Friendly Ice Cream Corporation (AMEX:FRN) share moved up $1.87, or 15.71%, to $13.70 today after the company announced that it retained Goldman Sachs to assist the Board of Directors in exploring strategic alternatives to enhance shareholder value, including a possible sale of the company. We first began covering FRN back in November and again in December when we noted that the Lion Fund had established a stake in the company and sought to unlock value through a possible sale. Since then, the stock has risen more than 30% including today's 15% gain as the company finally agreed with the company. Now, many investors are betting that the company will put itself up for sale with Mr. Biglari of the Lion Fund being a potential bidder.

This story was one of the more interesting fights we've seen between shareholders and management. Shareholders first established a group to fight the company, complete with a website: http://www.enhancefriendlys.com. Shortly thereafter, the shareholders took things even further by putting up billboards near the company's headquarters publicizing the fact that their company needed fixing. The giant billboards claimed that two board candidates they proposed are "Good for Employees, Franchisees, Shareholders". This campaign - designed to target ordinary investors - was clearly designed to cut into day-to-day operations. And while the campaign wasn't unprecedented, it was certainly unusual by any standard! Regardless, FRN continues to be a stock worth watching as the company mulls its options.

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Take-Two Interactive Software, Inc. (NADQ:TTWO) shares moved up $2.86, or 16.24%, to $20.47 after several investors collectively holding 46% of the company's outstanding shares reached an agreement with the company to vote in a new slate of six directors, according to a Schedule 13D filed today with the SEC. The investment group consists primarily of OppenheimerFunds, SAC, Tudor Investment, DE Shaw Valence and ZelnickMedia. The new nominees for the Board of Directors include former BMG Entertainment CEO Strauss Zelnick, former News Corp executive Benjamin Feder, Jon Moses, Michael Dornemann and Michael Sheresky. Many analysts and investors are predicting that the proposed management change would have a positive impact on the company, after it suffered losses for the past four quarters.

What does the group aim to accomplish? Well, they started by asking the company to grant them the power to replace the current Chief Executive Officer and review the current Chief Financial Officer. Secondly, the group setup a "Management Agreement" whereby ZelnickMedia will receive a monthly management fee of $62,500, an annual bonus of up to $750,000, an option to purchase 2.5% of the company's common stock on a fully diluted basis, and shares of restricted stock. Not to mention the company will be forced to reimburse ZelnickMedia for all expenses related to the Management Agreement and other related transactions. Will the costs be worth it? Well, given the poor performance we're seeing from current management along with the recent options backdating scandal, many investors are willing to take the chance. TTWO is definitely a stock worth watching as the new management team attempts to turn around the company!

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Cost-U-Less, Inc. (NDAQ:CULS) announced yesterday that it entered into separate letter agreements with two activist hedge funds that have been pushing for changes. Delafield Hambrecht and Chadwick Capital Management reached an agreement with the company whereby the company would nominate and support John D. Delafield for election to the company's Board of Directors in 2007 and submit a proposal to remove the requirement that a business combination be approved by holders of at least 2/3 of the oustanding common stock under certain circumstances. Meanwhile, the two hedge funds agreed to support the slate of directors nominated by the company and not propose any other business or conduct a proxy solicitation at the 2007 annual shareholders meeting.

We first took note of this company back in December when Monarch Activist Partners suggested that the company put itself up for sale in a Schedule 13D/A filing with the SEC. About a month later Delafield Hambrecht issued a similar demand in their own Schedule 13D/A filing, reasoning that CULS is worth at least $12 per share. Delafield even hinted that they would be a potential bidder in the event of a sale, although admitted that a strategic buyer would likely be willing to pay more. Shortly thereafter, the company responded by saying that it had contacted several investment bankers and other advisors in order to help them explore strategic alternatives. Interestingly, the latest advisor that they hired happens to be Cascadia Capital - a Seattle-based investment bank with a nationally recognized M&A advisory practice. With a fresh new seat on the Board of Directors and less stringent business combination requirements, the odds of a sale taking place just greatly increased! This makes CULS a stock worth watching closely!

