Kraft Foods (NYSE:KFT) bowed to activist pressure last week by appointing two Peltz-approved directors to the company's board. The move follows pressure from the activist to spin-off the company's Post cereals and Maxwell House Coffee divisions to unlock shareholder value. Shares rose marginally on the news as shareholder are hoping that such initiatives now take hold.

Kraft reached an agreement to appoint two new directors to the company's board in exchange for a "standstill agreement" that prevents Peltz from publicly criticizing management or the growth strategy of the company for the next two years. The activist also gave up any rights to solicit proxies and agreed to vote for incumbent directors during the next election.

"We see the agreement as a pragmatic path forward for Kraft," said a spokeswoman. "Kraft adds two directors, Trian pledges support for our board, and the agreement clarifies our relationship with Trian."

Peltz has been targeting the food industries recently, targeting not only craft but also Cadbury Schwapps. The activist investor is known for sending whitepapers to the company documenting his reasoning for certain actions. And while his plans for Kraft were never made public, there was a lot of speculation that the plan called for a spin-off of two key business segments.

In the end, this is good news for shareholders as it means Peltz's plan will likely receive serious consideration. If implemented, we can assume that it will result in substantial value being unlocked for shareholders in the long-term. Combined, these factors make KFT a stock worth watching closely!

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Goldman Sachs (NYSE:GS) shares are up over five percent today after the investment banking firm announced that it does not expect to take any significant asset write-downs this quarter. The news also boosted confidence in other financial stocks around the market, including Bank of America. Many investors are hoping that this will signal the end of the credit crunch.

"We're convinced we have a pretty good grip on [CDO and mortgage] valuations," said Blankfein at the Merrill Lynch Banking & Financial Services Conference after some investors voiced concerns about Goldman's valuations. The CEO assured investors that it has properly valued its assets. In fact, when the firm isn't certain, it has traders execute test trades to assign a value that has some merit.

Interestingly, Goldman also has a bearish view on the US mortgage markets where rising default rates and a lack of buyers has caused steep declines in mortgage values and derivatives like CDOs. The firm reported solid gains on its bets against the mortgage markets and indicated its belief that things will likely get worse before they get any better.

In the end, it appears the Goldman made the correct bet on the mortgage markets by positioning itself as net short. Whether or not the firm's valuations are correct remains to be seen, but it appears that the only factor they fail to fully consider is liquidity (after all, test trades don't account for that). Combined, these factors make GS a stock worth watching!

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Kellwood Company (NYSE:KWD) shares are up nearly ten percent today after Sun Capital threatened to take its $544 million buyout offer to the company's shareholders unless the board would reconsider its offer. Shareholders are clearly hoping that the company will either accept the offer or the firm will bring a higher buyout offer on the table.

"Our strong performance is to acquire Kellwood in a friendly negotiated transaction, but we are prepared to take all the necessary steps to protect the value of our existing 9.9% ownership position in Kellwood, including making a $21-per-share offer directly to Kellwood's other shareholders," said Sun Capital in a letter to the board.

Since Sun Capital did not increase their buyout price at all, it is very unlikely that we will see a response from the company. The next step would therefore be a tender offer by Sun Capital during which they would offer to tender shares for cash at $21/share or a proxy contest in which they would bring the issue to vote at the company's next annual meeting.

Kellwood shares dropped to a 52-week low of $14.21 after reporting severely damaged earnings earlier this year. The first Sun Capital offer came in shortly after this occurred and shares are still down over 50 percent on the year. Ultimately, this means that many shareholders are underwater on their investments and may not be interested in selling if the company can present a compelling long-term value proposition.

In the end, it will be interesting to see what becomes of this situation. It is highly uncommon for a private equity firm to go through with a hostile tender, but it will likely be their only option. Combined, these factors make KWD a stock worth watching!

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PDL BioPharma Inc. (NDAQ:PDLI) shares are down five percent today after Daniel Loeb's Third Point disclosed that they sold the rest of their stake in the company. Last month, the activist hedge fund announced that it cut its stake from 9.7 to 5.1 percent but noted that it was encouraged by the board's plan to sell the company - an effort that it spearheaded.

