Movie Gallery Inc. (NDAQ:MOVI) shares plummeted today after the rental chain finally declared bankruptcy just two and a half years after winning a takeover battle for a major rival. The news comes as no big surprise to shareholders who saw warning signs back in late June.

Movie Gallery filed for Chapter 11 bankruptcy today in hopes that it can slash its debt by $400 million and reorganize itself into a new public entity. The chain still operates nearly 4,500 stores after it acquired Hollywood Video in April 2005 for $1.25 billion and the assumption of $350 million in debt.

Many analysts remain skeptical as to whether or not the company can emerge from bankruptcy and remain a viable competitor in the increasingly difficult rental space. Tight competition from satellite and cable providers along with online rental services like Netflix and Blockbuster's new service. However, Movie Gallery did unveil plans in March to enter the online business.

Movie Gallery also has a lot of restructuring ahead of itself before it can go through with the Chapter 11 process. The company said it would close nearly 520 rental stores two weeks after it said it would miss interest payments on second-lien debt and 9.625% senior notes.

"Although the company has taken numerous steps to reduce its debt and strengthen its balance sheet through closing unprofitable stores, headcount reductions and other means, these actions were not sufficient to offset the significant shift in our business and the cost of our substantial debt obligations," said chief executive Joe Malugen.

In the end, common stock shareholders will likely end up losing all of their investment as shares in the new company will be distributed to creditors. However, the new public entity may be a good investment opportunity if it is priced correctly. Usually, creditors will begin selling their stock immediately and create a discount. Combined, these factors make MOVI a stock worth watching!

Related Companies
Blockbuster Inc. (BBI)
Netflix Inc. (NFLX)
GameStop Corp. (GME)

Mace Security International (NDAQ:MACE) finally agreed to expand its board of directors today in order to avoid a proxy fight with a major shareholder, according to a Schedule 13D/A filing with the SEC. Shareholders are hoping that this move will help unlock value in a stock that has remained stagnant during the past few months.

Lawndale Capital Management, which owns 9.6% of the company, indicated in the past that it believes the problems with Mace's board of directors has contributed to the company's poor operating performance and the decline in its stock price. Mace did not respond until recently when it agreed to hold discussions with the hedge fund and expand its board in order to prevent a proxy fight.

According to a joint press release, "The corporate governance enhancements to be adopted are intended to increase the independent composition and functioning of Mace's Board. As a result of the plan, Mace will migrate to a six-person Board, consisting of five Independent directors, three who are not presently on Mace's Board plus two continuing Independent directors."

In the end, this is great news for shareholders. Greater board independence means that more shareholder proposals to unlock value will be considered while compensation and other board-determined things will be kept under control. Combined, these factors make MACE a stock worth watching!

Related Companies
Napco Security Systems (NSSC)
FFP Marketing Company (FFPM)
Axcess International (AXSI)

Billionaire investor Warren Buffet appears to have changed his sentiment on the railroad industry after cutting down his holdings in Union Pacific (NYSE:UNP) and Norfolk (NYSE:NSC). There is no mention of his Santa Fe Corporation (NYSE:BNI), however, which means he may be holding onto that one for now.

Buffet's Berkshire Hathaway (NYSE:BRK) sold 10.5 million shares of Union Pacific bringing his holdings down to 7.41 million shares. Meanwhile, he sold off around 2.6 million shares of Norfolk bringing his stake down to right around 3.75 million shares. These are significant reductions in his exposure to the sector.

Many are speculating that higher energy prices may hit railroads more dramatically than initially expected. The transportation sector is typically the first to be hit and railroads are particularly vulnerable these days considering the plethora of other problems that they are facing.

In the end, Warren Buffet typically knows what he is doing when investing. His moves are definitely worth watching via Berkshire's 13F filings with the SEC. In this case, it may be a time to reduce exposure to railroads and other transportation companies as energy prices continue to rise.

Sybase Inc. (NYSE:SY) is starting to feel the heat from shareholders demanding that the company evaluate strategic alternatives. Sandell Asset Management indicated in a Schedule 13D filing with the SEC that they want the software maker to consider a buyback, spin-off or sale of the company.

Thomas Sandell argued that Sybase could create $33 per share in value through a $500 million share repurchase over three years. Alternatively, the hedge fund manager suggested that Sandell cold spin-off its mobility segment and generate $31 to $33 per share in value. And finally, in an outright sale of the company, Sandall believes shares could go for as much as $41.39 in a leveraged buyout.

Sybase responded to the requests yesterday indicating that they would review recommendations from shareholders to boost its stock price in the context of the regular reviews it makes of its business. Given that Sandell owns a six percent stake in the company, it is likely that these proposals will receive at least some real consideration.

"Our Board of Directors regularly reviews the subjects in your letter, including use of cash, configuration of the business, and other strategic opportunities to drive shareholder value," said Sybase chief executive. "Sybase welcomes the views of its shareholders, and the Board will consider your letter in that regard."

In the end, shareholders are hoping that the company will take at least some of these proposals to heart and unlock value in shares that have not seen much movement. Whether or not this happens remains to be seen, but this is definitely a stock worth watching!

Related Companies
Pervasive Software Inc. (PVSW)
Microsoft Corporation (MSFT)
BMC Software Inc. (BMC)

AMR Corporation (NYSE:AMR) is carrying a lot of hidden value, according to many analysts. The American Airlines parent has a low price/earnings multiple, improving balance sheet, developed route network and many valuable non-airline assets that could eventually be spun-off.

