KVH Industries Inc. (NYSE:KVHI) shares moved up $0.24, or 2.82%, to $8.76 today after Roumell Asset Management disclosed an 8.31% stake in the company and urged the company to explore a share buyback. The activist hedge fund insists that the company remains extremely undervalued and that the company (along with other investors) should consider investment.

Roumell Asset Management encouraged the company to weigh any acquisition opportunities against the compelling investment opportunity present in buying their own shares at its current levels. After all, a staggering 40% of the company's market cap is in cash while the enterprise value to sales ratio is less than 1x. Meanwhile, they are generating plenty of cash flow on strong business and defense programs only provide more reason for optimism.

Overall, the company is clearly undervalued and that is ample reason for the company to explore buying its own shares as opposed to an overpriced acquisition. Meanwhile, the company is definitely one to watch for other investors looking for undervalued opportunities. Combined, these factors make KVHI a stock worth watching!

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Fair Isaac Corporation (NYSE:FIC) shares rose $2.58, or 6.9%, to $39.96 today after Sandell Asset Management disclosed a 5% stake in the company and expressed concerns over the company's restructuring plans. The activist hedge fund insisted that the company may be better off exploring a possible sale or conducting a leveraged recapitalization.

Sandell Asset Management said they were encouraged by management's plan to improve operating and financial results but questioned the board's decision to opt for a turnaround instead of trying to sell the company to a strategic or financial buyer. The hedge fund noted that such extensive turnarounds tended to be fraught with risk and they feel strongly that such actions may be best undertaken as part of a larger organization or in a private ownership context.

As a result, Sandell Asset Management made several recommendations to Fair Isaac going forward in order to help them more quickly and safely unlock shareholder value. The hedge fund first recommended that the company attempt to sell itself as a whole, but if it was unsuccessful it could separate its three divisions and attempt selling them separately. And if those efforts are unsuccessful, the hedge fund recommended a leveraged recapitalization as a public company. Finally, Sandell requested that the company to be aggressive with its existing share repurchase program and extend the program when appropriate.

Overall, these efforts would unlock significant value if the company agrees to follow through with them. Unfortunately, the board seems bent on attempting to turn the company around, which can be a very risky procedure. While some turnarounds are successful, we know that almost every sale of a company comes at a premium! This makes FIC a stock worth watching!

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Griffon Corporation (NYSE:GFF) rejected a proposal by the Clinton Group earlier this month to lead a public recapitalization of the company and now the activist hedge fund is fighting back. Shareholders are hoping that the hedge fund will be able to successfully convince management to institute at least some of their measures in order to unlock shareholder value.

The Clinton Group's initial May 31st proposal called for a $25/share public recapitalization in which half of the company's outstanding shares would be repurchased through a tender offer. The activist hedge fund noted that the debt financing to accomplish this would be "easily obtainable" in today's market. Clinton Group also suggested that the company make several governance changes, declassify the board and address excessive executive compensation issues.

Griffon Corporation responded several days letter by calling the Clinton Group's proposals "completely without merit" and noting that it has made no decision to pursue a recapitalization or any other specific course of action. The company insisted that the hedge fund was trying to takeover the company while focusing on the short-term at the expense of long-term shareholders.

The Clinton Group responded yesterday to the unfavorable response saying they were "extremely disappointed" with the company's response, which it said mischaracterized their proposals and painted them in a bad light. The hedge fund countered that they were not trying to takeover the company with a mere $65 million investment but rather trying to return control to shareholders. Moreover, they insisted that they are long-term shareholders aimed at helping shareholders realize intrinsic value through their recapitalization.

The Clinton Group was also quick to note that even if the company disagreed with their recapitalization proposal, they should still work to correct several other problems facing the company. In particular, they believe the company should eliminate their classified board structure and work to reign in excessive executive compensation by instituting performance-based compensation plans.

Finally, the hedge fund threatened to take matters into their own hands if the company failed to take action. Unfortunately, a proxy battle may be difficult with a classified board but it is still possible to win shareholder support. Combined, these factors make GFF a stock worth watching!