Many shareholders have sold out of PDLI as it made the WSJ's largest outflow of capital. The selling on strength suggests that some investors may be concerned that a potential deal may have trouble in today's markets. Several deals have fallen through after most banks have included clauses in their financing packages that let them get out of deal early if markets get worse.

PDLI minus their number one activist shareholder may now be tempted to abandon its sale process. This is especially true after the company announced narrowed losses in the third quarter. The company continues to lose money as a result of restructuring charges, but did manage to improve bottom line results. There have also been several layoffs and other efforts to reduce costs.

In the end, the situation may go downhill from here. Shares have rallied substantially since the hedge fund got involved and there may now be a sideways trading period after they exited amid a run-up. Whether or not the company will be sold remains to be seen, but this is still a stock that is definitely worth watching over the next few months!

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Wendy's International (NYSE:WEN) shares are up marginally today despite news that its pending sale process may be in jeopardy due to continued turmoil in the credit markets, according to an article in the New York Times. Buyers are reportedly concerned that any financing provided by major banks would be highly conditional and include several clauses that buyers may find unattractive.

The banks financing the deal sent term sheets to prospective buyers two weeks ago but have not yet made any formal commitments. One of the largest problems with the deal is a reported loophole that would allow banks to withdraw the financing if the credit markets deteriorate. Consequently, Wendy's said it may attempt to line up additional banks for its financing efforts.

Bids are due at 5pm EST today but some are predicting that the Wendy's sale may be forced on hold until the credit markets improve, which could be six months or longer. This may anger activist investor Nelson Peltz who had not only been hoping to purchase the company but is also one of its largest shareholders. In the end, this stock is definitely one worth watching!

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E*Trade Financial Corporation (NDAQ:ETFC) may become yet another victim of the subprime crisis after a Citigroup analyst downgraded the stock to a "Sell" and lowered his price target from $13 to $7.50. The analyst said that there's a 15 percent chance that E*Trade will declare bankruptcy and said management may be forced to sell loans and securities at significant discounts.

The Citigroup analyst expects the value of E*Trade's home mortgage holdings to fall significantly and lead to bigger-than-expected write-downs in the fourth quarter. It's $3 billion portfolio of asset-backed securities contains $450 million worth of collateralized debt obligations and second-lien securities. Meanwhile, the company is also facing a SEC informal inquiry related to issues with its loan and securities portfolios.

E*Trade responded this morning by saying that it can absorb an immediate write-down as high as $1 billion and still remain well capitalized. The company also acknowledged that "news in the market" will get worse before it gets better as the company takes "prudent measures" to manage its balance sheet. The company expects additional write-downs to this end.

The Citigroup analyst noted that this continued negative news flow about charges resulting from its mortgage and CDO exposure, an SEC inquiry, and continued deterioration of its financial condition, all increase the likelihood of significant client attrition. However, the company noted that its client base did increase by four percent during October.

In the end, this is bad news for shareholders that only promises to get worse before it gets any better. While the company may be safe from any liquidity issues, these combined problems may cause problems with customers and impact future growth. However, if the company can turnaround, this stock could end up becoming a great value play!

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VMWare (NYSE:VMW) shares are a third off of their highs today after the stock hit $84.60. The company managed to lose $15 billion in market cap in only ten trading days amid a steep market downturn - particularly in tech. The move has many investors wondering whether or not this company is really worth the $40 billion market cap that it has now.

VMWare posted revenues last quarter of $357 million, which was up 88% over the same quarter last year. Meanwhile, earnings per share tripled to $0.18 per share. However, does this justify a valuation of $40 billion? Well, assuming that VMWare will raise its earnings 100% for the next five years and then 50% for another 5 years after that, we can discount all this future cash flow to a present value of $31 billion.

