Plains Exploration & Production Company (NYSE:PXP) may face some opposition to its pending acquisition of Pogo Producing Company (NYSE:PPP) after Fir Tree Partners disclosed a 9 percent stake and argued against the merger in a Schedule 13D filing with the SEC.

"Our decision is based upon detailed financial analysis which suggests that a termination of the transaction could result in PXP’s share price appreciating by 70% or more over the ensuing year," said the activist hedge fund in a letter to the company's board.

"Large scale share repurchases are a much more efficient use of shareholder capital given the extreme decline in PXP’s share price that was sparked by the announcement of the PPP deal and the negative natural gas price environment which makes PPP a less attractive/less valuable asset."

The initial deal announced in July seemed like a great idea to most shareholders as it would have provided accreditive cash flows to the PXP shares in the near term and diversify its reserves. However, since this announcement the macro environment and industry fundamentals have changed materially.

Moreover, PXP has lost about $1 billion in shareholder value as a result of the announcement. A share repurchase - on the other hand - would have allowed the company to repurchase 30 percent of the company while maintaining a debt/EBITDA ratio of 2.0x to 2.5x.

"We believe PXP will generate over ~$1 billion in after-tax proceeds over the next twelve months from the opportunistic sale of its non-core assets. Accordingly, the company could use the proceeds from these divestitures to repurchase 20-25 million shares," said Fir Tree Partners.

"Assuming the company was valued at comparable company levels, PXP shares would be worth $70-75, representing 70-90% upside from current share levels. We believe upside remains to this valuation if the company successfully completes the formation of an upstream master limited partnership."

What happens with the proposed acquisition remains to be seen, but this stock is definitely one worth watching!

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HSBC Holdings (NYSE:HBC) board members and executives may find themselves in trouble soon after Knight Vinke revealed a campaign to change the bank's strategic direction. The activist hedge fund has enforced change in large companies like Shell and Gaz de Frace before by rallying support of other large investors while holding just a small stake of its own.

Knight Vinke said in a statement late Thursday that it intends to engage in "constructive dialog" with Europe's largest bank over the "future direction and governance of the group". The hedge fund had reportedly already held discussions with the chairman and finance director beginning in mid-May.

Analysts and investors have questioned the timing of this statement, however, given that the bank has already shifted its focus to the emerging markets and has been one of the best performing banks in the market over the past months. In the past, the hedge fund has managed to rally support because the company's were not enacting change and were performing below their potential.

Whether or not the activist hedge fund can rally other investors to make changes remains to be seen, but this is definitely a stock to watch in the meantime!

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KSW Inc. (AMEX:KSW) shares have rose more than six percent since Richard Silberberg's Moab Capital Partners disclosed a 6.2 percent stake in the company calling its shares "significantly undervalued" in a Schedule 13D/A filing late last week. Many shareholders are hoping that this new attention could help the company unlock value.

"[We] purchased the shares in open market transactions because in their opinion, the highly-regarded management team of KSW, Inc. has created a unique value-engineering business proposition which is driving the issuer’s superior growth in backlog, revenue and earnings margins," said Moab Capital Partners in a statement.

KSW furnishes and installs heating, ventilation and air conditioning (HVAC) systems and process piping systems for institutional, industrial, commercial, high-rise residential and public works projects, which is quickly becoming a hot business in places like New York City where the company operates.

KSW also continues to post strong earnings. Early last month, the company reported net income of $0.12 per share compared to $0.10 per share last year. If you take stock compensation and other expenses out of that number, they made $0.14 per share - a 40% year-over-year rise in net income. More, this is one declining revenues as a result of more difficult market conditions that are just now starting to turn around.

Moab Capital Partners said, "[We] believe the shares are significantly undervalued as of August 20, 2007 ... [the company] is well capitalized and poised to expand its business within the New York City metropolitan market and beyond." Combined, these factors make KSW a stock worth watching!

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Ceridian Corporation (NYSE:CEN) recently urged shareholders to approve the company's proposed slate of directors during its next annual meeting but several activist shareholders and dissidents still stand in the way - namely, Bill Ackman's Pershing Square Capital Management.

“Replacing the current board introduces significant and unnecessary risk to completion of our $36 per share cash merger," said Ceridian officials in a statement.  "Reelecting the current board today will provide the greatest assurance that our $36 per share cash merger will be completed."

Bill Ackman has already come out in support of the buyout transaction but believes that having its own candidates on the board would serve as a failsafe for investors incase the current buyout falls through. Institutional Shareholder Services (ISS) - a very prominant shareholder proxy advisory firm - agreed and recommended that investors vote in two of Pershing Square's nominees.

Ceridian countered today, saying, "If Pershing Square truly wanted to support our $36 per share cash merger, it would support the reelection of our board and allow the merger to close, knowing that if the merger did not close, it could immediately renew its election contest."

As for now, it appears as if the merger transaction will go through either way, but shareholders may be safer with Pershing Square's nominees in place. The activist hedge fund has made to claims to replace management, so the actual risk of a deal falling through should be relatively low. Regardless, this is definitely a stituation worth watching!

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Pallinghurst Resources is setting new rules for M&A when it comes to its proposed buyout of Consolidated Minerals Ltd (ASX:CSM). The London-based hedge fund announced a renewed takeover bid for the company at A$4.10 per share and included a provision that said shareholders who tendered their shares would received a payout equal to any higher bids during the next three weeks.