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Build-A-Bear Workshop Inc. (NYSE:BBW) shares rose $3.39, or 15.06%, to $25.90 today after the company announced that it hired Lehman Brothers to explore strategic alternatives after a relatively bad quarter for the retailer. Chairman and CEO Maxine Clark, however, said that the company remains highly profitable in a unique retail-entertainment niche that will continue to grow.

Build-A-Bear warned last week that its earnings and revenues for the quarter would fall short of projections while its same-store sales were projected to drop from 9% to 7%. The company blamed higher advertising costs, high performanced-based executive compensation and language translation costs from new store openings abroad.

A company spokesperson said that it has an obligation to shareholders to explore a range of strategic alternatives that could help unlock value in their investments. Meanwhile, shareholders are betting that the company will either decide to sell off some of its extraneous investments such as that in Retail Entertainment Concepts. Others are hoping that the company will decide to put itself up for sale in an environment that is extremely conductive to high-priced buyouts. Either way, BBW is definitely a stock to watch over the next few months!

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HealthSpring Inc. (NYSE:HS) shares moved up marginally today after the Clinton Group disclosed a 5.05% stake in the company, expressed their concerns over the company's valuation and recommended ways in which the company could better structure their balance sheet to unlock value for shareholders.

The activist hedge fund sent a letter to the company's Chairman and CEO on June 15th expressing its support of the management team and view of the company as an attractive long-term investment. The letter also noted that HS' stock price has retreated to levels below that of its February 2006 IPO and is currently undervalued.

Consequently, the Clinton Group suggested that the company institute a leveraged recapitalization and a Dutch tender offer in the $22 to $23 per share range for 30% of the company's outstanding shares in order to better optimize their balance sheet and take advantage of the appealing debt financing markets in an accretive transaction. The hedge fund estimates that this accretion would amount to 13.8% and translate to a post-leveraging share price of $23.42.

The Clinton Group also offered to help the company explore strategic alternatives, which could include a potential privatization in which he would participate. The investment group has a private equity wing that it indicated would be interested in such a transaction. One would assume that any such transaction would take place not only at value ($23), but also at a premium to this value that could reach as high as $28 per share or higher.

So, what is the stock worth? Well, based on peer multiples (TEV-EBITDA and PE), the company is trading at a substantial discount. The company is currently trading at 14.9x 2007 earnings while its peers are trading at 16x and its IPO was priced at 19.5x. A similar disconnect is seen when looking at projected 2008 earnings. Clearly there is an issue here with the company's valuation, which should stand between $22 and $23 at the very least.

Combined, these factors make HealthSpring a stock worth watching!

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1-800-FLOWERS.COM Inc. (NDAQ:FLWS) has been a strong performer recently with shares nearly doubling since the middle of last year. The gift retailer announced strong earnings in April and shareholders are starting to take notice. RLR Capital disclosed a 5.1% stake and praised the company's acquisition of Fanny May's candy business last May.

The activist hedge fund believes that the company's acquisition of Fanny May's candy business was truly a transformative deal and they are excited by the strength of the brand, management team and the manufacturing footprint that come with it. Further, they see Fanny May as a strong compliment to the company's existing Gourmet Food and Gift Basket brands as the company looks to build an online strategy for these segments that will mimic their success in the flowers segment. RLR Capital also expressed their satisfaction with the company's broad cost-cutting measures and prospects for growth in margins as a result. And finally, the activist hedge fund supported the company's plans to re-examine the Home and Children's Group segment given its lower growth and margins.

Overall, it appears as if this company is on the right track with its business and plans for the future. All of their business segments are performing very well with the exception of its Home and Children's Group segments - and the company is looking into ways of solving this problem. It's hard to ignore a company posting 18% quarterly earnings growth and such strong performance across the board! This makes FLWS a stock worth following!

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Sonesta International Hotels (NDAQ:SNSTA) received some advice from Mercury Partners today in a letter to the company's board. The advice comes after the company decided to hire Goldman Sachs to explore strategic alternatives, which could include a potential sale of the company.

