Infospace Inc. (NDAQ:INSP) may face some shareholder criticism in the near future after Sandell Asset Mangement disclosed an 8.8% stake and expressed their concerns over the company's lack of definitive plans to return capital to shareholders and its apparent complacency on cost controls. Tom Sandell, the CEO and Senior Portfolio Manager of Sandell summarized the hedge funds stance best, stating, "We believe that InfoSpace shares are materially undervalued and the board and management should take immediate steps to improve that value. If the company and the board are unable or unwilling to take these steps, we think the company should be sold. As the company's largest shareholder, our interests are directly aligned with the rest of the shareholder base in seeing value maximized and we may seek representation on the board to protect those interests." Specifically, the hedge fund seems most concerned that the company's actions have obscured the profitability and cash flow strength from the company's search/directories segment and impaired the value of the company's largest asset - a NOL (net operating loss) carry-forward topping $1 billion.

Sandell insists that the company is undervalued due to several factors:

1. Cash - The market is not giving full value to the company's $12/share in cash due to fears that management may waste the cash on a dilutive acquisition to replace the growth engine lost at the mobile business. Sandell noted that they were encouraged, however, by the company's statements that the company intends to do no such thing.
2. Net Operating Loss Carry-Forwards (NOLs) - These are assets that are frequently missed by investors in many companies - they are losses from past years that can be carried over to offset income taxes in future tax periods. The share price of INSP reflects virtually no value to the more than $1 billion in NOLs. Sandell attributed this to the fact that many investors are uncertain as to whether the company will be run for profitability or growth. With its current revenue and asset mix, management's lowest risk strategy would be to focus on maximizing profitability and selectively adding profitable cash flowing businesses that compliment the search/directories business. However, without an unrelenting focus on costs, this asset will be almost worthless.
3. Online - Sandell said that it believes that the true value of the online segment is being clouded by the confusing segment reporting and excessive corporate costs, which mask the true earnings power of this business. Moreover, concerns over growth prospects after last quarter's revenue declines likely added to this fact. The hedge fund insists that with better segment disclosure and a return to positive top line growth should result in at least a 40% EBITDA margin if it were run at optimal efficiency.
4. Mobile - Sandell insists that the stock price implies that investors are assigning zero value to this business even though there is still a stable core business outside of the affected content/ringtone business. Further, they believe that this segment should be a very attractive acquisition candidate due to its strategic positioning with the major mobile carriers and believe that InfoSpace should investigate the possibility of divesting this business.
   

So, what exactly does the hedge fund suggest? Well, they outlined two key elements in their letter to the company's Board of Directors:

1. Reduce expenses by at least $15 million through the end of 2007, which should add up to $5 of incremental value to the stock. While the company is currently working on cost cutting in its mobile division, the hedge fund said it would like to see this applied to the entire enterprise. Specifically, many of the expenses present in these areas are likely legacy expenses inherited from a time when INSP was a much larger company.
   
2. Buy back $200 million of its common stock through a Dutch tender offer at a premium to the current market price along with a $100 million special dividend. Sandell believes that these actions would not have any negative impact on the company's ability to utilize their NOLs going forward. Moreover, they believe that the two actions would send a very positive signal to the market that the company feels the problems of the past year are behind it and that management and the board are focused on enhancing shareholder value.

Clearly, Sandell makes a compelling argument for taking action to unlock shareholder value. They estimate that the company could be worth around $35 per share in the event of a simply restructuring and up to $41 per share in the event of a breakup. Sandell also stated that if the company did not heed these changes, they should hire an investment banker to pursue other strategic alternatives, which could include a possible sale of the company's various divisions. Combined, these factors definitely make INSP a stock worth watching closely!

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Ceridian Corporation (NYSE:CEN) shares moved down $1.01, or 3.07%, to $31.86 after the company's Chief Financial Officer, Douglas Neve, resigned and Gregory Macfarlane was appointed to take his spot. Further compounding this loss was Pershing Square's press release in which they expressed concerns about the company's new CFO and the board's failure to retain key management personnel. The news comes amidst a proxy contest currently taking place between the company and Pershing Square and a recent lawsuit filed by the hedge fund seeking the release of certain letters related to communications between the company's board and management.

What problems did Pershing Square find with this CFO replacement? Well, the hedge fund first highlighted Mr. Neve's career in which he has been widely credited with re-staffing and rebuilding the company's finance and accounting organization, restoring investor confidence in the company's financial statements (after an SEC investigation and five restatements!), and driving Ceridian's HRS division margin improvement program. Clearly, he is a man that will be missed by analysts and investors. Then Pershing questioned the appointment of a division-level finance executive as CFO - someone who lacks experience with public companies. They questioned how the company concluded that this was the right hire at the right time. Moreover, they question why the board remains not only unconcerned about the departure of several high-profile executives but also the recent influx of former GE employees who have little experience in the markets in which Ceridian operates.

