1% and the U.S. Government ten year bond yield fell by 52 basis points. These important fundamental data points suggest to us that SSPF/CET's valuation of Columbia should have increased over this time period and that the Board should have demanded a higher price. The Proxy Statement indicates that the Board was concerned that SSPF/CET's advisor, JPMorgan Asset Management ("JPMAM"), would react negatively to a demand for a higher price and perhaps would have terminated discussions. We find this to be implausible. It appears to us that the Independent Committee was blind to or ignored the increasing strength of Columbia's bargaining position.

Clearly, there are some major conflicts of interests in this transaction that should catch the attention of shareholders. But is this too little too late? Well, it is difficult to tell if 20% withholding is enough to stray a merger vote; however, this stock is definitely one worth watching closely in case other bids arise (despite the termination fee) or in the event that the two concerned shareholders take further action to protect shareholder interests.