Circuit City (NYSE:CC) shares jumped $0.16, or 1.03%, to $15.69 today after an Associated Press story suggested that the company may need a buyout or major management shakeup to recover from recent profit warnings and increasingly intense competition.

Circuit City rejected a $17 per share buyout offer in 2005, instead opting for a turnaround effort that was quenched by a price war on flat screen televisions last year. The price war caused the company to replace 3,400 workers with cheaper labor that ended up hurting sales. Overall, the situation for Circuit City isn't looking all to good with one of its competitors even considering bankruptcy.

So, what are the chances of a buyout? Well, the fact that the company has received a bid in the past for an amount greater than the current market price suggests that it is could be a possibility. Moreover, while some other companies may be cheaper, nobody can match Circuit City's status as the second largest electronics retailer in the United States. Combined with the financial troubles that the company is in, it would not be too hard to fathom a buyout scenario. This makes CC a stock worth watching!

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Wendy's International (NYSE:WEN) shares continued their rise today after its new ad campaign debuted on American Idol earlier this week. The fast food company has been struggling to regain its advertising foothold ever since Dave Thomas passed away in 2002. Now the company is back with a fresh new campaign centered around their new slogan: That's right. Wendy's shares rose the day after the campaign as many investors hoped that it would help boost the ailing chain.

Wendy's also announced last week that the special committee of the board that had been exploring strategic options had retained J.P. Morgan as lead advisor and Lehman Brothers as co-advisor. These moves suggest that the company is beginning to seriously explore some potential extraordinary transactions such as a sale of the company, recapitalization or special dividend. It is also worth noting that activist investors Bill Ackman and Nelson Peltz have been involved in pushing the company towards unlocking value for its shareholders.

Many rumors have surfaced regarding potential bids for the company in the past; however, nothing has been confirmed. Investors do know, however, that the company is actively exploring ways to unlock value while working to increase its brand awareness through a unique new advertising campaign. The results on both of these fronts remains to be seen, but WEN is definitely a stock to watch in the meantime!

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Ditech Networks (NDAQ:DITC) shares dropped $0.24, or 2.87%, to $8.13 after the company announced lower fourth quarter earnings and narrowed its guidance. The telecom equipment provider also received a letter from 5.8% owner Riley Investment Management who suggested ways to cut costs and improve revenues while returning the company's excess cash to shareholders.

The activist hedge fund expressed its concern and outlined a plan to enhance shareholder value in a Schedule 13D filing with the SEC. Since Ditech's public offering, the company has accumulated losses of over $80 million while spending $110 million in stock and cash on acquisitions and $188 million on R&D. Meanwhile, the current enterprise value stands at a mere $114 million (including NOLs), which suggests that many investors don't have much confidence in the company's future.

Despite this bleak past, Riley believes that the company is well positioned for strong cash flows and operating profits as its customer base continues to diversify and expand. The hedge fund's analysis shows that the company could be at an EBITDA run rate of $25 million in the next couple of quarters and as high as $35 million in the near future with continued customer wins. Notably, the company also has $135 million in cash on its balance sheet!

Riley suggested that given their analysis, the company should consider implementing a series of initiatives to improve its fundamentals and return at least $100 million to shareholders through a dutch tender offer between $9 and $11 and a special dividend to return the balance. Moreover, if the hedge fund's projections were overly optimistic in the company's eyes, it should consider simply issuing a cash dividend amounting to $100 million - or $3 per share.

Riley insists that Ditech is at a critical juncture. Shareholders entrusted the company with over $75 million in cash during its IPO at $11 per share and a secondary at $50.75 per share. Since then, the company's stock has declined 84% in eight years as VCs unloaded and insiders kept their exposure limited. Now, the company's fundamentals seem to be improving while a new CEO is stepping in that better understands the company's obligations to shareholders.

Riley also noted that they may seek board representation and have done so in the past with great success. Combined, these factors make DITC a stock worth watching closely over the next few months!

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