Clearly, there is reason for concern when several important executives leave the company. Pershing concluded their statement by saying that the board of directors should act with appropriate care regarding long-term employment commitments they extend throughout the company's senior ranks. If the hedge fund is successful in their proxy contest, we can be sure that greater care will be taken to retain key personnel necessary to orchestrate a turnaround and spin-off. Whether or not they are successful in their proxy contest remains to be seen, but for now, this is definitely a great stock to watch!

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The Pogo Producing Company (NYSE:PPP) said today that it agreed to add two members to its Board of Directors from Third Point LLC, effective immediately, expanding the Board's size to ten members from eight. In return, the activist hedge fund agreed not to solicit proxies in Pogo's 2007 annual meeting or take certain other hostile shareholder actions. The news comes after many investors, including Third Point and Third Avenue Management, had expressed concerns about the company's valuation and management's inability to unlock value. The hedge fund had encouraged the company to sell the company in whole or part in the past, threatening a proxy fight if the company didn't heed its demands.

So, what does all of this mean? Well, according to the company's press release, Pogo and its financial advisors, Goldman, Sachs & Co. and TD Securities Inc., are actively exploring strategic alternatives, including the sale or merger of Pogo. In addition, the company said it will continue to simultaneously pursue the potential sale of significant assets including its Canadian, Gulf of Mexico or other properties. Knowing Daniel Loeb's past successes, we can be sure that something will be done to unlock value. These factors make PPP a stock worth watching even more closely during the next couple of months!

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U.S. health regulators have approved GlaxoSmithKline's (NYSE:GSK) pill, Tykerb, for patients with advanced breast cancer after other treatments have failed, the company said on Tuesday. Glaxo shares recovered earlier losses after the late afternoon news and closed down $0.75 at $55.25 on the NYSE.

Qualcomm (NDAQ:QCOM) raised its forecast for fiscal Q2 earnings and revenue, citing stronger-than-expected worldwide demand for products based on its CDMA mobile phone technology. Shares rose 3% on the news, which followed an update from bigger rival Texas Instruments the night before. TI narrowed its forecast range for the quarter but kept the midpoint steady. Wireless chip and technology license supplier Qualcomm forecast quarterly earnings of $0.48 to $0.49 a shar, compared with its previous estimate of $0.42 to $0.44 a share. It raised its revenue outlook for the quarter ending April 1 to $2.1 billion to $2.2 billion, up from its previous estimate of $2 billion to $2.1 billion.

Billionaire investor Carl Icahn said on Tuesday that he would launch a tender offer for home builder WCI Communities (NYSE:WCI) in which he has about a 14.6% stake, at $22 per share. He said he would ensure the assets are properly managed through the current housing industry downturn. Icahn has agitated for change at many companies and is currently also seeking board seats at Motorola and Temple-Inland. Shares of WCI soared nearly 15%.  

Real estate investment trust Spirit Finance (NYSE:SFC) said has accepted a takeover bid from a consortium led by Macquarie Bank for approximately $1.6 billion in cash, or $14.50 per share. The purchase price represents an 11% premium over Spirit's closing price of $13.05 on the NYSE Monday and a 15% premium over its 90-day average closing price. Including about $1.9 billion in assumed debt, the deal is valued at $3.5 billion. In addition, the consortium agreed to buy about 6.15 million shares of Spirit common stock at $12.99 each, or $79.9 million. Spirit will use proceeds from the private placement to fund real estate-related activities.

Goldman Sachs Group Inc. (NYSE:GS), the largest Wall Street investment house, on said  its Q1 profit rose 29% to a company record on robust trading gains and investment banking fees. New York-based Goldman reported earnings applicable to common shareholders rose to $3.15 billion, or $6.67 per share, for the quarter ended Feb. 23, compared to $2.45 billion, or $5.08 per share, in the year-ago period. Revenue rose 22% to $12.73 billion from $10.43 billion in the year-ago period. Results surpassed Wall Street projections for earnings of $4.97 per share on $10.69 billion in revenue, according to analysts polled by Thomson Financial. However, Goldman's shares fell $3.52, or 1.8%, to close at $199.08 on the NYSE, which was in line with a selloff in the broader market.