AMR is trading well off of its 52-week highs around $41/share due to higher fuel costs and an all-around tough year for airlines. These non-company specific factors have led to a stock that is trading at just 11x its 2007 earnings and 7x its projected 2008 earnings. After dropping over 50% since January, many are starting to look at this stock as a bargain stock.

FL Group, a $6 billion Icelandic hedge fund, is one of these investors and requested last month that the company consider spinning off some of its assets to unlock value for shareholders. Specifically, the hedge fund urged the company to spin off its AAdvantage frequent-flier program.
 
The move would follow similar actions by Air Canada parent ACE along with others considering the option like Australia's Quantas and United parent UAL. FL Group believes that segment is worth close to $6 billion - nearly as much as the company's $7.5 billion market capitalization. AMR also has other assets that could be spun off including its American Eagle regional airline and its investment arm American Beacon.

"It's a no-brainer," said Hannes Smarason, chief executive of FL. "It's a tough environment for the airlines now, and it's incumbent on the management and the board to find avenues where value can be created."

In the end, the company announced that it was considering such moves but has not made a decision yet. In the meantime, this stock is definitely one worth watching closely as this situation unfolds!

Related Companies
Delta Air Lines Inc. (DAL)
UAL Corporation (UAUA)
Southwest Airlines Co. (LUV)

Biogen Idec (NDAQ:BIIB) shares jumped almost 20 percent this morning after the company announced that several firms had expressed interest after it put itself on the auction block on Friday. The news comes after billionaire activist Carl Icahn had pressured the company to unlock value for shareholders.

Many analysts believe that Biogen may have a difficult time selling itself given that it is trading at around 8x earnings in a difficult credit environment. Moreover, the biopharmaceutical industry is a risky one where the FDA can halt trials and block sales on a moments notice. Specifically, there are safety concerns about the company's multiple sclerosis drug Tysabri.

Others believe that the company could fit well with a large pharmaceutical company looking to fill its pipeline and drive top and bottom line growth. Billionaire investor Carl Icahn - who initially pressured the company to sell - made this argument and insists that there would be substantial interest.

These bullish analysts and investors peg the fair value of the company at around $70 to $90 per share. The numbers are in part based on the enormous valuation given to MedImmune when it was acquired earlier this year for 11x annual sales. This is a clear indicator of big pharma's appetite for padding their drug pipelines with strong potential blockbusters.

Rumors today surfaced that Pfizer, Sanofi and J&J may be among the companies interested in making an acquisition. Meanwhile, many are discounting AstraZeneca and Roche since they already have biological capacity and the price is a little on the high end. Regardless, this is definitely a stock worth watching over the next few months!

Related Companies
Genentech Inc. (DNA)
Amgen Inc. (AMGN)
Pfizer Inc. (PFE)

Broad indexes are up 120% this year; the average IPO makes 192% in its first day; even blue chip stocks are nearly doubling every year; and there are more IPOs than ever before in history. Sound familiar? No, it's not the dot-com boom of 1999. Rather it's the manufacturing boom being seen in China right now... and it's the next big bubble.

Just how crazy has it become? Well, China Shenhua Energy recently IPO'd and rose 87% in its debut to which its chairman said he "was not totally satisfied". Low floats, spectacular valuations, investment restrictions, and a greedy market has made China the next big bubble and many say is approaching critical mass.

Bullish investors insist that the Chinese bubble differs greatly from the dot-com boom in the United States. After all, these companies are actually generating real profits with real businesses supported by a robust economy. However, bears are quick to point out that the valuations are still just as bad with some companies like Baidu trading at more than 70x earnings!

In the end, China is an extremely hot market that shares a lot in common with the dot-com boom of the 90s in the United States. Investors in this space should be careful to hedge their positions and limit their exposure as these valuations can come crashing down at any time. However, until then, the Chinese market indexes and ETFs - like FXI - are definitely worth watching!

A large Crown Crafts Inc. (NDAQ:CRWS) holder requested that the company form an independent committee to evaluate strategic alternatives to maximize shareholder value in a Schedule 13D/A filing made with the SEC. Shareholders are hoping that the activist can work to unlock value in shares that have remained stagnant for almost a year.

Wynnefield Partners, a 14.6% stockholder in the company, disclosed a letter to the company's board of directors outlining how it should proceed and their expectations with regards to governance and the creation and release of shareholder value. The hedge fund first demanded that the company take action to unlock shareholder value through a possible sale or merger.

"Crown Crafts Inc. should take prompt action to form a truly independent SAC and, consistent with this notion, employ a competent outside "arm's length" firm to undertake an analysis of all the options available to the Company," said general partner Nelson Obus. "This analysis must include a sale or merger of the Company to be undertaken in the event that adequate risk adjusted returns on invested capital for new initiatives can not be identified."

Secondly, the hedge fund demanded that the company immediately act to clean up its corporate governance: "We are also concerned about the governance of CRWS and, as Wynnefield articulated in the proxy materials, request that you promptly unstagger the Board, articulate and implement a succession plan for yourself and other senior executives and orient Board compensation away from cash and toward equity participation in the form of a combination of option grants at market and restricted stock."

The hedge fund insisted that if these demands were not met they may be forced into another proxy battle to make the changes themselves. Combined, these factors make CRWS a stock worth watching closely over the next few weeks!

Related Companies
Albany International (AIN)
Polymer Group (POLGA)
Culp Inc. (CFI)