Target Corporation (NYSE:TGT) found itself in talks with Pershing Square’s William Ackman after the activist boosted his stake in the company from 9.6 to 10 percent and owns derivative contracts that amounting to an economic interest of around 12.6 percent. The activist investor acknowledged that Target is “probably the best retailer in the world” and announced that it was in talks with management to boost the share price. Shareholders are hoping that the activist will take action to unlock value.

Target shares have fell 21 percent since Ackman first disclosed his holdings, but the activist maintains that the company is in good shape. Many investors believe that Ackman is focused on the company’s possible sale of its $7 billion credit portfolio, which was delayed due to evaluations taking longer than expected as a result of the current credit market conditions. Shares have continued to slide recently on news of delays in this decision that could prove to be a windfall for shareholders if approved.

William Ackman is an activist investor that previously took stakes in Wendy’s, McDonalds, and Ceridian and unlocked value by pushing management to improve profits and cut costs by selling or spinning off divisions. Investors are hoping that the activist will be able to unlock value in Target. Combined, these factors make TGT a stock worth watching!

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Merrill Lynch (NYSE:MER) shares led the financials higher today after the company announced that it had sold its commercial finance unit and raised $6.2 billion through a private placement to Temasek and Davis. The move comes after the firm announced record writedowns amid a credit crunch and subprime crisis that wrecked havoc on its asset backed securities. The firm is widely expected to face more writedowns, but these events give investors new hope that a bottom may be near.

General Electric purchased Merrill’s commercial finance unit, which will enable the firm to redeploy approximately $1.3 billion in capital. The sale includes the firm’s corporate finance, equipment finance, franchise, energy and healthcare finance units, but not the commercial real estate finance unit. The deal will add more than $10 billion in assets and $5 billion in other commitments to GE Capital Commercial Finance’s businesses, which currently stands at around $260 billion.

Meanwhile, Temasek Holdings purchased $5 billion of newly issued Merrill stock at a price of $48 per share through a private placement of newly issued common stock. Davis Selected Advisors also purchased another $1.2 billion at an unknown price per share. Some investors are upset that the company was willing to dilute their stake at a price of just $48 per share, but it is likely that the two investors had a chance to take a look at the company’s books and felt that that was a fair price given future writedowns. Regardless, the firm now has increased liquidity and more investors.

In the end, both of these are great news for Merrill Lynch shareholders as it provides the company with greater liquidity while also showing at least some confidence in the company’s stocks. Combined, these factors make MER a stock worth watching!

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BEA Systems Inc. (NDAQ:BEAS) announced that it would postpone its annual shareholders’ meeting in a move that would sidestep a lawsuit by Carl Icahn and give the business software-maker more time to drum up bids closer to its $21/share target. The company now has more time to get itself out of this mess, but it is uncertain as to whether or not Icahn will attempt to install his own directors regardless. Shareholders are watching the situation closely as it could mean significant value being unlocked.

Carl Icahn launched his campaign to put the company up for sale a few months ago when he sued BEA’s board of directors and threatened to replace them with his own candidates. The activist investor hasn’t filed any of the necessary paperwork to nominate his own directors, but this delay may give him enough time to do so. This assumption has gained traction in light of the fact that Icahn supported this delay while criticizing past delays.

Carl Icahn has been critical of BEAS ever since it rejected a bid from Oracle at $17 per share, or $6.7 billion. The company insisted that it was worth more and suggested that future negotiations should start at $21 per share, which it is just now attempting to realize. So far, no other bidders have emerged and Oracle’s Larry Elison even suggested that the company wasn’t even worth the original $17 per share offer. Whether or not the company can drum up some bids remains to be seen, but with Carl Icahn’s support, this is a situation that is definitely worth watching!

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Transmeta Corporation (NDAQ:TMTA) received a letter from its largest shareholder today expressing concern over yesterday’s staggering option grants and other recent developments that have bought serious questions to light regarding the company’s strategic direction. Riley Investment Management (RIM), which owns 6.4% of Transmeta, demanded several changes to protect shareholders.

The board of directors is tasked with prudently placing the interests of shareholders above their own and those of insiders. However, last night’s option grant totaling 725,000 shares to the company’s top four executives diluted shareholders by over 5% and almost doubled the company’s historical grants on a split-adjusted basis. The timing of the grant is also very disconcerting and ironic in that it was made at historically depressed levels – essentially giving executives $5 million of value at a great cost to shareholders. Obviously, RIM viewed this as a major issue and questioned the integrity of the board.

