Subprime concerns continued to weigh on the market today after Citigroup analysts estimated that Fannie Mae and Freddie Mac would suffer a loss of $4.7 billion loss in value as a result of declining subprime mortgage valuations. Soon after, a Freddie Mac spokeswoman countered, saying the analysts were "mistaken" and that the groups haven't seen "any material markdown of value". Clearly there are some major reasons for concern here, but investors remain uncertain as to whether or not the groups will be able to ride out the storm.

The Citigroup report indicated that Fannie Mae's subprime holdings have dropped $1.5 billion - or 2.5% of the company's value. Meanwhile, Freddie's holdings dropped $3.2 billion - or 8% of the company's value. However, since these are bonds that are not going to be forced into liquidation, the actual impact on the company's values are lessened. And in the end, these billions hardly make a huge dent on the $1.4 trillion in loans that they have outstanding.

The two government companies, which buy and package home loans, have thus far avoided substantial damages from subprime loan defaults. The two companies have a combined $182 billion in backed subprime loans, however, the vast majority of these loans remain AAA rated. While Freddie and Fannie do not guarantee these loans, the companies will certainly be damaged if defaults continue as they have in recent weeks.

In the end, this is definitely a situation that is worth watching. These two companies carry a lot of weight in the mortgage market as they are backed by the government. The subprime problem is far from over and may take until 2009 to resolve according to some industry executives. In the meantime, it is important to keep an eye on default rates in order to make sure the problem doesn't spread significantly and cause further selloffs in other sectors.

Kraft Foods (NYSE:KFT) is now home to yet another famous investor as Warren Buffet joins the ranks of famed activist investors Carl Icahn and Nelson Peltz who have already built up sizable stakes in the company. Shareholders are hoping that the involvement of all these famed investors will result in extraordinary gains.

It is unclear whether Buffet, who owns less than 5 percent of the company, will side with the two activists in their plans for the company. Icahn and Peltz proposed a divesture of key brands in an effort to provide quicker returns for shareholders. There is speculation that they could face some problems with Buffet, however, given his track record of investing in companies undergoing a restructuring brands internally - he might be siding with management.

Many others insist that Buffet may simply be interested in the prospects of the spin-off combined with a strong brand. Historically, spin-offs have tended to outperform the larger market in their first few years as an independent company, especially when the company possessed a leading brand. Clearly, Kraft is a great fit for this type of strategy and so far the company's shares are up over 11% since the spin-off was completed last March.

In the end, this is definitely a unique situation given the involvement of so many famous investors that may even be on opposing ends of the spectrum when it comes to plans for the company's brands generating poor operating results. Combined, these factors make KFT a stock that is definitely worth watching!

Related Companies
Altria Group (MO)
The Coca-Cola Company (KO)
Farm Brothers Co. (FARM)

Washington Group International's (NYSE:WNG) merger plans have been drawing some criticism from shareholders. Today one the company's largest shareholders, David Einhorn, said in a regulatory filing today that he would vote against the plans. The 10 percent shareholder believes that the proposed $2.3 billion transaction is a bad deal for shareholders and insists that few other large shareholders support the idea.

David Einhorn's lengthy letter to the board of directors opposed not only the undervalued bid but also the sale process itself. During the sale process, the company relied on the fairness opinion of Goldman Sachs instead of conducting an auction process despite the fact that the company received several unsolicited bids earlier. More, based on the proxy statements, it is clear that the board relied on an overly conservative forecast the failed to properly value the company's future growth prospects. Various contracts and income opportunities that were not fully appreciated could add substantial value to a buyout price that Einhorn estimates as high as $117 per share!

David Einhorn also argued that the company may be better off as a standalone enterprise. Washington Group is over-capitalized at the moment and URS, the acquirer, plans to take advantage of the fact to get a relatively cheap transaction. Einhorn argues that this cash could be returned to shareholders in the form of a special dividend or share buyback if the company decided against the proposed transaction. If the company were recapitalized at the same proportions as the buyout, shareholders could obtain $27.50 per share in cash and keep the company instead of selling out for $43.80!

In the end, the proposed transaction is clearly bad news for shareholders. Given that a 10 percent shareholder now publicly opposed the merger while insisting that others feel the same way, there is a possibility that the merger could be rejected. If this happens, we could see higher bids in an auction process or significant actions taken to unlock shareholder value through a recapitalization. Either way, this is great news for investors and definitely makes WNG a stock worth watching!

Related Companies
Perini Corporation (PCR)
Jacobs Engineering Group (JEC)
Fluor Corporation (FLR)

Building Materials Holding Corporation (NYSE:BLG) shares dropped $1.09, or 8.52%, to $11.70 today after Moody's cut the company's ratings amid continued troubles in the residential housing market. Meanwhile, the company is expected to report earnings tomorrow, which has many investors guessing. There is light at the end of the tunnel, however, as famed activist hedge fund Chap-Cap is involved with the company and pushing for change!