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Digital video recording service provider TiVo Inc. (NDAQ:TIVO) posted a narrower Q4 loss Wednesday, beating Wall Street expectations. The Alviso-based company reported a quarterly loss of $18.7 million, or $0.19 per share, for the three months ended Jan. 31. In the same period last year, TiVo's net loss was $21.1 million, or $0.25 per share. Net revenues climbed to $77.6 million from $60.1 million a year ago.

Capitalizing on the popularity of social networks and online worlds, Sony (NYSE:SNE) will launch its own virtual universe and another 3-D game built almost entirely by players. "Home" is a real-time, networked world for the PlayStation 3 in which players create human-looking characters called avatars. They can buy clothing, furniture and videos to play on a virtual flat-screen television in their virtual apartments. Sony will launch a beta version in April and officially debut in the fall as a free download on the PlayStation online store.

Martek Biosciences Corp. (NDAQ:MATK), which makes nutritional oils to supplement baby food, said it expects a Q2 net income between $4.8 million and 5.8 million, or $0.15 to $0.18 per share. Analysts expect earnings of $0.17 per share, and revenue forecasted at $73.7 million in revenue. Martek is expecting revenue between $73 million and $74 million. As well, the company released that their Q1 profit fell 32% due to higher operating costs.

Biotechnology company OncoGenex Technologies Inc., which has been trying to launch its initial public offering in a week of stormy trading on the world's stock markets, withdrew its IPO. Plans to begin trading later in the week were not realized, and the IPO was pushed into this week. Last Thursday, the company lowered its estimated IPO price range to $7.50 to $8.50 a share, from $10 to $12 in an amended filing with the SEC. The underwriters also increased the size of the offering to 5 million shares from 4.5 million shares. OncoGenex is attempting to commercialize new cancer therapies that address treatment resistance in patients.

Athletic shoe retailer Foot Locker Inc. (NYSE:FL) said it expects its Q1 and full-year earnings to fall short of Wall Street expectations. The company is projecting quarterly earnings of $0.34 to $0.37 per share. In the year-ago quarter, Foot Locker earned $0.37 per share. Analysts expect higher earnings of $0.41 per share. For the full year, the company expects earnings of $1.55 to $1.65 per share, while analysts are looking for earnings of $1.74 per share.

Polypore, Inc. (PPO) today announced net sales of $124.9 million for the three months ended December 30, 2006, representing a 23% increase over Q4 2005.

Mamma.com Inc. (NDAQ:MAMA), a Montreal-based Internet search engine, reported a Q4 profit, reversing a year-ago loss, as the company expanded distribution and signed new clients. Net income totaled $420,175, or $0.03 per share, from a loss of $762,555, or $0.06 per share, a year ago. Q4 revenue more than doubled to $3.6 million from $1.6 million a year ago.

Express Scripts Inc. (NDAQ:ESRX) announced it has increased its bid to acquire Caremark Rx Inc., but company officials said they expect closer scrutiny from federal regulators over the proposed deal. Express Scripts' offer is to acquire all outstanding shares of Caremark for $29.25 in cash and 0.426 shares of Express Scripts stock for each share of stock in Nashville-based Caremark. The St. Louis-based pharmacy benefits manager said it will now pay additional cash consideration of nearly 6% per annum on the $29.25 cash portion of its offer.

Citigroup Inc. (NYSE:C), which earlier this week announced that it was bidding on a major Japanese brokerage, also is looking to purchase a Taiwanese bank. Citigroup, the largest bank in the United States, has agreed to pay $424 million to acquire the Bank of Overseas Chinese in Taiwan.