Many analysts and researches are eager to see if this move will convince substantially more shareholders to tender their shares, since the fear of losing out on a higher bid is removed. Meanwhile, the shares tendered by the hedge fund can easily be used in a proxy contest to vote for its own merger or replace board members and recommend its own merger.

"By accepting the Pallinghurst offer, shareholders will receive certain cash of A$4.10, and will still retain full potential upside should a rival offer emerge," said Brian Gilbertson, the head of Pallington.

The bidding that started out at just A$2.28 per share has risen to this level after two other bidders emerged, with the latest one offering A$3.70 for the company. Another bidder is also said to be conducting due diligence right now with a 5.1 percent stake built up in the company. Where this deal goes remains to be seen, but many are watching this new tactic with great interest!

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Flamel Technologies (NDAQ:FLML) shares have more than halved since the beginning of the year but OSS Capital believes there is still hope. The activist hedge fund raised its stake in the company by 1 percent today, jumping the share price more than 6 percent as investors banked on a bottom.

The pharmaceutical company dropped substantially earlier this year after a study showed that its proprietary dosing of Coreg CR is no more effective than the original dosing. Given that this is the only drug that the company receives royalties from, it comes as no surprise that the stock was significantly damaged. However, one failure doesn't necessarily spell doom.

Flamel is obviously struggling with operating margins being new pharmaceutical company; however, it does have strong price to sales and price to book ratios. If the company could overcome this one roadblock and sign one or more deals in the near term, there is potential for the stock to return to its prior levels almost 300 percent above its current trading price. This makes FLML a stock worth watching!

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Banks like Citigroup Inc. (NYSE:C) and J.P. Morgan (NYSE:JPM) are reportedly offering financing packages for private equity firms and hedge funds in order to purchase debt held by the banks themselves. The hope is that this will help generate some activity in what has become a relatively illiquid credit market.

Many investment banks have reportedly offered up to 4:1 leverage for private equity firms to purchase discounted debt issues. Others have thrown around rates of LIBOR + 60 and LIBER + 85 basis points. These types of leverage could boost returns to the double digits for hedge funds and private equity interested in entering the market.

More than $250 billion in bank debt is due this year alone and many are expecting the majority of it to be sold at a discount to third parties. Ideally, this will help boost the liquidity in the market and restore access to capital that has kept the M&A industry so active the last year.

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Tyson Foods (NYSE:TSN) shares moved down over ten percent today after the company lowered its FY2007 guidance amid increasing grain prices. Further declines were curbed after the largest food producer in the world announced that it would outline a turnaround plan later this year. Shareholders are hoping that this plan will help unlock value and keep the company on track.

So, what improvements might this plan contain? Well, Tyson Foods has shown moderate top and bottom line growth but trades at a hefty premium to other companies in its sector. The company is now trading at 37x earnings when it should be trading at around 13x based on its historical 5 percent growth rate.

Tyson Foods has also failed to meet analyst expectations, surprising to the downside more than 30 percent on average. The problem seems to lie in the company's poor operating margins and operating efficiencies. Analysts and shareholders are hoping that management can work to improve these margins in order to weather the rising cost of grain and other goods.

Unfortunately, the company already has a leveraged balance sheet so any recapitalizations to fund a turnaround are out of the question. In fact, the company already has nearly 40 percent of its total capital tied up in long-term debt, which could spell trouble if its equity continues to tumble. Analysts and shareholders are hoping that these questions will be answered in the company's turnaround plan.

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Macrovision Corp. (NDAQ:MVSN) shares moved up marginally after Blum Capital disclosed a 5 percent stake in the company last Friday, according to a Schedule 13D/A filing with the SEC. Shareholders are hoping that the activist hedge fund will work with management to unlock value in the company.

What is in the cards for the software company? Well, Macrovision's balance sheet is extremely solid with $413 million in cash with only $240 million in total debt. Often times, hedge funds will look to distribute this spare cash to shareholders via a share buyback or special dividend.

The problem is that Macrovision is showing negative year-over-year cash flow growth of -80 percent with an EBITDA margin of 18.4 percent. This has many speculating that Blum Capital will step in to reduce the company's capital spending and distribute the spare cash to shareholders via a share buyback or special dividend.

Whether or not the hedge fund will be successful in implementing this strategy remains to be seen; however, with a growing 5 percent stake in the company they may have enough say to make it happen. Combined, these factors make MVSN a stock worth watching!

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Lehman Brothers (NYSE:LEH) may have greater exposure in the debt market than its peers but many analysts believe the bank's 1.4x book value is too pessimistic, especially considering the bank's move to diversify away from its bond holdings. Many others believe, however, that brokerages and banks have yet to hit their lows as the credit and mortgage crisis continues.

Lehman Brothers shares are down more than 30 percent this year in a situation that reminds many of the Russian default that caused major concerns for the bank back in 1998. While this situation isn't nearly as critical, the lesson rings true that shareholders willing to weather the storm may be rewarded handsomely. The recent move down has made LEH the second cheapest major investment bank behind Bear Stearns.

Lehman Brothers continues to have one of the best balance sheets in the industry. While the company's cap structure may have some room for improvement, its price/cash flow, price/book, and price/sales ratios are all extremely strong. The stock also trades at 6x cash flows, which indicates that investors are assigning relatively little value to the company's non-cash assets and earnings potential. Combined, these factors make LEH a stock worth watching!

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