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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Packeteer Inc. (NDAQ:PKTR) shares moved up $0.26, or 2.73%, to $9.77 today after Elliott Associates disclosed a 6.3% stake in the company and communicated their belief that the board of directors should be directing their attention to a prompt sale of the company.

The activist hedge fund reasoned that the company had failed to adequately perform and therefore should be sold in order to unlock value for shareholders. In particular, Elliott Associates noted that the company possesses a leading technology in one of the fastest growing segments of the networking market but has been unable to capitalize on this advantage.

The hedge fund also noted that the market segment in which the company operates is becoming increasingly competitive and therefore it may be prudent to sell while valuations are still high. Moreover, there are probably many parties that would be interested in bolstering their products and services with the market leading technologies possessed by Packeteer.

Combined these factors would make PKTR an attractive target for potential suitors if the company was shopped by the board of directors. And obviously, any buyout would come at a substantial premium to the current market price making this stock one worth following!

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Dell Computers (NDAQ:DELL) shares moved up after the company announced that it would begin selling two two Dimension desktop models in 3,000 WalMart stores in the U.S., Canada and Puerto Rico beginning on June 10th.

The news marks the end of Dell's signature direct-sales policy that marked its success for the past decade. Michael Dell, the company's founder and CEO, noted that direct model has been a revolution, not a religion. The move towards retailing some of its computers is only the "first step" in a larger strategy to help the ailing computer maker to turn itself around.

The change also marks one of the more dramatic changes by founder Michael Dell after he took the reins from former CEO Kevin Rollins who oversaw declining sales and margins. Many analysts and investors are hoping that this move will help the company improve its sales and bolster its earnings. Whether or not this strategy will succeed remains to be seen; however, such a dramatic move definitely makes DELL a stock worth watching!

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Toll Brothers (NYSE:TOL) reported devastating results for their fiscal second quarter amid a housing market that continues to struggle. The home builder's earnings fell from $174.9 million to $36.9 million while its revenues sank 23% to $1.17 billion. Toll also suffers from a high cancellation rate of 19%, a 40% decline in contracts, increasing unsold inventory and a backlog that decreased by 32%. These numbers paint the picture of a housing market that continues to struggle to gain foothold and engineer a turnaround.

Toll Brothers also announced that it was so uncertain about future revenues that it will not make an earnings forecast for the rest of the year. CEO Robert Toll only said that, "We continue to operate conservatively in the current difficult market. In what generally remains a soft market, there are glimmers of strength in certain territories."

Some analysts and investors were hoping that last week's rise in the mortgage applications index would provide a boost to the company's earnings. Most analysts polled pegged the company's earnings this quarter at $0.25. However, the company's earnings ended up at $0.22 as many now believe that the rise in mortgage applications is simply the result of more strict regulations - that is, more people were being rejected and reapplying.

These results are also bad news for other homebuilding and related stocks including Home Depot (NYSE:HD) and Lowe's (NYSE:LOW). Analysts were expecting these companies to turn around in the second quarter; however, the results posted by Toll Brothers suggests that the market has a long way to go before any meaningful recovery. Regardless, this is definitely a sector to watch as we wait for the housing market to report a turnaround in demand.

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Alcatel-Lucent (NYSE:ALU) shares rose $0.38, or 2.78%, to $14.04 today after the company indicated that its restructuring efforts remained on track. The telecom equipment company announced an improving order book following an intense effort in the first quarter to bring clarity to the company's sales force and customer base. The news follows the company's merger disruptions and costs.

Douglas McIntyre at 24/7 Wall St. also suggested that the company could be a takeover target for Motorola or Nortel. Why? Well, these new numbers suggest that ALU is either taking business from these two rivals or the telecom equipment sector is improving. Even if the latter is happening, any acquisition would take some pressure off of MOT management to improve their handset business. While this is a possibility, there is no reason to believe it would happen at this point.

Overall, the Alcatel-Lucent is a company that is quickly recovering through its restructuring efforts. Meanwhile, its telecom equipment industry appears to be improving which should also help the company's margins and growth. Combined, these factors make ALU a stock to watch over the next few months!