Discount carrier JetBlue Airways (NDAQ:JBLU) named a new chief operating officer on Wednesday, shoring up its management team just weeks after suffering a major service meltdown. Russell Chew, former chief operating officer at the U.S. Federal Aviation Administration, will assume the COO role at JetBlue on March 19. Oversight of JetBlue's daily operations was previously handled by President David Barger to whom Chew will report.

DaimlerChrysler AG (NYSE:DCX) shares moed up $1.78, or 2.71%, to $67.58 after Cerberus Capital Management executives met with the struggling automaker this week to discuss a potential bid. This news comes as the Blackstone Group is also set to meet with management later this week, according to the Detroit News. Interestingly, some investors are also speculating that GM could also be a potential suitor. Multiple interested parties is definitely good news for shareholders as there is potentially room for a bidding war, which we know from Equity Office Properties (NYSE:EOP) can be extremely profitable!

Shares of the GermanAmerican manufacturer hit a seven-year high last month when CEO Dieter Zetsche put "all options on the table", opening up the possibility of a sale of the company. The stock has seen significant volatility due to speculation, having moved from a low of around $45 per share in mid-2006 to a high of $74.53 before retracing to around $67 per share. Meanwhile, CEO Tom LaSorda stated last month that any official word on the buyout speculation could be months away. So, what's the next move for investors? Well, many investors are waiting to gauge the interest of the two parties in Chrysler before taking a stake; however, if the two parties turn out to be interested, it would mean significant share appreciation for shareholders! This makes DCX a stock worth watching!

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Inter Tel, Inc. (NDAQ:INTL) shares moved up $0.20, or 0.87%, to $23.27 today after Steven Mihaylo filed a Schedule 14A to solicit proxy materials and nominate his slate of five directors to the company's Board. Mr. Mihaylo, a 19.4% stakeholder, first contacted the Board of Directors on January 19, 2007, when he sent a letter expressing hope that the two parties could develop a plan of action to lead the company forward with a renewed focus on enhancing shareholder value in the near and longer term. On January 22, 2007, Mr. Mihaylo received a response letter from the company expressing appreciation for the constructive tone and indicating that the company would contact him shortly to discuss the ideas raised in the letter. Following this exchange, Mr. Mihaylo and the company held several discussions in an attempt to resolve the differences between the two and avoid a proxy contest. However, these discussions were unsuccessful.

What changes does Mr. Mihaylo want to make? Well, his January 19th letter outlined nine major changes:

1. Consider reducing the size of Inter-Tel's Board from 11 to 10 members, with the Board consisting of (a) the Chief Executive Officer, (b) Dr. Puri, Mr. Urish and me, (c) three other existing outside members of the Board, and (d) three new independent directors mutually acceptable to the Board and me. Alternatively, in order to save costs and facilitate the scheduling of Board meetings, I would be amenable to a 7 member Board, consisting of (a) the Chief Executive Officer, (b) Dr. Puri, Mr. Urish and me, and (c) three new independent directors mutually acceptable to the Board and me.
2. Retain a financial advisor to advise the Board on the feasibility and financial impact of a Dutch-auction self tender offer to repurchase between $200 million and $250 million of the Company's common stock.
3. Disband the Special Committee, thereby eliminating all of the costs associated therewith.
4. Direct management to (a) undertake an intensive cost-benefit analysis of (i) discontinuing product development on the Axxess and (ii) redirecting the engineering effort to "gateway" products and "hosted services" offerings, including the necessary billing platform for hosted services, and (b) report the results of that analysis to the Board. I believe these actions will produce significant cost savings and provide significant sales opportunities.
5. Consolidate the Company's multiple engineering facilities into the Chandler location. This will reduce overhead and improve productivity, while encouraging new and better ways to speed up product development.
6. Explore the sale of the Company's Irish subsidiary, unless its performance significantly improves within a set period of time. This would enable management to concentrate on more profitable opportunities, as well as raise additional cash to offset the costs of the self tender offer.
7. Explore ways to better utilize the Company’s 15 acre campus in Reno.
8. Undertake an evaluation of the recommendations in the consulting report that the Mihaylo/Vector Group provided to Inter-Tel as a result of the Settlement Agreement executed in May 2006.
9. Defer implementation of the proposed by-law amendments until the foregoing issues are actively considered.