RIM also reiterated its belief that shareholders will be best rewarded through a distribution of cash and a monetization of the company’s intellectual property as opposed to management’s plan to fund business development and evaluating potential acquisitions. RIM believes that this strategy would result in proceeds in excess of $20 per share while management’s strategy would likely result in operating expenses that eat through the guaranteed $20 million per year revenue stream from Intel by lining the pockets of management and executives.

“In light of the failures of the management team and the Board, the company’s proposed strategy is especially disturbing,” said RIM in their letter. “Transmeta shareholders should ask a simple question –- would the current management team and board be able to raise $250 million from the public market to pursue a risky strategy with operating expenses of $25 million per year and no clear path to profitability? We believe the answer is unequivocally no.”

In the end, it will be interesting to see how the board responds to this letter as it makes several points that even average investors can identify with – most notably yesterday’s option grant. Combined, these factors make TMTA a stock worth watching!

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ETrade (NDAQ:ETFC) announced an aggressive campaign today to win back customers as one component of its comprehensive turnaround plan following its dramatic fall. The turnaround plan was reportedly developed in conjunction with a thorough evaluation of ETrade’s core strategy along with an assessment of its organizational structure, operating expense base, and balance sheet. Shareholders are hoping that this plan can help revive the stock that has dropped substantially over the past few months.

The backbone of the turnaround plan is an effort to start attracting customers after the company saw a mass defection following liquidity rumors. The campaign began earlier this month and involves targeted engagement incentives and outreach initiatives to current and prospective customers. But just how effective has this been? Well, the brokerage said on Friday that its retail customer cash and deposit balances were up 14% from the end of October, reaching $33 billion.

ETrade also said that it would detail its formal turnaround plan after its fourth quarter and fiscal statements are released on January 24th. So, investors may have to wait a little longer to see how viable the company’s turnaround plan really is for the future. However, ETFC is definitely a stock worth watching in the meantime!

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Comforce Corporation (AMEX:CFS) may face some pressure in the near future after an activist hedge fund expressed frustration with the company’s board and management and urged its directors to explore strategic alternatives, including a possible sale of the company. Bruce Galloway’s Strategic Turnaround Equity Partners, which owns a 5 percent stake in the company, also threatened to take their suggestions to shareholders if the company didn’t respond.

“While we have been supportive of your efforts and progress in growing the sales of the company, reducing debt and improving earnings, this has not resulted in an improved stock price. Based on our internal research, and as I am sure you are aware, Comforce is trading at a significant discount to its larger market cap peers,” said Galloway. “More importantly, we don’t believe management has clearly defined to the shareholders how to achieve its targets to increase shareholder value.”

The news comes after Comforce recently reported strong third quarter results. The latest quarter represented its 17th consecutive quarter of improved year-over-year revenues on net income that rose 91% compared to the same quarter last year. The company also reported that its interest expenses continued to decline. However, no insiders have purchased any shares while the stock has remained stagnant.

“We are most pleased with our increase in revenues and net income for both the third quarter and nine months. The third quarter represented our 17th consecutive quarter of year-over-year increased revenue growth,” said CEO John Fanning. “We were also happy to have posted increases in revenues of $1.9 million in Staff Augmentation primarily as a result of increased sales to our Technical and Information Technology customers.”

In the end, it will be interesting to see if the company sees eye-to-eye with the activist hedge fund. Since management does not have a significant stake in the company, the hedge fund may find it difficult to push for a change of control transaction. However, this stock is definitely one worth watching in the meantime!

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CSX Corporation (NYSE:CSX) directors may be in for a battle after two long-standing foes nominated their own slate of candidates to the company’s board. The Children’s Investment Fund teamed up with 3G Capital Management to strengthen the railroad operator’s board by adding strong independent directors with a shareholder orientation, a broad range of railroad and other relevant experience, and a firm commitment to improving operating performance and corporate governance.

The hostile move comes after two months of feuding between the company and its dissident shareholders. Children’s Investment Fund sent a public letter to CSX two months ago raising concerns over the fact that they have been unable to hold substantive discussions about the company’s spending. The hedge fund also requested that the chairman and chief executive roles be split up, more independent directors with experience be added, and operating expenses be trimmed.

Last month, CSX’s board responded by stating that it maintained confidence in its chairman and chief executive. After all, the stock price has tripled over the last three years and shareholders have seen better returns than the rest of the railroad industry and 89 percent of all S&P companies. Obviously, any changes may be a hard sell to average shareholders who do not understand the additional value that can be unlocked through independence.