Oil prices fell Tuesday to settle under $58 a barrel, as a decline in the stock market stirred worries about the economy and demand for energy.

Embarcadero Technologies Inc. (NDAQ:EMBT) shares moved up $0.09, or 1.37%, to $6.66 after Chapman Capital issued a press release reiterating its demand that Embarcardero's Board of Directors maximize shareholder value via a change-of-control transaction. The activist hedge fund, which owns a 9.3% stake in the company, also said that it would seek nominees to replace several Class I and II directors.

The company first attracted buyout interest back in September 2006, when it announced it had entered into a definitive agreement to be acquired by an affiliate of the Thoma Cressey Equity Partners in a cash transaction valued at $8.38 per share of common stock. Problems arose in November, however, when the company failed to file on time and eventually uncovered an options backdating problem. This caused Thoma Cressey to terminate their merger agreement on December 18th. Chapman Capital then decided to take an active stance in the company again and began contacting shareholders. By February 28, 2007, Chapman Capital’s research led to the conclusion that there was virtually unanimous sentiment amongst the company's shareholders that the most suitable strategic course of action for the Issuer was to resume the auction process conducted by Morgan Stanley & Co., as compared to the arguably higher risk spend-for-growth strategy that has crippled numerous sub-$100 million technology companies in the past. Particularly in light of the company's February 16, 2007, disclosure regarding the company's ongoing NASDAQ delisting risk, declining license revenue, and option-scandal related inability to announce full earnings results for the fourth quarter ended December 31, 2006, the company's ownership base conveyed a uniform desire for the company's common stock value to be maximized through a change-of-control transaction. 

"Embarcadero's Board of Directors is virtually ownership-free, with only one director recently possessing a mere $65,000 in Embarcadero shares vs. funds advised by Chapman Capital owning over $15 million of this $170 million-in- market-capitalization company. The Board, with no meaningful 'skin in the game,' shall not be allowed to 'play venture capitalist' with the hard-earned money of a shareholder base held hostage by weak corporate governance," said Mr. Chapman. "Morgan Stanley & Co., the financial adviser still retained by the Board, is in possession of a signed merger agreement and germane fairness opinion that with minor modification could be applied expeditiously to a revised merger proposal. In a period of record merger and acquisition activity driven by a multitude of cash-flush financial and strategic buyers, Morgan Stanley shall not be exculpated for failure by using the pretext of a shareholder base that is openly willing to sell."

Combined, these factors make EMBT a stock worth watching! If Chapman Capital is able to convince the company to put itself up for sale, it could mean significant share appreciation for investors. Typically, when threats of a proxy fight are issued, the company will at least respond to the demands in an attempt to prevent the costly process from occurring. So, the next thing to look for is either a communication from the company or a DEF14A proxy solicitation.

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Ceridian Corporation (NYSE:CEN) shares moved up $0.57, or 1.79%, to $32.38 today after the company appointed a new Chief Financial Officer. It was also revealed late Friday in a DEF14A filing that the company was being sued by activist hedge fund Pershing Square. In the lawsuit, the hedge fund demanded that the company make two letters available for inspection and copying by the hedge fund. Ceridian had admitted the existence of these two letters which were sent by senior executives of the company to the company's board of directors. Pershing Square believes that these letters include discussions of the senior executives' concerns about the management of the company, including concerns about the board of directors' oversight responsibilities and/or the performance of the prior chief executive officer. Yet, Ceridian has refused to provide the hedge fund with access to those letters for potential use in a proxy contest, even though they are directly relevant to the question of whether shareholders should vote for the new nominees proposed by Pershing Square or those proposed by the incubant directors. What did the company have to say? According to a spokeswoman for Ceridian: "We believe this lawsuit is completely without merit and we intend to defend ourselves vigorously."

Meanwhile, the company announced the appointment of a new chief financial officer today. "We are extremely pleased to have someone of Greg's caliber joining Ceridian," said Kathryn V. Marinello, president and chief executive officer of Ceridian. "Greg demonstrated his financial expertise during his years at GE by continually improving the business units in which he worked. I worked with Greg closely in the past at GE's Partnership Marketing Group and was consistently impressed by his knowledge of finance and leadership capabilities. The Board and I are delighted to welcome Greg to our senior management team and are confident that he will be an important contributor to Ceridian's success as we focus on creating value for our shareholders." The new CFO is good news for shareholders, who will also be watching this court fight closely to see if they can get a better glimpse into the company's management team and board of directors. And in the end, if Bill Ackman's Pershing Square is able to take over the company's Board of Directors, it could mean significant upside for shareholders! This makes CEN a company worth watching!

