Kellwood Company (NYSE: KWD) shares spiked today after a private investment firm is taking its $542.3 million cash offer for the company straight to shareholders. Sun Capital Securities Group offered $21 per share for the apparel maker today, which represents a premium over the stocks $16.51 closing price on Monday. Clearly, many shareholders are bullish on the news as shares rose over 10 percent today.

Sun Capital failed in its two previous attempts to take a buyout bid to the board of directors. “We are disappointed that Kellwood’s board is unwilling to enter into a constructive dialog with us regarding what we believe is a very compelling transaction,” said Jason Bernzweig of Sun Capital.

Sun Capital, which already owns 9.9% of the Kellwood, values its direct tender offer at $762 million but noted that it hinged on Kellwood ending its $60 million debt tender offer which destroys the company’s value. Otherwise, the firm will drop its buyout price to $19.50 per share.

Sun Capital also announced that it would be nominating its own slate of directors for election to Kellwood’s board at the 2008 annual meeting if the company fails to reach an agreement soon. Indeed, this may be their only option after two failed traditional attempts and a failed tender offer placed directly to shareholders.

So, will they be successful this time by going straight to the shareholders? Well, clearly shareholders are bullish on the idea of a direct tender offer, so it will be interesting to see what kind of response rates they are able to obtain. And even if they do not succeed, they may have built up a substantial enough stake to make a real run at the board of directors. Combined, these factors make KWD a stock worth watching!

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Transmeta Corporation (NDAQ: TMTA), well known for its patent battle with Intel, may face some scrutiny by its largest shareholder. Riley Investment Management demanded that the company provide records for an investigation of potential mismanagement by the company’s board of directors. Many analysts and shareholders are not surprised by the move, which comes after a litany of other jabs that the activist investor has taken against the company – all justified.

“The purpose of this demand to inspect the Company’s Books and Records is to investigate potential wrongdoing, mismanagement, waste of corporate assets or breaches of fiduciary duties by members of the Company’s Board of Directors and to assess the ability of the Company’s board to impartially consider a demand for action (including, without limitation, a request for permission to file a derivative lawsuit on the Company’s behalf) related to the items described in this demand,” said Riley in a statement.

Riley previously criticized Transmeta for awarding “staggering options grants” to certain executive officers, which would have diluted shareholders by more than five percent. The activist investor also said the company failed to adequately disclose the formula behind a hefty bonus payment awarded to General Counsel John Horsley, related to the company’s $250 million patent settlement with Intel.

Now, Riley has requested that the company provide details on executive compensation along with any business and/or social relationships between the board members and executive officers. Ever since Transmeta has obtained the $250 million Intel settlement, it appears as if things have gotten out of hand and Riley is here to clean up the mess! This is great news for TMTA shareholders who could start actually seeing the proceeds from the $250 million if this activity stops.

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Tellabs, Inc. (NDAQ: TLAB) has seen a lot of action recently ahead of its earnings announcement this week and continued speculation that it could be a buyout target. The telecommunications and technology company recently hit a 52-week low of $5.09, which is well off of its highs around $13 per share. However, unusual call option volume triggered a rebound in the stock price that has many investors now bullish on this troubled stock.

Last week, Tellabs saw nearly 10,000 call options traded, compared to only 1,753 puts and average daily volume of 1,350 contracts. There was a similar story on Friday with 15,200 call options traded and the trend has only continued into this week. This activity caused a noticeable rebound in the stock price that now sits closer to $6 per share – nearly 20% off of its 52-week lows.

Some of this movement is attributed to a new rumor that Nokia may be interested in acquiring the company. In the past, valuations for such buyout of TLAB have been pegged at $9 or $10 per share. There was also talk of a “rich offer” made by Nokia in the past, although they would not confirm this fact to the public. However, the Wall Street Journal’s commentary confirms that the talk was indeed out there and making rounds. Clearly, any such offer would be a windfall for shareholders at these prices.

Other analysts attribute the rise to key indicators that earnings may be better than expected. Verizon recently reported that slowing economic growth was not curbing its sales and that it would spend $23 billion over seven years to build out a fiber-based network that offers TV and faster Internet speeds for home users. This is great news for Tellabs, which is a leading provider of fiber-optical products for Verizon. Tellabs has a product that benefits directly from these trends.

In the end, there is clearly reason to be excited with Tellabs. The idea of a buyout is still just that – an idea. However, the company appears to be well positioned to take advantage of growing trends in the fiber-optics market. Combined, these factors make TLAB a stock worth watching!

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Many activist investors, like Carl Icahn and Bill Ackman, are well known for taking an activist stance in their investments and producing strong returns. However, the best investors are not always perfect and following them blindly could be a bad idea. Target Corporation (NYSE: TGT) and Sears Holdings Corporation (NDAQ: SHLD) are two recent examples of how activist investors can make big bets in the wrong direction.

William Ackman’s Pershing Square Capital Management, well-known for its stand-off with McDonalds and 22% annualized returns, has built up nearly a 10% stake in Target over the past year. The famous investor is now over 50% underwater on his investment that he insists is worth $120 a share in 36 months. The problem is that much of the retailer’s value is held up in real estate, which has declined substantially in value. Moreover, consumer spending and credit have led to a much tougher environment for retailers. So, where is the catalyst for a jump in share price?