Chapman's hedge fund is primarily seeking to make changes to the company's executive compensation structure. While nobody should punish management for the steep correction in the housing market, the board's granting of generous financial rewards during its 2002-2006 boom years should not be ignored. Through stipulating the the homebuilding cycles are beyond BMH control, corporate and divisional overhead can be restricted by a realistic, practical management team.

Chapman also suggested that the company hire an investment banker to explore the complete or divisional sale of the company. The hedge fund insists that there would be high private equity and public interest in the company through conversations with the company's peers and leveraged consolidators of the home building industry. In the end, BLG is definitely a stock to keep an eye on as this situation unfolds!

Related Companies
Home Depot (HD)
Lowe's Companies (LOW)
USG Corporation (USG)

Radyne Corporation (NDAQ:RADN) shares moved up $0.31, or 2.99%, to $11.03 after Discover Group disclosed an 8.8% stake in the company and suggested that the company put itself up for sale. The activist hedge fund is convinced that the company could obtain a 50%+ premium by obtaining a sale price of between $14 and $16.

Discovery Group indicated that discussions with industry participants have suggested that there are multiple parties interested in acquiring the company at a significant premium to today's market price. The combination of Radyne's attractiveness, the robust M&A market, and the high level of interest from strategic buyers could lead to a very attractive valuation for the company.

As a result, Discovery Group demanded in a letter to the board today that the company engage a qualified investment banker to explore strategic alternatives including a possible sale of the company. Moreover, given the hedge fund's M&A experience and intelligence they have gathered from buyers, they believe it likely that the acquirers are readily known, familiar and interested in Radyne, and can put forth proposals in short order. Combined, these factors make RADN a stock that is definitely worth watching!

Related Companies
Viasat Inc. (VSAT)
DIRECTTV Group (DTV)
Harris Corporation (HRS)

Applebees (NDAQ:APPB) shares rose $0.08, or 0.33%, to $24.63 today after The Lion Fund announced that it intends to vote against the proposed merger citing the fact that the $25.50 cash offer substantially undervalues the company. The activist hedge fund, led by Sardar Biglari, aims to block the merger and encouraged the company to consider IHOP's proposed franchising plans to increase value for its own shareholders.

Sardar Biglari expressed his disappointment in the offer through a letter addressed to the company's board of directors. In the letter, the activist investor pointed out the fact that it was IHOP's stock that jumped 16 percent after the merger was announced while Applebees shareholders only enjoyed a one percent increase. This supports their thesis that the proposed transaction is simply transferring value from Applebees shareholders to IHOP's shareholders.

The activist investors also elaborated on how franchising could prove to be a substantial boon to the company's long-term value. The franchise business would enable the company to achieve higher profit margins, assume less risk, and would require very little in terms of capital expenditures. Combined, these strategic moves would lead to healthy cash flows and a higher return on capital. Unfortunately, it would be IHOP's shareholders that realize this value rather than Applebees shareholders if this transaction is approved.

In the end, there is a good argument for Applebees to either remain independent or seek a higher buyout premium. More, The Lion Fund has a successful track record in activist scenarios with its most recent sale of Friendly's Ice Cream at a substantial premium. Combined, many shareholders and investors are hoping to get more bang for their investment buck in Applebees. This makes APPB a stock worth watching!

Related Companies
Ruby Tuesday Inc. (RT)
Rare Hospitality International (RARE)
Shells Seafood Restaurant (SHLL)

Acuity Brands (NYSE:AYI) announced that it would be spinning off Acuity Specialty Products Group Inc. into an independent publicly traded company. The tax-free distribution to shareholders is expected to take place this fall with one share of spinco being received for every two shares of AYI. Shareholders and investors should carefully watch this situation as it presents a great opportunity to profit!

The spin-off is expected to generate annual revenues of $600 million with brands including Zep, Zep Commercial, Enforcer and Selig. The new company also expects to take on about $70 million in debt and pay out a 16 cent dividend. Meanwhile, Acuity Brands expects to save approximately $6 million a year through a simplified corporate structure but anticipates spending around $7 million to make the deal happen.

"We believe this transaction will meaningfully enhance shareholder value because it will enable our lighting business and our specialty products business to pursue their own distinct strategic initiatives and significant growth opportunities with a sharpened focus," said Chairman, President and CEO Nagel. "For example, each company will be able to attract and allocate its own capital and to design equity-based compensation programs targeted to its own performance. We are excited about the opportunities for each company to expand its market presence both through organic growth and through acquisitions."