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UnitedHealth Group (NYSE:UNH) said today that it agreed to acquire Sierra Health Services, Inc. (NYSE:SIE) for approximately $2.6 billion, giving the health insurer a larger marketshare in the quickly expanding Southwest region and boosting its senior health-care capabilities. Sierra shares rose over 15% on the news, while UnitedHealth shares moved up fractionally.

Boston Scientific Corp. (NYSE:BSX) said its Board of Directors has authorized management to explore an initial public offering of a minority stake in its endosurgery group. The medical device maker said an IPO would involve selling approximately 20% of the endosurgery group, which would remain a majority owned subsidiary.

Wireless Facilities Inc. (NDAQ:WFII) said it plans to delay its 2006 annual report as it continues to investigate possible options backdating. The company is expected to record a $9.2 million charge related to the accelerated vesting of all of its employee stock options, an $18.3 million goodwill impairment charge, and a $3.4 million asset impairment charge.

Several changes were announced to the S&P500 index. Host Hotels and Resorts (HST) will be added to the index on a date to be determined, replacing Phelps Dodge Corp. (PD), which is being acquired by Freeport-MyMoRan Copper & Gold Inc. (FCX). Also, the S&P said it would be adding Option Care Inc. (OPTN) to the SmallCap 600 index after the close of trading March 15th. This company will replace Hancock Fabrics, inc. (HKF).

Cosi Inc. (COSI) said that its Chief Executive Kevin Armstrong has resigned for health reasons. The company named Robert Merritt, one of its directors, as interim CEO, effective immediately.

Netease Com Inc. (NDAQ:NTSE) said that its Board of Directors OK'ed a new buyback program that would enable the company to repurchase up to $100 million ADRs.

Merck & Co., Inc. (NYSE:MRK) said that it plans to appeal the Humeston Vioxx verdict, where a N.J. jury awarded $20 million to plaintiffs.

Texas Instruments Incorporated (NYSE:TXN) said that its inventory correction was "winding down" while its customer inventory levels were improving. Consequently, the company expects growth to resume again in Q2.

CVS Corporation (NYSE:CVS), seeking to thwart rival suitor Express Scripts sweetened its offer on Thursday for Caremark to $54.12 a share, plus a higher, one-time dividend of $7.50 per share in cash after the deal closed. The dividend previously was $6 per share. CVS also said if the deal is closed, the combined company will make a cash tender offer of $35 a share for 150 million, or about 10%, of its outstanding shares.

Frank Stronach, CEO of Canadian auto parts giant Magna International (NYSE:MGA), confirmed that his company could be interested in taking a stake in DaimlerChrysler's Chrysler division. Stronach said it was vital that Magna be involved in a possible sale of Chrysler to protect itself and help its biggest customer, which carried the first public comments by Magna owner since Chryslers Feb 14 announcement that it would cut 16% of its employees.

Shares of Yahoo (NDAQ:YHOO) tumbled Friday amid reports that the Web portal's deal with AT&T to sell high-speed Internet access may be on shaky ground. The companies reported to be negotiating potentially sweeping changes that could scale back their partnership, according to the Wall Street Journal. The potential fraying of the alliance deals an unexpected new blow for Yahoo, which gets roughly $210 million to $290 million in subscription and advertising revenues annually from AT&T, according to Goldman Sachs analyst Anthony Noto. Yahoo shares fell $1.64 to $29.07 in early afternoon trade on Nasdaq. They had risen around 13% so far this year, prior to Friday's decline. AT&T shares firmed $0.11, or 0.3%, to $36.62 on the NYSE.

Coca-Cola (NYSE:KO) said that it is reorganizing its North American business to better reflect its strategic focus and creating three new business units for its sodas and other beverages as part of the change. In a note to employees, Coke North America President Sandy Douglas said the new operating model has been designed "to transform our business and win in the marketplace."

A second U.S. investment firm dismissed Citigroup's (NYSE:C) $10.8 billion buyout offer for Japanese brokerage Nikko Cordial as far too low, pressuring the U.S. bank to sweeten its bid. Nikko's stock rose to trade 4.4% above Citigroup's offer price after Tennessee-based Southeastern Asset Management, Nikko's third-biggest shareholder, said the brokerage was worth at least 48% more.

Strong demand for corn from ethanol plants is driving up the cost of livestock and will raise prices for beef, pork and chicken, the Agriculture Department said. Meat and poultry production will fall as producers face higher feed costs, the department said in its monthly crop report. Ethanol fuel, which is blended with gasoline, is consuming 20% of last year's corn crop and is expected to gobble up more than 25% of this year's crop. The average price of corn, unchanged from last month, is $3.20 a bushel, up from $2 last year.