Many of these changes would create immediate value for shareholders while others are focused on improving the company's longterm prospects. Stock repurchases tend to increase the stock price while the sale of the company's Irish subsidiary would likely generate a substantial amount of cash. Meanwhile, the other cost cutting measures outlined could help boost earnings per share in future quarters. Combined, these recommendations make a lot of sense (and we have no communications from the company explaining the issues they had with them). And with Mr. Mihaylo's 19% stake in the company, a proxy contest could have some traction. This makes INTL a stock worth watching!

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Citigroup (NYSE:C) launched a $10.75 billion takeover bid for Japanese brokerage Nikko Cordial, offering cash to the scandal-hit firm's shareholders in a deal designed to transform its business in the world's second-biggest economy. Citigroup, the largest U.S. bank but a small player in Japan outside of corporate investment banking, said it would pay a premium to Nikko's closing price on Tuesday to lift its stake in Japan's third-largest securities firm from just under 5% percent to at least 50%.

CBS (NYSE:CBS) it is buying back about 47 million shares of its Class B stock for $1.4 billion through an accelerated repurchase transaction. The cost of the repurchased shares is subject to adjustment.

U.S. box office revenue reversed a three-year slide in 2006, with sales rising 5.5% to $9.49 billion, according to an industry group. The 607 films released in 2006, which include both major motion pictures released by MPAA members and smaller, independent releases ,marked an all-time high for a single year and an 11% increase over the 549 movies that hit theaters in 2005. Globally, box offices tallied $25.8 billion in sales, up 11% from $23.3 billion in 2005. International distribution and home entertainment sales account for a significant portion of major U.S. films' revenue.

Koch Industries, the world's second-largest private company, plans to team up with private equity firm Blackstone Group to join the bidding for GE Plastics, according to sources close to the process. The auction for GE Plastics, a unit of General Electric, comes amid concern that the profitability of the unit is eroding, and that the price tag on any deal is shrinking.The four leading bidders for GE Plastics - Apollo Management, Blackstone, Carlyle Group and Kohlberg Kravis Roberts & Co. - have signed agreements promising not to team up with each other, according to two sources involved in the process. GE Plastics recorded revenue of $5 billion for the first nine months of 2006, and profit of $560 million.

Strong earnings reports from apparel retailers and an online payment processing company boosted shares in Tuesday's after-hours electronic trading session.
Chico's FAS Inc. surged $1.17, or 5.7%, to $21.59 in the extended session, after the apparel maker and retailer beat Wall Street revenue expectations with its Q4 results, despite heavily discounted merchandise. Higher expenses dragged down quarterly profit, for the Fort Myers, Fla.-based company, however.

Payless Shoesource Inc. (NYSE:PSS) climbed $1.97, or 6.2%, to $33.40 in the late session, after the discount shoe retailer said it swung to a Q4 profit.
Canadian electronic payment processing equipment maker Optimal Group Inc. rose $0.99, or 12.7%, to $8.79 in the extended session.

Avalon Pharmaceuticals Inc. (NDAQ:AVRX) shot up $1.27, or 27.4%, to $5.90 after the Germantown, Md.-based company said it is collaborating with Merck & Co. to develop inhibitors for an undisclosed target, focusing on cancer.

CV Therapeutics Inc. (NDAQ:CVRX) plunged $3.20, or 26 %, to $9.10 in the after hours session, after the biotech said its angina drug ranolazine, or Ranexa, failed to meet its goal in a late stage study.

