Vonage Holdings Corporation (NYSE:VG) shares rose more than ten percent today after the company announced that it has settled its patent dispute with Nortel Networks without paying any money out of pocket. Investors have been concerned for some time that the VOIP provider may be forced into bankruptcy if it was ordered to pay hefty fines to old-telecom companies that it walked over. Shareholders applauded the move as it marks one of the final lawsuits hovering over the company.

The new settlement involves a limited cross license to three Nortel and three Vonage patents and dismisses claims relating to past damages and remaining patents. Vonage was initially dragged into this lawsuit after it acquired Digital Packet Licensing, which was suing Nortel at the time for the violation of three patents. Vonage continued the lawsuit before it was countersued by Nortel, who claimed that Vonage was violating 13 of its own patents and asked that the VOIP provider be shut down and kept from using the technology.

This settlement is a great deal compared to Vonage’s settlements in four other patent lawsuits where it was forced to pay the other side money for prior use of its product. These lawsuits sent Vonage shares tumbling amid worries that they would be forced to shut down their service because they were in violation of basic patents on the technology itself. However, these were all resolved in exchange for cash, where AT&T received $39 million while Sprint and Verizon received a total of $200 million.

In the end, this is good news for Vonage who now appears to be cleared of outstanding lawsuits that threatened to send them into bankruptcy. Shareholders are hoping that the company can now turn itself around and focus on building revenues and profitability. Combined, these factors make VG a stock worth watching closely!

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Sybase Inc. (NYSE:SY) directors may have to fight for their job after an activist hedge fund nominated its own slate of directors to the company’s board, according to a Schedule 13D/A filing with the SEC. Sandell Asset Management Corporation announced that it has notified Sybase Inc. of its intention to nominate three highly qualified independent candidates for election to the board of directors in 2008. Shareholders are hoping that this move could help unlock value in the company’s shares, which have remained somewhat stagnant.

Sandell’s move towards a proxy contest follows a letter and presentation delivered to the company on October 12, 2007 outlining specific actions the hedge fund believed the company should take to improve value for all shareholders. Specifically, the Sandell requested that the company immediately:

1. IPO and spin-off 100% of the Mobility segment.
2. Aggressively use the balance sheet to repurchase shares.
3. Sell the company as a whole or in parts.

Since that time, the company has taken no discernable action on any of these issues, nor has it taken any of its own actions to improve value. Sandell continues to believe that the actions detailed in its letter and presentation would materially improve the company’s valuation to the benefit of all shareholders, and it intends to conduct a proxy contest in order to realize those gains.

“We have attempted to encourage the company, both publicly and privately, to take action to improve its current discounted share price, but have been very frustrated by the apparent complacency of the board and management towards creating value,” said Thomas Sandell, founder of Sandell Asset Management. “We feel that shareholder representation on the board is warranted to ensure that all alternatives are being considered and a course of action is taken to bridge the gap between the current share price and its inherent value.”

Overall, any of the actions suggested by Sandell could go a long way in unlocking shareholder value. Proxy contests can be difficult and expensive, however, and it is uncertain as to whether they will be able to obtain the board seats that they need to enforce change. Regardless, this is definitely a stock worth watching into the next annual meeting!

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Delta Petroleum Corporation (NDAQ:DPTR) shares rose more than 20 percent today after Tracinda Corporation agreed to take a 35 percent in the energy company at a 23 percent premium to Friday’s close in a deal valued at around $684 million. Kirk Kerkorian’s Tracinda Corporation is well known activist hedge fund that specializes in restructuring companies and unlocking shareholder value. Shareholders are clearly confident that the activist will work to unlock value.

“Under Roger’s leadership, Delta Petroleum has become a very important company in the industry, with valuable resource plays, a strong asset base and well-positioned exploration projects that we believe hold significant growth potential,” said Tracinda Corporation in a statement. “Our investment will provide the company with the capital to accelerate its exploration activities, while giving Tracinda and Delta Petroleum shareholders the ability to realize value from its growth going forward.”