Procter & Gamble Co. (NYSE:PG), maker of Tide detergent, Crest toothpaste and numerous other consumer products, reaffirmed its Q3 earnings guidance. The company expects earnings of $0.72 to $0.74 a share for the quarter ending later this month. P&G said it expects sales growth of 7% to 9% in the quarter. Shares rose $0.10 to $62.41 in morning trading on the NYSE. Shares have traded in the range of $52.75 to $66.30 in the past year.

New Century (NYSE:NEW) shares lost a quarter of their value, plunging 25%, or $1.29, to $3.87 on the NYSE. After the closing bell, the stock fell an additional 2.6 % to $3.77 in electronic composite trading.

Financial stocks moved up today: Bear Stearns (NYSE:BSC) shares added 1.8%, or $2.69, to $152.06 on the NYSE while Goldman Sachs (NYSE:GS) rose 2.2%, or $4.35, to $199.94.

Retail stocks recovered on optimistic economic news: Target (NYSE:TGT) climbed 1.8%, or $1.09, to $61.69 and J.C. Penney (NYSE:JCP) shares rose 4.1% to $80.86, both on the NYSE. Department store operator Bon-Ton Stores Inc. (NDAQ:BONT) shares shot up 15.8%, or $7.56, to $55.36 on the Nasdaq.

Steel maker Nucor Corp. (NYSE:NUE) jumped 5.3%, or $3.17, to $63.12 on a strong forecast and helped other stocks in the sector. U.S. Steel Corp. (NYSE:X) gained 3.2%, or $2.81, to $90.51.

Phone company AT&T (NYSE:T) was the top-weighted gainer in the Dow and the S&P 500 following a European bond issue and an upgrade by A.G. Edwards. AT&T shares climbed 3.1%, or $1.08, to end at $36.51 on the NYSE.

Weyerhaeuser Company (NYSE:WY), which has moved up well over 40% since the middle of 2006, is now considering making changes to its centuries old corporate model. Many activist shareholders have been pushing the lumber giant to sell everything but its timberland operations and restructure itself as a Real Estate Investment Trust (REIT) in an effort to save millions with the new tax structure. The company initially resisted the idea, however, opting to maintain its current corporate structure while pushing for federal legislation that would make it cheaper to operate its timberlands. But recently, the company announced that it would explore all of its strategic options, including a possible restructuring.

Why the commotion? Well, Weyerhaeuser first caught the attention of investors after a series of transactions in the timberland sector gave some insight into the value of their real estate holdings, which some estimate as high as $3,000 per acre. And given the company's 5.7 million acres of land in the Pacific Northwest, the valuation of their timberland operations becomes a huge number! Investors speculate that the company could be valued at around $83 per share if the company's divisions were split up or sold off and as high as $108 if it converted itself into a REIT without a big tax penalty. Investors also stand to gain substantially if the company's proposed legislation (sponsored by Artur Davis) passes, which would cut the company's tax rate by 60% to about 14% - roughly the same as an REIT would pay. Now that the company is officially exploring these strategic options, WY is definitely a stock to keep a close eye on!

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Applebee's International, Inc. (NDAQ:APPB) moved up $0.06, or 0.24%, to $25.23 today after Breeden Capital the company's offer for two seats on the Board of Directors. Breeden Capital had been seeking four seats in what has been a long standing battle with the company. We first began covering this story back in December when Breeden Capital expressed disappointment with the company's operating results and valuation. Specifically, the hedge fund pointed 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. Moreover, they 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%). Clearly, there is cause for concern at Applebees!

So, what does the hedge fund plan to do about it? Well, they outlined several changes that they would make in a past letters to the Board of Directors:

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.
6. 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.
7. 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.
8. 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.
9. The level of free cash flow would be a healthy measure for some portion of incentive opportunities, especially for the CEO and CFO.
10. 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.
11. Personal use of corporate aircraft should be banned. Tax gross-up payments made during the last three years should be repaid to the company.

So, what happens now? Well, since Breeden Capital has rejected the two board seat offer, it is up to the company to either produce a counter-offer of four seats or face a possible proxy fight. The first step to watch for that would indicate a proxy fight would be an official declaration by Breeden asking for the company's shareholder records so they could mail proxy materials - which would be found in a future DEF14A filing with the SEC. Meanwhile, if the hedge fund's nominees are elected to the company's Board of Directors, it could mean significant share appreciation over the long-term for the company's shareholders. This makes APPB a stock worth watching!

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