In the end, there are many reasons why investors and shareholders should watch this spin-off. First of all, it is well known that spin-offs tend to outperform the overall market during their first two years as an independent company. Secondly, there is clearly a good reason for these two companies to separate and the terms on which the spin-off is taking place are more reasonable than most situations. And finally, the parent company is expecting to save $6 million a year while making itself more nimble which should help boost its valuation. Overall, AYI is definitely a stock worth watching as this fall spin-off approaches!

Related Companies
Ecolab Inc. (ECL)
Cooper Industries (CBE)
FMC Corporation (FMC)

NTN Buzztime (AMEX:NTN) shares moved up $0.08, or 9.28%, to $0.94 today after Trinad Capital disclosed a 6.6% stake and expressed its concern about the company's future. The activist hedge fund demanded that the chairman of the board be removed, new members be installed and strategic alternatives be explored. Shareholders clearly applauded this move with the stock rising nearly ten percent.

NTN Buzztime provides both entertainment and hospitality services to bars and restaurants. The company's main products include the interactive video games that allow competition between bars and restaurants throughout the United States. Buzztime also develops guest and server paging systems to enhance customer service at bars and restaurants. The company's stock has declined over 30 percent so far this year amid weaker than expected earnings and profitability forecasts.

Trinad is extremely concerned about several recent changes that the board made to the company's bylaws that appear to entrench current management and board members while impairing shareholder value. Among other things, the bylaws now prohibit shareholders from calling a special meeting and imposed advance notice requirements for shareholders wishing to nominate new members to the board! Obviously, these provisions would need to be removed in order to open the doors to any potential strategic transaction to unlock shareholder value.

Fundamentally, the company has been struggling with worsening margins yet has managed to increase its cash substantially. This leaves the door open to an internal move like a share buyback or special dividend or external acquisition where the buyer could utilize the cash to collateralize a loan in a leveraged buyout. Clearly, the company is concerned about this cash as it could be the reason for the new borderline poison pill requirements imposed on shareholders wishing to take action. Regardless, this is certainly a great company to watch!

Related Companies
Electronic Arts (ERTS)
Gaylord Entertainment Company (GET)
The Walt Disney Company (DIS)

Lancaster Colony's (NYSE:LANC) largest shareholder, Barington Capital, stepped up pressure on the company yesterday, demanding that they turn over their books and records for analysis. The move comes amid depressed earnings and increasingly poor corporate governance practices that has many guessing. Shareholders are hoping that these efforts could push the board to take action.

Lancaster Colony is a diversified manufacturer and marketer of consumer products, including specialty foods for the retail and foodservice markets, glassware and candles for the retail, floral, industrial and foodservices markets, and automotive accessories for original equipment manufacturers and aftermarket - although the company recently sold the assets of this last division. Financially, the company has been struggling with profitability. Despite decent revenue growth last quarter, their earnings fell on lower margins.

Barington had contacted the company in the past expressing disappointment with these profitability and share price performance concerns. Moreover, the activist hedge fund complained that the company is controlled too heavily by its founding Gerlach family after several anti-takeover defenses were installed to protect incumbent management and board members.

In the end, shareholders are hoping that Barington can help transform the company from a family-controlled operation to one that is more accountable to shareholders. Barington has a long successful track record in this arena, but it may take some time for them to break through several poison pills and a suborn family that owns the majority of the company's stock. Regardless, this is definitely a stock to watch!

Related Companies
Libbey Inc. (LBY)
Campbell Soup Company (CPB)
B&G Foods Inc. (BGS)

Transocean (NYSE:RIG) shares moved up $6.45, or 5.87%, to $116.42 today after the company announced the acquisition of GlobalSantaFe for nearly $18 billion. The combined company will have a global fleet of 146 rigs worth an estimated $53 billion. Shareholders in both companies applauded the deal that will greatly expand their offshore drilling services.

Transocean stands to gain substantially from the transaction in terms of both increased scale and cost savings. The company expects to realize cost savings of $100 to $150 million a year by 2010 - that's a million dollars per rig per year! The additional rigs should also help the company with its extensive backlog while a proposed recapitalization will fund a buyback and other measures to increase shareholder value.

Interestingly, the deal took place at no premium and resulted in the stocks of both companies rising - a rare occurrence in M&A deals. This happened because the deal was structured to give shareholders in both companies a total of $15 billion in cash dividends collateralized by a combined $33 billion in backlogs. Essentially, the company underwent a leveraged recapitalization that enabled it to buy GlobalSantaFe at a substantial discount while also improving the company's capital structure.

Overall, this deal is exactly what shareholders were hoping for - a cheap acquisition with a way for them to cash in on Transocean's massive backlog. The transaction should also help improve the company's financial position and improve their future outlook. This makes RIG a stock worth watching!

Related Companies
Noble Corporation (NE)
Diamond Offshore Drilling (DO)
Hercules Offshore (HERO)