Delta Petroleum announced that the transaction would enable them to accelerate development drilling activities in its core areas, including the Piceance and Paradox Basins. Furthermore, the company noted that the investment will give it much more financial flexibility to fund its long-term drilling programs and allow for additional acquisitions.

“We are very pleased to have Tracinda Corporation as an investor and strategic partner in Delta,” said Chairman and CEO Roger Parker. “This transaction will provide the means to significantly increase the present value of our vast resource potential. The additional capacity provides Delta the financial flexibility and wherewithal to grow the company to new levels. We are very enthusiastic about the future for Delta.”

Notably, Tracinda Corporation withdrew their offer for a 20 percent stake in Tesoro Corporation – another energy company – last month due to a perceived lack of energy experience combined with a steep decline in refining profit margins. It appears that this investment may be a replacement designed to fill an energy spot in Mr. Kerkorian’s portfolio. Regardless, this is definitely a stock worth watching closely over the next few months!

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Many U.S. and European banks are reportedly considering divesting certain units in order to recapitalize for the tough times ahead, according to the Wall Street Journal. Banks considering such drastic moves are Citigroup (NYSE:C) and HSBC Holdings (NYSE:HBC) among others. Shareholders are hoping that these moves could help recapitalize the firms enough to avoid any further share dilution or worse.

Citigroup may shed or shut down several of its mid-sized units valued at around $12 billion while HSBC could exit all or parts of its $13 billion U.S. automotivd financing division, the Journal reported today. Citigroup units that may be shed include Student Loan Corp, its North American auto lending business, Redecard SA (its Brazilian credit card company stake), and its Japanese customer finance business. Meanwhile, HSBC is considered well capitalized but has experienced many issues with its automotive business that has been lagging behind.

One of the larger rumors circulating is that Citigroup may be considering a sale of Smith Barney, which could approach $10+ billion in value alone. Citigroup has a business that is fairly independent of its retail banking, commercial banking, and investment banking operations. And Smith Barney has about 9.3 million client accounts with around $1.6 trillion in total assets. Whether or not parting with Smith Barney would cause any real harm is uncertain, but it is a huge business that certainly could be sold in order to preserve liquidity.

Many are anticipating any units put up on the block to be acquired by Asian banks or sovereign wealth funds looking to build their portfolio of cheap dollar assets. Meanwhile, if Citigroup decides to sell its stake in Smith Barney, it is likely that a well-capitalized bank like Wachovia may consider acquiring it. Regardless, this is a situation that is definitely worth watching closely!

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Hedge funds are starting to feel the effects of the credit crunch as getting credit from lenders becomes increasingly difficult. Many investment banks are cutting back on loans to hedge funds by eliminating some clients and raising borrowing fees for others after heavy losses forced them to slim down their balance sheets. This could put pressure on both banks and hedge funds that rely on each other to boost their profits and returns.

Many hedge funds, known as quants, use computerized models designed to spot and take advantage of small pricing inefficiencies in the marketplace. These funds rely on a massive amount of leverage to drive their returns, and trouble borrowing could soak up their profits. Meanwhile, activist hedge funds and private equity funds rely on large amounts of debt and credit in order to finance M&A deals that they have used to bolster their returns during the past few years.

Hedge funds often borrow through a “repo” operation whereby the hedge fund sells securities to banks in exchange for cash, while entering into an agreement to buy them back at a later date when they pay the money back. These rates are skyrocketing, however, as banks are increasingly worried that hedge funds won’t be able to repay the loans. Morgan Stanley, for example, has been asking for one percentage point over LIBOR to enter into a repo agreement using junk bonds as collateral, according to the Wall Street Journal.

