Tarragon Corporation (NDAQ:TARR) announced earlier this week that it would be spinning off its core homebuilding and real estate development divisions in order to shift its focus on the rental market - an area poised for steady growth as prospective home buyers wait out the residential real estate collapse. The company develops and owns multi-family housing in Florida, New York, Tennessee, and Texas. The spin-off, which is slated for mid-2007, would provide the company with additional funds and enable it to focus more strongly on its multi-family rental business. Tarragon will continue to operate its real estate services business, which provides asset and property management, leasing and renovation services to residential and commercial properties. Following the spin off, Tarragon will change its name to Sage Residential, Inc. while Tarragon's homebuilding and development business will be renamed Tarragon Corporation.

The company believes that the spin off will, among other things, provide both businesses with direct and differentiated access to financing and the capital markets, allow each company to grow through acquisitions appropriate to its business and provide each company with the opportunity to align management incentives with the performance of its business. Moreover, given the current weakness in the sector, the new spin-off may end up being severely undervalued when it makes its debut as an independent entity - creating a great opportunity for enterprising investors to get in at low prices. Regardless, this is definitely a company to watch as it attempts to rid itself of underperforming divisions and turn itself around!

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Bulldog Investors is a hedge fund founded by Philip Goldstein that specializes in activist situations. Mr. Goldstein is well regarded among activist hedge funds after he recent argued against the SEC's required 13F filings, which require a complete list of the hedge funds holdings. He argued that hedge funds' holdings should be considered trade secrets, as the primary activity of a hedge fund is to uncover undervalued companies that are not in the public's sight. Meanwhile, the hedge fund has also been subjected to a lawsuit by the State of Massachusetts after it allegedly offer unregistered securities to the public. Regardless of their current state, however, the hedge fund seems to be focusing on an interesting strategy during the last few months.

Specifically, Bulldog Investors seems to be focusing on closed-end mutual funds that are trading well below net asset value, seeking to unlock value through a restructuring. Simply put, closed-end mutual funds are publicly traded portfolios that do not trade on par with their assets. Rather, they can be overvalued or undervalued just like stocks. Bulldog Investors has recently targeted such funds trading significantly below NAV - such as MFS Government Markets Income Trust, AEW Real Estate Income Fund, Franklin Universal Trust, RMR Hospitality Real Estate Fund, and several other. The idea is that by converting these closed-end funds to open-end mutual funds (which are required to trade at NAV), they can immediately unlock a significant amount of value. Whether or not this strategy actually works remains to be seen; however, Bulldog Investors is certainly a hedge fund worth tracking!

KB Home (NYSE:KBH) shares moved up marginally on the day after the company filed its 8-K with the SEC. The document provided some additional information into just how hard these companies were hit with the subprime mortgage collapse. KB Home said that their first quarter results reflected a sharp downturn in the housing market that began in 2006 and that continues to pressure the sales and profit margins of domestic homebuilders. The company continued saying that their revenues and margins were being pressured by intense competition and pricing pressure among homebuilders and other participants in the marketplace. Moreover, they expect these conditions to continue through at least the remainder of 2007 adding that it would be hard to predict when the housing market will stabilize. Finally, commenting on the subprime collapse, the company noted that these recent problems in the subprime mortgage market combined with tightening credit requirements (now being discussed by lawmakers) could exacerbate the already-difficult conditions in the homebuilding industry. During a conference call, the company noted that about 13% of their mortgaes for the company's homes were financed with subprime loans. Meanwhile, the major concern is that many of the markets have a large overhang of resell inventory that hasn't cleared the market - these supply/demand issues have yet to be sorted out.

Federal regulators are just now cracking down on who's to blame for the subprime mess. Many people insist that while Federal regulators have tightened standards for making loans to subprime borrowers, standards still decline and the volume of loans has surged. Perhaps the main reason for this is the fact that approximately 52% of subprime mortgages originated from companies with no federal supervision - that is mortgage brokers and stand-alone finance companies. An additional 25% were made by finance companies that are units of bank holding companies, which are indirectly supervised by the Federal Reserve. In fact, only 23% of all subprime mortgages fall directly under Federal regulatory control.

Fed Reserve Governor Susan Bies told the Wall Street Journal, "What is really frustrating about this is [federal regulators] don't have enforcement authority to do anything with these state-licensed, stand-alone mortgage lenders." Meanwhile, industry supporters say that the system is working perfectly. Doug Duncan from the Mortgage Bankers Association commented, "Market discipline in this industry is swift, can be severe, and is more effective in changing lending practices than any potential changes in regulation." So, while this situation unfolds we'll have to wait and see exactly how subprime mortgage volume adjusts itself. But in the meantime, it appears as if housing companies will continue to suffer in the aftermath of these defaults.