The Topps Co. (NDAQ:TOPP), maker of baseball cards and Bazooka bubble gum, has accepted a $385.4 million takeover offer from a buyout group that includes former Disney CEO Michael Eisner. The buyout group, which includes The Tornante Co. LLC, founded by Eisner, and the Chicago-based private equity firm Madison Dearborn Partners LLC, has agreed to pay $9.75 for each Topps shares, which represents a premium of 9.4% over the stock's Monday closing pricing of $8.91 on the Nasdaq Stock Exchange. In a sign that some investors think the bidding could go higher, Topps shares rose $0.90, or 10%, to close at $9.81 on the Nasdaq Stock Market. Its shares have traded between $7.50 and $10 over the past 52 weeks.

The DJ Wilshire Pharmaceutical Index jumped 1.2% to close at 2325.03 and the DJ Wilshire Biotechnology Index rose 1.1% to close at 3013.76. Novartis AG was the big mover among the large pharmaceutical players, its stock advancing 6% to close at $56.85. Intermune Inc. shares plunged 21% to $22.15. The biotech group is discontinuing a Phase III clinical trial for its pulmonary drug candidate Actimmune due to poor interim results. Pozen Inc. shares leapt 10% to $15.70. The drug developer announced favorable results from an early-stage clinical study of its aspirin product PA 325. The drug candidate combines aspirin and a proton pump inhibitor drug to combat gastrointestinal bleeding, a known side effect of aspirin.

Shares of RadioShack Corp. (NYSE:RSH) took back a week's worth of losses, finishing up 4.2% at $25.45, a 20-month closing high.

Circuit City (NYSE:CC) shares bounced off 15-month lows to settle at $17.96, up 2.8%. Share of Best Buy Co., the nation's largest electronics retailers, added 2% to $46.52.
Shares of Ann Taylor Corp. were higher by 3.5% at $35.31. The shares got a boost after Banc of America upgraded them to a buy from neutral with a $42 a share price target.
shares of Warnaco Group Inc. jumped 11.4% at the close to $27.58. Morgan Keegan & Co. raised its rating to outperform.

Alltel Corporation (NYSE:AT) is reportedly seeking a buyer but may experience some difficulty, according to reports from the Wall Street Journal. The WSJ reported that Alltel had already approached AT&T, Verizon Communications, and Sprint-Nextel regarding a possible sale of the company. However, a potential deal-breaker lies in the company's high market valuation, which currently stands at around $22 billion. Some analysts think this number could get as high as $30 billion in the event of a buyout, which could be too much for any one buyer to pay. If the buyout efforts fail, many investors believe that the company's shares could trend towards a lower valuation.

What makes Alltel a potential buyout target? While the company only has about a fifth of the customers of AT&T and Verizon, they do operate the nation's largest wireless network geographically. As a result, the company has many "roaming" agreements that allow customers from larger carriers to roam beyond their coverage areas without incurring large roaming fees. As a result, if AT&T decides to pursue an Alltel deal it could spur a competition with Verizon, who would likely seek to prevent a deal. Why? Well, if AT&T purchased Alltel it would jeopardize the roaming agreements that Verizon has in place. This makes AT a stock worth keeping an eye on over the next couple of months.

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PDL BioPharma, Inc. (NDAQ:PDLI) shares moved up $0.73, or 4%, to $18.99 after Daniel Loeb's Third Point disclosed a 7.5% stake in the company and expressed disappointment and concern over the company's high rate of spending and significant underperformance. The Schedule 13D filing contained a letter urging the company to cut costs and not pursue additional acquisitions. Daniel Loeb also offered to work with the company to streamline the company's cost structure and asset base in an effort to allow the cash generating ability and value of the company to be developed and made apparent to shareholders.

Here's a sampling of what Daniel Loeb wrote in his lengthy letter to management:

We believe that the significant value inherent in the Company's product line, royalty revenues and R&D pipeline has been obscured by excessive overhead and apparently undisciplined research spending. We at Third Point have had substantial experience working strategically with healthcare companies to enhance value and we would welcome the opportunity to share our views and work constructively with you to help put the Company on the right track. We believe that, with our timely input, the Company should be able to reverse its significant underperformance.