Problems in the hedge fund industry could cause problems in the larger markets too. Many public institutions, high net worth individuals and retirement funds have large investments in hedge funds that have traditionally returned healthy profits. Any limits in lending could adversely impact the returns for these hedge funds. Meanwhile, hedge funds that are forced to abandon deals or liquidate large positions may also prove to be a drag on the market. In the end, this is a significant event worth watching!

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Warren Buffett plans to carve out his own niche to profit from the nation’s credit market turmoil. The billionaire’s Berkshire Hathaway (NYSE:BRK) announced his intentions to start up a bond insurer that aims to make it cheap for local governments to borrow and may prove to be a tough competitor for the trouble existing insurers. Shareholders are bullish on the developments that promise to put more of the firm’s massive cash reserves to work.

Berkshire Hathaway Assurance Corporation is set to open for business today in New York and will focus on guaranteeing bonds for cities, counties, and states to finance sewer systems, schools, hospitals and other public projects. Berkshire’s solid AAA rating, which is held by very few companies, is likely to go a long way in a market that has many people unsure of who they can trust. After all, firms like Ambac Financial and MBIA are now seen as at risk of losing their AAA ratings due to the increased risk of mortgage-related bonds that they insure.

Warren Buffett said in an interview that there appears to be a high interest in a new company to seek permission in other states that account for a large chunk of municipal-debt issuance. After New York, the firm will likely seek to do business in California, Puerto Rico, Texas, Illinois and Florida. The billionaire said they would move prudently but would commit quite a bit of capital if they like the business. And in the end, focusing on municipal debt is a relatively safe bet when compared to asset backed securities!

In the end, this is more great news for Berkshire Hathaway shareholders who are seeing Buffett partake in a buying spree into the market decline. Recently acquisitions combined with this new business should help the firm put some of its massive capital reserves to use. Combined, these factors make BRK a stock worth watching!

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MRV Communications Inc. (NDAQ:MRVC) shares rose more than 20 percent earlier this week after the company finally made good on its promise to spin-off Source Photonics via an initial public offering. The number of shares to be offered and the price range of the proposed offering have not yet been determined, but the IPO is planned to net up to $130 million for the optical communication products maker. Shareholders are hoping that the move will unlock value through the separation.

Source Photonics makes optical subsystems used to transmit high-bandwidth video, voice and data. Its customers include Alcatel-Lucent, Motorola, and Tellabs. The division posted a loss of around $1.4 million for the nine months ended September 30th compared to a $311,000 loss for the same period a year earlier. Revenue during that period increased 40 percent to $93 million. Meanwhile, the company expanded its employee base to 1,486 employees and full-time contractors worldwide.

Spin-offs in general often prove to be great investments for a variety of reasons; however, this spin-off is slightly different for a number of reasons. First, MRV is only selling the company’s Class A shares while retaining all Class B shares for itself (although they may be spun-off later). Secondly, Source Photonics is a company that is losing money operating at a loss. And finally, this offering is more of an IPO than a spin-off in that new shares are being issued.

In the end, this spin-off may not be worth investing in immediately, but any divesture of Class B shares by MRV would definitely be worth watching. Also, MRV itself will be able to save money and realize IPO proceeds and profits as a result of this spin-off. Therefore, it may be worth watching the parent company itself.

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Bear Stearns (NYSE:BSC) shares rose marginally after a British billionaire disclosed a 9.57 percent stake in the firm even as shares continue to fall. Joseph Lewis, the 486th richest person in the world, has acquired almost two million more shares of the investment bank as a part of an option strategy that appears to be backfiring. Shareholders are hoping that the billionaire investor will hold on to the stock and take some action to unlock value in the company’s shares.

Lewis became the Bear Stearn’s largest shareholder in September after the firm’s two hedge fund collapsed due to bad bets on mortgage-backed securities. The billionaire spent nearly $860 million to buy 7% of the company when the stock was trading at more than $100 a share, which means he was already sitting on a paper-loss of more than $100 million. Now, Lewis appears to have been forced to acquire $1.19 billion in additional shares at an average price of $107.31 a piece, which will likely further extend his losses.

