eSpeed Inc. (NDAQ:ESPD) shares moved up $0.19, or 2.07%, to $9.38 after WC Capital disclosed a 6.4% in the company and expressed their concerns about the company's valuation. The activist hedge fund said that their analysis has led them to believe that the range of the company theoretical valuation could be considerably higher than the current share price, which could result in a value 28% to 70% greater ($12 to $16 per share) than the current valuation of $9.40 per share. The move comes after another large shareholder, Chapman Capital, disclosed a 9.3% stake and made similar demands that the company immediately put itself up for sale. The problem facing both shareholders is the fact that 88% of the company's voting power is controlled by Mr. Lutnick and his affiliates due to a classified share structure in which Class B shares have 10 votes each.

Problems began in early 2004 when several investors began to recognize a significant divergence between the performance of the company's common stock and its publicly traded peers. Specifically, in 2004 the company stock plummeted 47% while that of its peers remained flat, and in 2005 the company's stock dropped 37% while its peers added 49%. Then in January of 2006 there was a glimmer of hope when The Daily Telegraph reported that Cantor Fitzgerald was preparing a stock market float of BGC Partners, its London-based brokerage business, in a move that was expected to lead to a merger with eSpeed, the Nasdaq-quoted broker also controlled by Cantor, to create a company worth between $500 million and $1 billion. However, this deal never materialized. Then, in a highly questionable December 2006 Form 4 filing with the SEC, Mr. Lutnick was granted, free of cost, 800,000 Class A common stock options - representing 3% of the company's outstanding shares! This upset many investors who feared the potential dilutive effects of the options. Finally, the last straw came in February of this year when the company issued a press release that disclosed its FY2007 financial outlook. Investors were outraged to find out that company projected nearly break-even operating performance due to approximately $152 million of non-GAAP operating revenues being consumed by $146 to $148 million of non-GAAP operating expenses, a level of spending which investors have thought unacceptable.

Now, WC has suggested that the board of directors immediately review several strategic alternatives for the company:

1. Sale of the company
2. Conversion of Class B shares to Class A shares
3. Return of capital to shareholders (one-time dividend/share repurchases)
4. Initiation of procedures and structures increasing eSpeed autonomy

Clearly there are changes that need to be made to this company and with two shareholders now expressing concerns, maybe the company will institute some changes. Regardless, this is definitely a stock worth watching!

Related Companies
Global Payments Inc. (GPN)
Fidelity National Information Services (FIS)
MoneyGram International Inc. (MGI)

Tower Automotive Inc. (OTC:TWRAQ) received a $1 billion buyout offer from Cerberus Capital Management to take it out of Chapter 11 bankruptcy protection. The company would be the latest in a series of automotive takeovers by private equity, which have included Delphi and DaimlerChrysler. The term sheet submitted to the U.S. Bankruptcy Court indicated that the Cerberus offer would pay off all of the outstanding obligations to debtors, pay off Tower's pensions, and provide "certain recovery" for unsecured creditors. These unsecured creditors would get $10 million in cash under a reorganization plan while Cerberus would put aside another $2 million in a liquidating trust for the unsecured creditors. The process would also allow for competitive bids; however, the bidding procedures would be $10 million above Cerberus' initial offer and will raise in $5 million increments, which is somewhat high for a bankruptcy auction. Consequently, it is likely that the Cerberus offer will be the final offer, especially considering the fact that many of the other large private equity firms that would compete have already taken stakes in other automotive companies.

Meanwhile, the company's common stock shareholders pushed the OTC shares up nearly 100% on the news until it settled at $0.06. It is uncertain as to whether or not common stock shareholders will be able to partake in the $10 million set aside for unsecured creditors. Remember, unsecured creditors include not only common stock shareholders but also preferred stock shareholders, trade creditors, and many others. Currently, the OTC shares price the company's common stock value at $3.92 million, indicating an assumption that almost 40% of the $10 million payout will be distributed to common stock shareholders. Will this happen? While nothing is certain, it is unlikely that this much will be set aside since there are many other unsecured creditors that must be paid off. Regardless, this development is certainly worth following as private equity continues to aggressively take over the auto sector.

Related Companies
Productivity Technologies Corp. (PRAC)

Electro Scientific Industries Inc. (NDAQ:ESIO) shares moved up $0.49, or 2.58%, to $19.51 today after Nierenberg Investment Management disclosed an 11.7% stake in the company and expressed their impacience with ESIO as its share price weakens. The activist hedge fund contends that the company continues to depress its return on equity (ROE) by failing to make its excess cash work harder and smarter for its shareholders. Nierenberg has communicated these concerns with the company in the past along with Third Avenue Management - another activist hedge fund pushing for changes. However, despite these communications, little seems to be changing despite the company's January 22nd press release affirming their commitment to shareholder value. Consequently, Nierenberg made an ultimatum saying that time is running out and the time for action is now. If management does not make some immediate changes, it is likely that Nierenberg will pursue board seats in what could become a proxy fight for contorl of the company. Given their large stake and support by Third Avenue Management and other shareholders, it is likely that they would succeed in such a battle.

Just how much cash is ESIO carrying? Well, in addition to to its cash reported on the cash and marketable securities lines of the balance sheet, they also have $1 million from an insurance settlement and $7 million in a litigation bond in Taiwan, which increases cash per shares to $7.73. If ESIO were to restore inventories and receivables to June 3, 2006 levels, and if the above-mentioned $8 million in cash were added, ESIO's total cash and marketable securities would be $8.21 per share - or over 40% of ESIO's share price! ESIO is profitable, cash flow positive, and debt-free... so why has it dropped through 2006 from $25 per share to $19 per share? This is the issue that the hedge funds are trying to address.

What measures is Nierenberg looking for to unlock value? Well, the hedge fund advocates a "tangible and substantial" boost to ROE via a (at minimum) six million shares repurchase with a plan in place to repurchase at least one million more shares annual from free cash flow, asset monetization, and cash reserves. Nierenberg said in a past filing that given the combination of organic growth, increased R&D investment, a number of promising new product releases, and possible acquisitions could enable ESIO to double its revenues over the next three to four years. Management has shared this goal with the public on sevearl occasions. Moreover, given the company's business model, such growth would drive earnings per share north of $2.00, and, in their view, ESIO's share price to $40, more than double its currently depressed level. This makes ESIO a stock worth watching!

Related Companies
GSI Group, Inc. (GSIG)
CyberOptics Corporation (CYBE)
Cognex Corporation (CGNX)