I am certain that you and the Board share our consternation that since January 1, 2004, the Company's share price has remained flat versus a 50% increase in the biotech index (BTK). This is particularly troubling given that the Company has received approximately $400M of royalty revenues over this time period, largely attributable to several of biotech's fastest-growing products, including Genentech's Avastin and Herceptin. By comparison, Genentech shares have doubled over this time period.

Underlying our approach is our strongly held belief that PDLI's shares are significantly undervalued due to the market's worry that the Company is squandering valuable cash flow on undisciplined R&D spending as well as its concern that the Company will make another acquisition. We estimate that between now and the end of 2014, PDLI will generate close to $2.2B in revenues from its royalty stream. Discounting this back at the current cost of capital, we calculate that this revenue stream is worth $1.8B today, just slightly below PDLI's current market capitalization. In addition to these royalties, specialty pharmaceutical revenues should approximate $200M in 2007 and the Company has other valuable assets: an exciting, albeit slowly-progressing, product pipeline; undisclosed royalties that extend beyond 2014; approximately $430M in net operating loss carry-forwards; real estate and other assets that can be monetized; and a valuable antibody technology platform that should continue to generate new compounds over time ... Our preliminary analysis shows that PDLI should, with some cost-cutting, be able to earn $1.00 per share in 2008 and to increase that to $1.50 per share in 2009.

Many other investors have also expressed concern, recently recommending that the company put itself up for sale. This led to the company's implementation of a poison pill, preventing any hostile takeover of the company. Daniel Loeb said he understood the rationale behind the poison pill and reassured the company that he was not interested in pursuing a sale, but rather helping the company turn itself around through internal improvements. Third Point has a rich history of actively unlocking value in many of its investments, so this move makes PDLI a stock worth watching!

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New Century Financial Corporation (NYSE:NEW) shares moved down $8.26, or 56.38%, to $6.39 today after several analysts agreed that the nation's largest subprime mortgage lender would likely face liquidation or bankruptcy. The troubled company had already been experiencing a large increase in subprime defaults when it announced late Friday in a 12b-25 filing that it is technically in default with several lenders and that federal regulators have begun an investigation. While the company said it received waivers from six out of the eleven lenders, deals remain uncertain with others. Meanwhile, the company disclosed that the U.S. Attorney's Office was conducting a federal criminal inquiry into trading of NEW securities as well as accounting errors. Finally, the company revealed that it would be unable to file its 10-K annual report by the March 1, 2007 deadline because it needed to correct errors that it discovered relating to the financial reporting of loan repurchase losses.

Many analysts now believe that the company will likely face liquidation or bankruptcy. Consequently, investors must now attempt to evaluate how much they would receive in the event of a liquidation or bankruptcy. It is important to remember that common stock shareholders are at the end of the bankruptcy line; all lenders and preferred stock shareholders must be paid off in full before anything is distributed to common stock shareholders. Moreover, the company's primary assets are mortgage securities, which are notoriously difficult to value - especially with no guidance from the company. Despite this difficulty, some analysts have created an estimate. Bear Stearns analysts believe that the liquidation value should be close to $8 to $9 per share, down from their previous forecast of $10 to $11 per share.

Many traders are also watchful of the high short interest in the stock. When someone short sells a stock, they are essentially borrowing shares that they must buyback at a later time. Therefore, when there is a high short interest and the stock jumps up in value (generating a loss for those short selling) some are tempted to buyback their shares. This buyback adds even more steam to the bullish rally, potentially causing even more short sellers to cut their losses and buyback shares. This is known as a "short squeeze" among traders, and some consider it a possibility in this scenario.

Regardless, this is certainly a stock to watch. There are clearly problems with the company that carry a lot of risk; however, there may turn out to be opportunities to buy based on liquidation value and/or a potential short squeeze. While there isn't enough information to do anything but speculate now, there will be much more information available when the company is able to file their 10-K annual report with the SEC later next month.

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