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Warwick Valley Telephone Company (NDAQ:WWVY) shares moved up $0.39, or 2.41%, to $16.59 in early trading today after Santa Monica Partners demanded that the company immediately put itself up for sale in a letter to the company's board of directors. The 2.4% shareholder had sent letters to the company in the past recommending a similar course of action since the company clearly cannot compete with other well-funded cable and internet competitors with enormous economies of scale. Meanwhile, the company's senior management have all resigned along with certain board members while more than 20% of its employees have been laid off. Compounding the problem is today's late K-1 filing which further highlights the company's declining margins as losses continue to mount. Not only is there no plan in place to turn the company around, but only interim management available to implement any such plans.

The hedge fund then points out why a sale may be in the best interest of shareholders. Hector Communications, one of the company's competitors, recognized the competitive threat it faced and decided to put itself up for sale in November 2006. The company ended up being sold for $36.40 in cash, a gain of 160% from the $14 per share level at which the company's stock was trading at in November 2003. Surely a sale at a premium like this would be preferrable to the steady decline we've been seeing at Warwick for several years now. Santa Monica then urged the board of directors to remember its fudiciary duty to shareholders, even though they personally do not have much at stake in the company. If the board of directors decides to consider the possibility of a sale, it could mean significant share appreciation for investors - this makes WWVY a stock worth watching!

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Private equity giant Blackstone Group filed for a $4 billion IPO that would put a provide the company with new sources of permanent capital. While the firm hasn't yet disclosed ow many shares will become available or provide an estimated price range, they did say that public shareholders would have limited voting rights and will not elect the general partner or its directors. The hedge fund would be the second hedge fund ever to go through with an initial public offering.

Avery Dennison Corp (AVY) signed a definitive merger agreementw tith label and tag company Paxar Corp (PXR) for $30.50 per share in a transaction worth about $1.34 billion.

Bed Bath & Beyond Inc. (BBBY) acquired the privately held retailer buybuy BABY for about $67 million, net cash acquired, and repayment of debt of about $19 million. The company said that the acquisition allows it to provide merchandise to expectant parents and their friends, who are part of its current consumer base.

Activision Inc. (ATVI) said it has signed a multi-year agreement granting the company exclusive worldwide rights to develop and distribute video games on all platforms based on Live Nation's (LYV) Monster Jam Series. While financial terms of the deal were not disclosed, the first game in the series is expected to be available at retail stores this holiday season.

Capital City Bank Group Inc. (CCBG) said it has approved an additional buyback of up to 1 million shares.

IHS Inc. (IHS) said an existing shareholder has begun a secordary offering of 3.75 million shares; however, the company said it would not receive any proceeds from the offering.

Sauer-Danfoss Inc. (SHS) said it would be raising its quarterly dividend by 13% to 18 cents a share. The new dividend is payable to shareholders on record by April 2nd.

Pozen Inc. (POZN) said its amended reponse to an approvable letter for its migraine treatment Trexima has been accepted for review by the FDA. Pozen also said that the FDA notified the company that it expects a Class II review, which could result in a new deciison date of August 1, 2007. If approved, the drug could be available as soon as the second half of 2007.

Embarcadero Technologies Inc. (NDAQ:EMBT) founds itself in the cross hairs of Chapman Capital once again today as Robert Chapman demanded that Director Gary Haroian immediately resign from the company's board of directors. "Mr. Haroian has been compensated into the hundreds of thousands of dollars while acting out the part of a 'career director' on the boards of Embarcadero, Aspen Technology, Inc., Lightbridge, Inc., Network Engines, Inc., and Phase Forward Inc.," said Chapman in a press release. "In order to reinstate any semblance of obeying his responsibility to the owners of these public companies, Mr. Haroian should resign from whichever boards necessary to allow for his adequate attention and focus on the remaining issuers."

Chapman went on to say: "Public company directors hiding shamelessly and disingenuously behind a convenient but ignorant interpretation of Regulation Fair Disclosure, in order to shirk their fiduciary duties of due care and loyalty, are a plague being visited upon Wall Street. Instead of committing the time and effort to understand issuers' operations, financial condition, strategic positioning and management performance, these expensive substitutes for true corporate governors attempt to obfuscate their parasitic ineptitude behind the facade of Reg. FD compliance. There exists no section, guideline or other language within Reg. FD that restricts the discussion of material, public or immaterial, non-public information between public company directors and owners. At the risk of stating the obvious, the fact that public information being targeted for discussion had been disclosed previously makes Mr. Haroian's pretext for 'owner avoidance' patently absurd."

These harsh words come only days after the acitivist hedge fund demanded that Embarcadero immediately put itself up for sale. Further, Chapman said he would seek nominees to replace Class I directors Timothy C.K. Chou and Frank M. Polestra, and Class II directors Michael J. Roberts and Samuel T. Spadafora, should a sale of Embarcadero not be announced by March 30, 2007. This is a great stock to keep an eye on in the event that management folds to the pressure; after all, while proxy fights are rarely won by hedge funds, most companies bend under the pressure and institute at least a compromise.