Bear Stearns has been hit particularly hard by the mortgage downturn with a fourth quarter net loss of $854 million on write-downs of $1.9 billion on its portfolio of residential mortgages and related assets. Meanwhile, many analysts are not even sure that the pain is over in the mortgage markets. Many prime mortgages are due to reset to higher rates and default rates among those borrowers are also expected to rise. The economy is also on uncertain ground, and any general slowdown could affect investment banking business.

In the end, shareholders are hoping that the billionaire will do something to help the company turn itself around. Bear Stearns is in a world of hurt now and it appears that this billionaire is too. Combined, these factors make BSC a stock worth watching closely!

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There’s a lot of talk about a recession these days from both politicians and economists, making many investors very nervous about the future. Recession is defined as two consecutive quarters of negative gross domestic product (GDP) growth. Currently, there is no consensus on whether we are in a recession, going into a recession, or simply in a bad market, but it never hurts to learn how to protect your stock portfolio.

Most people sell stocks from their portfolio going into a recession, but they should be buying. After all, “buy low, sell high” is the fundamental definition of how to make a profit. Those who have a long time until they plan on withdrawing money from their portfolio should look at increasing contributions to their 401(k) and IRA accounts. Meanwhile, those who are retiring soon should consider staying the course and riding out the downturn.

The most important thing you can do to protect your portfolio is to diversify your investments. This means not only buying different stocks within the United States, but also buying ETFs or mutual funds that track indexes in foreign countries. After all, countries like China and Brazil are soaring while U.S. markets are faltering. Meanwhile, diversification itself is statistical proven to not only increase returns but reduce volatility, which means you will realize more profits from your portfolio!

Recessions also produce many opportunities to profit substantially. Stock pickers who are able to sort through fundamentals will be able to find many bargains during a recession. Particularly, companies that export the majority of their products may be in a great position with a weak dollar and weak domestic economy. Meanwhile, companies providing products that people need everyday – such as energy – may also be companies that are unnecessarily beaten down.

On a related note, it is important to keep a healthy savings account since unemployment tends to rise as economic growth slows. Typically, it is important to keep three to six months worth of living expenses in an emergency fund. This money should be kept in a liquid account like a money-market account that makes more than a standard savings account but does not carry the risk of an investment account.

In the end, be sure to keep purchasing stock during the downturn and maintain a diversified portfolio that fits your risk profile. Also be sure to keep money on the side in case you are affected in other ways by a recession. Combined, these things can help you recession-proof your portfolio!

Warren Buffett’s Berkshire Hathaway (NYSE:BRK) announced that it had completed its acquisition of Marmon Holdings after just two weeks of negotiation. The billionaire investor had been searching for ways to spend its $43 billion in cash on its balance sheet, but many were surprised by the move. The deal will not only be Buffet’s largest acquisition outside of the insurance industry but it also comes at a time when many are expecting a recession in the U.S. economy.

“Our transaction was done just the way Jay would have liked it to be done — no consultants or studies,” Mr. Buffett said in a statement, referring to Jay A. Pritzker, one of the founders who died in 1999. Mr. Buffett met Jay Pritzker in the 1950s and for many years served on the board of Grinnell College in Iowa with Marian Pritzker, who was married to Jay and is Thomas’s mother.

Marmon Holdings is a Chicago-based conglomerate that owns more than 125 businesses that operate more than 300 production facilities in 40 countries. These companies operate within a variety of business sectors including construction services, distribution services, highway technologies, industrial products and services, information management, metal products, retail services, transportation services, water treatment and wire and cable products. Interestingly, much of its large electrical components, water treatment and retailer services businesses are very dependent on the U.S. economy.

In the end, it is interesting that Buffett was so willing to make such a large acquisition outside of the insurance sector and during a time when the U.S.is expected to enter a recession. Perhaps Buffett believes that the U.S. is not quite as likely to enter a recession as first thought…

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