Chapman Capital sent a letter to American Community Property Trust (AMEX:APO) today demanding that the company re-evaluate the activist hedge fund's $25/share liquidation proposal. The hedge fund, which specializes in small cap restructurings and turnarounds, has been fighting for a liquidation since REITs went out of favor causing substantial discounts to net asset values. Chapman is hoping that it can talk some sense into the resistant controlling Wilson family and unlock significant value for shareholders through a liquidation at roughly a 25% premium.

In a heated letter to ACPT today, Mr. Chapman commented, "The management team in place is implementing a long-term strategy that IS NOT WORKING. If you understood, even slightly, that your job is not to develop real estate but to build shareholder value in the public markets through real-estate related development, this would be patently obvious to you. Instead, your response, like all those that preceded it, confirms every fear I have about the Wilson family's role in the tragic underperformance of this asset-rich enterprise. Like TrizecHahn and others in the 'Old Economy', selling assets to the private market rather than waiting for the public market to realize the estimated $25/share in intrinsic value is the only viable option. Thus, on behalf of the public shareholders of ACPT, I demand that you begin an orderly liquidation of the company immediately."

Many shareholders have been disappointed with the trust's performance during the past year and are ready for change. Unfortunately, the Wilson family holds a controlling stake in the company and has openly stated that it would not support a liquidation. Usually this would eliminate any possibility of returns; however, Chapman Capital has a lot of experience in these situations and may be able to force change. If successful, the resulting liquidation would result in around 25% return to shareholders based on today's market price. This makes APO a stock worth watching!

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Wendy's International (NYSE:WEN) shares moved up $1.63, or 3.64%, to $38.75 today after Nelson Peltz disclosed a 9.8% stake and identified Triarc as a "natural, strategic buyer" for the struggling restaurant chain. Many investors are hoping that Nelson Peltz will be able to use his weight on the board to pursue the best value for shareholders.

Nelson Peltz is a successful activist investor that was responsible for Wendy's earlier decisions to spin-off its Tim Horton subsidiary and sell off its Baja Fresh chain to an investment group. These efforts provided healthy returns to shareholders in the past and many are hoping that the activist investor's new push to remove substantial barriers for a sale of the entire company will yield similar results.

Nelson Peltz expressed his concern today over Wendy's restrictive one-year standstill clause that drew criticism from Triarc. The activist investor believes that the company has a strong bias against Triarc but should work to include them in the sale process despite these differences - as the board has a fudiciary to shareholders to pursue the greatest value.

While there are no official bids for the company yet, clearly we have two parties that may be interested in putting a bid together. Nelson Peltz request that the standstill clause be removed (which should be followed given his board presence) which should pave the way to more bids from a wider audience. Whether or not these bids materialize at a substantial premium remains to be seen; however, WEN is definitely a stock worth watching in the meantime.

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FairPoint Communications (NYSE:FRP) is one step closer to its purchase of Verizon's (NYSE:VZ) land lines businesses in Vermont, New Hampshire and Maine. The $2.47 billion deal will provide FairPoint with 1.48 million access lines - more than eight times the company's current 248,000 lines. The telecommunications company hopes that this deal will give them a larger footprint in key markets; however, many investors are concerned that the transaction will put the company in a weak financial position.

The majority of the concerns over the deal stemmed from unions representing the bulk of Verizon's workers in the three states who are worried that the $1.7 billion in debt assumed may hinder promised investments and endanger the workers' pensions and benefits. Meanwhile, other shareholders are worried that the large acquisition will necessitate additional infrastructure spending that will significantly impair the company's financial condition.

FairPoint executives addressed these concerns on Thursday by reassuring investors that the existing $1.2 billion revenue stream from Verizon's operations in these states will support operations, capital improvements, dividends and interest on debt. Management also predicts that the transaction will be immediately accreditive to the company's earnings. Many large investment banks have also offered opinions on the transaction that is being spearheaded by Morgan Stanley.

Overall, the transaction should significantly increase FairPoint's footprint in the Eastern United States while increasing the company's revenues. Management's estimates also suggest that the transaction will leave the company in a strong financial position. Plans do not always turn out perfect, however, so investors should pay close attention to the company's costs through the process. In the end, this is a big move by the company that could either reward shareholders with a much larger entity or hurt them with excessive debt.

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Angelica Corporation (NYSE:AGL) shares rose $0.94, or 4.46%, to $22.03 today after Pirate Capital disclosed a 9.8% stake and urged the company to hire an investment banker to explore strategic alternatives. The activist hedge fund insisted that the company's failure to improve operating results has eroded shareholder value and demanded that the company explore how to unlock this value.

Pirate Capital's letter to the Board of Directors indicated a disappointment in management's ability to improve operating results. The company painted a picture of a turnaround by projecting a 7 to 10 percent increase in organic growth in April 2006; however, actual numbers for subsequent quarters turned out to be 0.2%, 0.6% and 0.7%. This prompted the activist hedge fund to recommend that the company hire an investment banker to explore ways in which value could be unlocked through a sale of the company, an asset sale or other extraordinary transactions.

Pirate Capital is well known in the markets as one of the premier activist hedge funds, but experienced some problems late last year when lackluster returns led to a pullout by many of its investments. Regardless, the hedge fund is now back on its feet and working to re-establish its trackrecord by focusing on niche activist opportunities in the marketplace. The strong M&A environment along with optimism amongst shareholders may help them with their push to put AGL up for sale without a fight. However, Pirate Capital said it would nominate its own slate of directors at the company's next annual meeting if necessary.

Overall, Angelica Corporation is an under-performing stock trading at a discount to its peers. Pirate Capital, a well-known activist, is acting as a catalyst to help push the company to explore strategic alternatives. If they eventually comply, shareholders could see significant upside from any sale, asset sale or other extraordinary strategic transactions. This makes AGL a stock worth watching!

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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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