Shareholders can expect to see a heated proxy battle at the CSX’s next annual meeting. Combined, these two hedge funds hold around 11 percent of the company’s outstanding shares which makes them a viable contender. Many common shareholders, however, will need to receive more information detailing exactly how they plan on improving a stock that has already seen such great success under current leadership. After all, the saying goes: “If it ain’t broke, don’t fix it!”

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Edge Petroleum Corporation (NDAQ:EPEX) announced yesterday that it has retained Merrill Lynch & Co. to explore strategic alternatives to enhance shareholder value, including a potential sale of the company. The move comes as many small cap energy companies, including Edge, trade at very low multiples despite strong earnings. Many shareholders are hoping that the company will be able to correct this value disconnect through a sale or merger.

“Merrill Lynch and Management will assist our Board in reviewing the strategic alternatives while the Company continues to execute its current business plan,” said CEO John Elias. “Although we have no specific time frame to complete the review, both Management and the Board of Directors have a sense of urgency about completing this process and increasing our shareholders’ value.”

So, how much might Edge fetch in a sale of the company? Edge currently has an enterprise value of $551 million, composed of $240 million in long-term debt, $143 million in preferred stock, and $168 million in market cap at $6 per share. The valuation of the company hinges largely on its reserves. Assuming that the company can retain current run rate, BOE/day, and reserve valuations, then shares could be worth between $10 and $12 or more per share based on low to mid range peer multiples.

It is likely that Edge already received several unsolicited offers for the company, which is why this process was put into motion. Clearly, the value disconnect is of great concern for all small cap energy companies in this arena. This is all good news for shareholders, but whether or not they will accept any of these offers remains to be seen. Regardless, this is definitely a stock worth watching!

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Enzon Pharmaceuticals (NDAQ:ENZN) shareholders may soon be rewarded after a large shareholder expressed concerns regarding a “troubling disconnect” in the stock. DellaCamera Capital, which owns 5.2% of the company, requested that the company hire an advisor to analyze various financial and structural options and implement a cohesive financial plan of action that would deliver increased value to shareholders.

“In our opinion, Enzon’s current stock price of $9.75 represents a significant discount to the intrinsic value of the Company and in no way reflects the tremendous embedded optionality associated with Enzon’s R&D pipeline and technology platform,” said portfolio manager Richard Mansouri. “It is our belief that the corporate structure and operational complexity of Enzon have made it difficult for the investment community to accurately assess the inherent value of the Company.”

The activist hedge fund pointed out that a share price of $9.75 implies a shocking negative valuation of -$263.5 million for the company’s R&D operations that, in reality, show promise. Enzon has four products on the market that will generate an estimated $100 million in revenue in 2007. A reasonable sales multiple of 3.5x yields a value of $350 million for the marketed products alone. Add in the revenues from royalties and contracted manufacturing and you get an additional $440 million in value.

So, why is there such a value disconnect? Well, DellaCamera insists that it can be traced to the company’s complex structure. Currently, Enzon operates in two businesses: (1) a commercial business comprised of marketed products, royalties, and contract manufacturing; and (2)an R&D organization and technology platform. The profitability of the commercial operations is being completely obscured by the expenses associated with advancing the company’s clinical and pre-clinical trials. This complexity has also led to operating inefficiencies that have resulted in runaway expenses.

In the end, DellaCamera insists that the company should work to simplify its message to investors by consolidating its operations or taking other measures to unlock value. To this end, they requested that the company hire an advisor in order to explore the best options. Combined, these factors make ENZN a stock worth watching!

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The Cheesecake Factory (NDAQ:CAKE) shares spiked over ten percent today after Nelson Peltz's Star Trust revealed a ten percent stake in the company. The activist investor also requested and received early termination notice from the FTC, which is required under the Hart-Scott-Rodino antitrust law for the acquisition of stocks or assets greater than $50 million.

Nelson Peltz is well known for his activist involvement in companies like Wendy's International and H.J. Heinz Co., in which he was able to unlock substantial value for shareholders. The activist investor may see the Cheesecake Factory as a strong play in today's troubled markets. The company has shown consistent EPS growth with extremely strong financials.

So, is the Cheesecake Factory a bargain at these prices? Well, before today's move the stock was trading at just $22, which is about 17x next years estimated EPS. This is an extremely low P/E ratio that should stand around 25x, which would equate to a stock price of around $33 per share - or about 50% higher than it trades now.

In the end, this is a solid stock that is being acquired by an activist that has clearly indicated that he wants more. Whether or not Peltz plans on taking any actions to unlock value remains to be seen, but this is definitely a stock to watch in the meantime!

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