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PDL BioPharma (NDAQ:PLDI) may face more shareholder scrutiny after activist hedge fund Third Point blasted L. Patrick Gage's response to their previous letter and expressed their concerns over the company's "woefully unsatisfactory" answers to the hedge fund's questions during a conference call on the same day. Moreover, the hedge fund's continuing investigation into the company's management and board members have uncovered more serious issues that must be addressed.

Third Point first contacted the company two weeks ago (read article) and demanded that the company (1) terminate Mark McDade's employment as CEO, (2) add three shareholder representatives to the company's board and (3) retain an investment bank to explore strategic alternatives. Moreover, based on their continuing investigation, they now also demand that the company remove Mr. Gage and Jeanmarie Guenot from their positions within the company.

Third Point has uncovered several ethical problems within the company's board and management that must be addressed in order to ensure that the company can move forward unencumbered with ineffective and/or detrimental management. These problems were uncovered during interviews with dozens of ex-employees, industry peers, industry analysts and former employers of key management personnel that are being investigated.

The hedge fund's investigations began with Mr. McDade, who has reportedly committed several ethical violations by putting his own interests ahead of the company's interests. Subsequently, the hedge fund discovered that the circumstances surrounding Jeanmarie's rise up the corporate ladder are also plagued with ethical violations. These two key personnel have led to key scientific personnel leaving the company and an ever-expanding list of expenses. Combined, these factors are significantly affecting shareholder value.

The company responded by saying that Third Point's issues with the board and management would be discussed with the entire board, who would then make a decision on behalf of shareholders. However, the hedge fund is now concerned that Mr. McDade and Dr. Gage (the CEO and Chairman) are not accurately conveying the hedge fund's concerns to the board; rather, they are helping eachother remain in power by hiding the story from the other half of the board.

Third Point contends that these issues can only be solved by ridding the board and management personnel that are causing the problems, strengthening the board with additional shareholder representation and hiring an investment bank to help the company explore strategic alternatives to assist shareholders in unlocking the value concealed for so long by management. Whether or not this materializes remains to be seen, but this fight is definitely one to keep an eye on!

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Cadbury Schweppes' (NYSE:CSG) U.S. beverages business may receive significant interest from twelve private equity firms, according to an article in the Wall Street Journal. The first major group of contenders consists of Blackstone, KKR and Lion Capital while the second is composed of Bain Capital, Texas Pacific and Thomas Lee. It is uncertain whether the other six firms interested are considering joining a consortium or plan on placing individual bids.

Cadbury expects the beverages division to draw more than 8 billion that it would return to shareholders via a share buyback or special dividend. The move would unlock significant value but would not preclude the company from making acquisitions of its own, as the company has a strong balance sheet and could easily raise an additional 10 billion if needed.

Cadbury, without its beverages division, would be the largest confectionery group in the world and could work to increase its already-dominant position. This is good news for the long run, but may hurt the share price in the short term depending on the terms of any acquisitions. Consequently, this deal could turn out to be a mixed bag for shareholders in the short term.

While the company was quick to note that the decision to put the division up for sale has not been officially announced, CSG is definitely a stock to keep an eye on given the significant interest by private equity!

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Texas Pacific Land Trust (NYSE:TPL) shares opened even today after Mercury Real Estate Advisors disclosed an 8.1% stake in the company along with a letter to the board of directors in a Schedule 13D/A filing with the SEC. The Connecticut-based hedge fund asked that the company increase its buyback program and split its sub-shares on a further 10 for 1 basis in order to further unlock value for shareholders.

Mercury expressed their disappointment that the company only repurchased 3,800 shares in the first quarter of 2007 - a number that pales in comparison to the company's 9,000 share quarterly average between 2005 and 2006. This fact is especially disturbing given the fact that the company has $8 million in cash, $2 million in quarterly profits, and notes receivable of over $20 million. Spending only $6 million of this cash would result in over 28,000 shares repurchased!

Mercury also expressed their concern over the TPL's high share price. The stock is currently trading at $209 and has reached a high of $249 earlier this year. The hedge fund believes that the company should split the stock on a 10 for 1 basis to bring the shares to a more affordable $22 to $25 range. This would result in greater liquidity, which would be beneficial for all shareholders.

Overall, Mercury is confident in the company's overall business plan and valuable assets but believes that the stock price could be supported through these two measures. If the company institutes these changes, it could significantly enhance value. This makes TPL a stock worth watching!

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