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Feldman Mall Properties, Inc. (NYSE:FMP) was contacted by Mercury Real Estate Advisors LLC again on Tuesday after it failed to respond to their initial demands made on January 30, 2007. The activist hedge fund demanded once more, in a Schedule 13D/A filing with the SEC, that the company immediately hire an investment banker to explore strategic alternatives given the company's steep discount to liquidation value and several interested third parties. Further, Mercury notes that the continued pattern of delays in SEC filings, downward adjustments in reported FFO by 16.6%, and a reduction of earnings guidance by approximately 40% is extremely troubling. The hedge fund also added several other factors to its growing list of reasons the company should be sold:

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.
5. The company failed to file in a timely manner periodic reports required by the SEC, including its current Form 10-K, 2004 10-K, and various quarterly reports throughout 2005. Moreover, the company was forced to reschedule conference calls as a result of their inability to file on time.
6. The company revised its earnings lower several times throughout 2005 and 2006 resulting in a total reduction over six months of over 40%! Moreover, in 2006, it revised its FFO from A4 2005 lower by over 16%! Since the company hasn't filed its current financials, who knows if this is a trend that will continue through 2006 and 2007.

Mercury 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. The hedge fund insists that the board should not continue to let the opinion of its seemingly conflicted chairman, Larry Feldman, determine the right course of action for achieving and maximizing shareholder value. Rather, the board should act immediately and hire an investment banker to explore strategic alternatives. Finally, Mercury said that it would call the company later this week to schedule a time to discuss this matter in person - a move that will hopefully spark some actual response from management. This makes FMP a stock worth watching!

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Acme Communications Inc. (ACME) reported a fourth-quarter net loss of $1.63 million, or 10 cents a share, compared with $5.64 million, or 13 cents a share, one year-ago period. The company expects first quarter 2007 revenue for its continuing television stations to decrease in the low single digits quarter over quarter.

Affiliated Computer Services (ACS) confirmed it has received a $59.25 per share offer from Chairman Darwin Deason and Cerberus Capital Management L.P. to take the company private. The deal would be worth over $8 billion, including the assumption of ACS debt. The company said that a special committee of independent directors has been formed to evaluate strategic alternatives, including the proposal from Deason and Cerberus, and will reach a decision in due course.

Chubb Corp.'s (CB) board increased the share buyback program by 20 million shares. The company said the purchases may be made in the open market or in privately negotiated transactions.

The Job Network LLC, owned by Lee Enterprises (LEE), entered into a strategic partnership with Yahoo Inc.'s (YHOO) HotJobs unit. Financial terms weren't disclosed, but the partnership will allow the Job Network's members to post employment ads on the HotJobs website.

Ligand Pharmaceuticals Inc. (LGND) said that it plans to pay a dividend of approximately $253 million, or $2.50 a share, on April 19 to shareholders of record April 5. Ligand's board also authorized up to $100 million in share repurchases over the next 12 months.

Wells Fargo & Co. (WFC) said it has authorized a stock buyback of up to 75 million shares of its roughly 3.4 billion shares outstanding. Wells Fargo shares rose 2.5% to close at $35.48 on the news.

eBay Inc. (EBAY) shares added 2.1% today after its PayPal unit said it has 35 million accounts in Europe. According to analysts at Forrester Research, nearly a quarter of all European online shoppers use PayPal.

Google Inc. (GOOG) shares gained 2.5% after the company said a small number of advertisers are now testing out a new payment scheme it's calling "pay-per-action." The new model would allow advertisers to only pay publishers if the visitors completed an action - such as fill out a form or request promotional materials.

Palm Inc. (NDAQ:PALM) shares moved up $0.73, or 4.02%, to $18.87 today after Unstrung.com said that a Palm buyout could be finalized by Thursday of this week, citing sources close to the situation. The popular technology news source said that Nokia was the leading vendor bidder with Palms' management said to be the preferred private equity buyer. The deal reportedly includes bids from two private equity firms, two vender companies, and would top $20 per share. Many are also quick to note that Motorola may attempt to block any bids from Nokia in an effort to increase their pricing power with Palm's successful Treo line and quiet Carl Icahn who recently complained that Motorola was not utilizing its cash. Finally, a Motorola buyout would also block Nokia from taking control of the enterprise market. So, while we do not have sure bids yet, it is almost certain that PALM will be bought out by someone in the very near future - the question just remains by whom and for how much?

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Magic Software Enterprises Ltd. (NDAQ:MGIC) shares jumped 1.25% in early trading after the company announced that it has appointed Eitan Naor as its new President and CEO. Mr. Naor is an experienced turnaround CEO that previously assisted ECtel (NDAQ:ECTX) in its restructuring efforts. ECtel is a small cap telecom fraud prevention and revenue assurance company that fell dramatically between 2002 and 2004. Under his leadership, ECtel turned itself around and experienced nine consecutive quarters of revenue growth and improved financials while the stock priced soared from a low of around $2 per share to a high around $5 per share.

Magic Software is another small cap company that announced a major restructuring plan in the fourth quarter of 2006. Since then, the company has returned to profitability and now hopes that the Mr. Naor can help the company increase its profitability and make a complete turnaround. Given Mr. Naor's success at ECtel, MGIC may be a stock to keep an eye on as they continue forward with their plans.

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