Mercury Partners announced their support of this decision to explore strategic alternatives, arguing that a company with only $115 million in equity is simply too small to be a public company due to the costs of Sarbanes-Oxley compliance. The hedge fund went on to say that the modest net debt associated with the well-located 400 room Royal Sonesta Hotel Boston and the significant value embedded in the unique Key Biscayne property (with land conservatively valued at $160mm) equate to a significantly higher value than reflected in the company's shares. Mix that with a strong M&A market for hotel real estate (see recent WSJ article "Hotel Buying Frenzy Intensifies") and it's easy to see why a sale right now makes sense.

A sale does not necessarily mean a good value for shareholders, especially in a company that is controlled by one family. Knowing this, Sonesta issued three recommendations to the company to help ensure a fair sale process with a healthy premium for shareholders. First, they asked the controlling family to consider taking the company private. Secondly, they asked any proposals received to be put past non-family shareholders to evaluate. And finally, they asked for the company to resist any breakup fees or other measures that may inhibit future bidding. Combined, these efforts would lead to a fair sale of the company with a potentially very healthy premium. This makes SNSTA a stock worth watching!

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BioFuel Energy (NDAQ:BIOF) is a development-stage company formed to build and operate a series of ethanol production facilities in the Midwest United States. The company went public on June 20th of this year and has drew the attention of investors today after Daniel Loeb's Third Point hedge fund disclosed a massive 30 percent stake in the company.

The billion dollar hedge fund manager has built up an impressive trackrecord through not only his activist investments but also his passive ones. In fact, his annual return since his fund's inception in 1995 stands at around 28 percent. Therefore, any investment made by this man is one that is definitely worth watching - particularly when it is a big bet in an emerging industry!

So, what other clues do we have from Daniel Loeb with regards to this investment? Well, all of their shares were obtained in a private placement that closed in conjunction with the initial public offering on June 19th. Notably, this placement included a $1.2 million investment from Loeb's personal funds. We also know that Loeb has sat on the company's board since May 2006, meaning this shouldn't be a fly-by-night investment. Combined, these factors make BIOF a stock worth keeping an eye on over the next few months!

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Vonage (NYSE:VG) shares rose $0.12, or 3.88%, to $3.21 after a federal appeals judge suggested a reprieve that might allow the VOIP provider to avoid its patent problems with Verizon. This is a critical legal battle for Vonage that could drive it into bankruptcy if the lower court decision is upheld. The company's shares have reflected this risk, dropping over 50% this year alone. Meanwhile, if the company's patent issues go away there could be significant share appreciation from these depressed levels.

So, what was this reprieve? Well, the federal appeals judge suggested that instead of blocking Vonage from using Verizon's patented technology, perhaps the startup company could be given a time period to develop an alternative method of developing its online telephone service that doesn't violate Verizon's patents. If other judges agree, the courts would then pass the case back down to lower courts with instructions to consider that possibility. However, the lower courts could decide to not even reconsider. So, there is a lot of possibilities with only one leading to a positive outcome for Vonage.

Meanwhile, Vonage indicated it was working on such a technology in May, but said it could take months to get operational. The problem the company is facing is the downtime between the development and implementation of this new technology where it would be forbidden from making any income. If a judge were to give the company time, it could save the company from bankruptcy and give it a second chance at life. This makes VG a stock worth watching!

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Lancaster Colony (NDAQ:LANC) faced criticism on Friday over its governance policies from a group of investors led by Barington Capital. The investors asked the consumer products maker to substantive changes to its governance policies as well as remove several takeover defenses that violate shareholder rights. Changes to these policies could enable shareholders like Barington to push for changes aimed at unlocking shareholder value.

In a letter to the board of directors on Friday, Barington Capital criticized Chairman and CEO John Gerlach and the company's founding family for consolidating their control of the company, saying, "We believe that the numerous defenses the company has in place are excessive and demonstrate disregard for the interest of Lancaster's public shareholders by facilitating the entrenchment of the company's directors and executive officers and minimizing the influence that shareholders have on the board."

Removal of these provisions could pave the way for shareholders like Barington Capital to unlock value. What might these actions include? Well, Lancaster said in April 2006 that it was exploring strategic alternatives, including a possible sale of its glassware and candles businesses. Meanwhile, Barington also pressured the company to take on $300 million in debt to finance and self-tender offer or similar transaction to create value for shareholders. If either of these transactions materialized, it could mean significant returns for shareholders. Combined, these factors make LANC a stock worth watching!

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