VMWare also faces significant competition. Microsoft recently announced its own initiatives to include virtual desktop tools with its operating system. And with billions of dollars at their disposal, Microsoft will likely be able to promote their product substantially more than VMWare.

In the end, it will be interesting to see how fast VMWare is able to grow their revenues and earnings. Whether or not this valuation is justified remains to be seen, but VMW is a stock that is definitely worth watching!

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Omnicare, Inc. (NYSE:OCR) investors are growing increasingly restless with shares trading near their 52-week low but some investors are upping their stake. ValueAct Capital increased their stake in the company despite an investigation by the Department of Justice. It will be interesting to see if this aggressive investment pays off, but there are many investors watching.

The Department of Justice issued a subpoena last week seeking information about Omnicare from the UnitedHealth Group "under its authority to investigate health-care fraud offenses". The subpoena called for UnitedHealth to provide all documents concerning "attempts by Omnicare to steer patients to Medicare prescription-drug plans".

"We do not believe there is anything significant related to this review that has not already been disclosed in our public filings," Omnicare said in a statement. "Our programs related to the implementation of (the Medicare drug benefit) have been carefully reviewed by outside legal counsel, and we firmly believe that we have complied with all applicable laws and regulations with respect to these matters."

In the end, events like this happen all the time without justification. A few years ago, the DOJ investigated online education companies for taking too much state tuition money, but the investigation turned up nothing. These stocks trade near 52-week lows and eventually return to their highs if they are found innocent. Whether this company is innocent or not remains to be seen; however, at least one investor is showing his cards!

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Ford Motor Company (NYSE:F) reported a net loss of 19 cents per share for the third quarter compared to a loss of $2.79 per share a year ago. The news could signal the beginning of a successful turnaround for the troubled automaker and came as a surprise to many investors. Margins are growing, incentives are falling and sales are becoming more profitable.

Ford has traditionally been the weaker of the big three automakers as it does not have hedge fund backing, massive sales outside of the USA, or cost cutting already behind it. However, this earnings announcement indicates that they may be able to pull off a turnaround anyway. The company reported improved overseas sales, increased margins in the United States, and is ahead of its $17 billion cash outflow target for 2007-2009 period.

Ford also said it was close to selling its Jaguar and Land Rover units but its CEO said there are no longer any plans to sell the Volvo market. The company likely decided to hold off because of the lowered cost of a turnaround. The company leveraged its assets to borrow $23.4 billion last year, but now doesn't expect restructuring costs to reach even that level.

In the end, Ford is on track to reach profitability in 2009. This is a remarkable achievement given the short timeframe for their turnaround and the increased competition in the auto market. Combined, these factors make F a stock worth watching closely!

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Unisys Corporation (NYSE:UIS) is starting to feel the pressure from shareholders who believe the company is undervalued. One shareholder, MMI Investments, disclosed a 9.9% stake in the company and indicated that they plan on pushing the company towards pursuing strategic alternatives. Shareholders are hoping that the activist investors will be able to help the company turn itself around and come to value.

Unisys Corporation's poor growth record over the short and long term indicate a troubled and uncertain business model. The company's latest earnings announcement caused a 20% drop in the days surrounding the announcement while the company is averaging a -230% earnings surprise over the last six quarters - not exactly what investors want to see! Many shareholders are skeptical as to whether or not the company will be able to turn itself around.

Management has performed well in the past growing the company's earnings per share; however, recent losses and a lack of top line growth suggest that the company is facing serious problems. This becomes a big problem when you consider Unisys' long term debt that accounts for 98% of its total capital. This makes the balance sheet somewhat unsafe given that the company only has $448 million in cash and total debt amount to $1.04 billion.

In the end, there are a few good things about this company. First, the company's price to sales ratio sits at just 0.4x, making it one of the most undervalued in the sector. Meanwhile, the company did report strong cash flows during the last quarter, which is a good sign. However, there are many negative aspects of this company as well. Ideally, an activist shareholder would be able to seek strategic alternatives and turn thing around. This makes UIS a stock worth watching!

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