Eddie Lampert, well-known for his involvement in the Kmart bankruptcy and high-profile clients, is also deep underwater on his retailer investment – Sears Holding Corporation. The retailer recently reported weak holiday sales results, lower gross margins and forecast a profit for the fiscal year below Wall Street estimates. Many have speculated that the activist planned to sell off the company’s real estate holdings in order to unlock value, but this is no longer a possibility thanks to the struggling commercial real estate market.

So, what are they doing now? Well, Ackman announced that he is starting a new fund solely to invest in Target with the expectation that shares will reach $120 a piece in 36 months once the blood drains off the streets. Meanwhile, there is no word on what Lampert plans to do with his position and he has not announced any sales. Many are expecting him to continue holding his stake until the market turns and he is able to unload the credit card operations to unlock at least some value.

In the end, we can trace both of these failures to a drastic change in the markets that caused problems with the underlying activist strategy. Since the two already built up large stakes, it was not possible to exit the stock quickly and they were left holding the bag. It is important for investors to consider economic forecasts before investing in any company – even those held by famous activists!

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The Brink’s Company (NYSE: BCO) must have some value after it managed to attract yet another high profile activist investor. Warren Lichtenstein’s Steel Partners, well-known for its relatively quiet activist involvement, disclosed a 6.2% stake in Brink’s along with a letter to the Board of Directors. Lichtenstein announced that he would be supporting the proxy contest of fellow activist Clay Lifflander’s MMI Investments and urged the company to complete a tax-free spin-off of one of its two business segments. Combined, the two activists hold a 14.6% stake in the armored-car transport company.

“We continue to believe Brinks is significantly undervalued and are disappointed that it has not implemented strategic alternatives recommended by us and the Company’s other significant shareholders,” said Lichtenstein in the letter. “We do not believe Brinks’ current strategy is in the best interests of the shareholders and cannot accept the status quo.”

Brink’s recently announced that it has retained the Monitor Group to assist it in the review of strategic alternatives, but the activist shareholders believe that this may be mostly for show. After all, they have been fighting with the company to take action ever since Pirate Capital’s first investment a few years back without success. Now, Pirate Capital has given up and Steel Partners has stepped in its place.

Steel Partners recommended that Brink’s first explore a tax-free spin-off of one of its two business segments in order to unlock value. In the event that this is not consummated, Lichtenstein urged the company put itself up for sale in a process that maximizes value for all shareholders. And in the meantime – due to the steep undervaluation of the common stock – the activist recommended that the company up its current $100 million share buyback program to $500 million.

Overall, this is great news for BCO shareholders as it could mean that the company’s stock could finally see some substantial appreciation. However, it is important to remain prudent as we have already seen several attempts to unlock value fail with this company. Ultimately, the success of this campaign will hinge on the upcoming proxy contest. Combined, these factors make BCO a stock worth watching!

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Borders Group, Inc. (NYSE: BGP) is quickly catching the attention of many investors as it continues to pursue a turnaround strategy that is beginning to show results. The company’s stock is down over 50% since the beginning of 2007 as it continues to struggle against larger competitors and online sales. However, many investors are hoping that newcomer CEO George Jones can successfully orchestrate a turnaround for the troubled bookseller.

Borders, the second largest bookstore in the nation after Barnes & Noble (NYSE: BKS), recently announced that it achieved same-store sales growth across its three business segments for the first time since the first quarter of 2004. Internationally, the company showed the strongest growth with sales jumping 26.9% and same-store sales jumping 10.8%. However, the company was set back by charges related to its divesture of Waldenbooks.

Billionaire activist investor William Ackman also recently reported increasing his stake in Borders Group to 22%. Ackman is well known within the investment community for achieving spectacular returns by placing large bets in troubled companies and working with them to turn around. He has managed to return over 20% annually since his hedge funds inception, which mirrors performance of the greatest investor of all time – Warren Buffet.

However, a confident investor and early results do not guarantee success for the struggling Borders Group. Ackman has shown he is not perfect after losing nearly half of his investment last year in Target (although he still insists it is extremely undervalued and remains invested) and the company still faces an uphill battle against not only Barnes & Noble but also online booksellers like Amazon.com (NDAQ: AMZN) that can offer customers cheaper prices and convenience. The bookseller still has a lot of work ahead of it if it, but we now know that it is on the right track.

In the end, Borders is a great turnaround play that should be kept on the radar of all value investors. The bookseller is has shown early success in its turnaround strategy while at least one famous investor has taken notice and put a substantial amount of money at stake. Combined, these factors make BGP a stock worth watching!

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PeopleSupport (NDAQ:PSPT) shares spiked nearly 10 percent today after IPVG Corp. upped its buyout offer to $17 a share or $385 million. The move comes after the company rejected a previous $15 per share offer, calling the offering price “inadequate” and complained that it failed to take into account the company’s strategic value and growth plan. Shareholders are hoping that the company will at least consider the new proposal, however, as it provides a further boost to the company’s shares.

IPVG sent a letter to PeopleSupport chairman and chief executive Lance Rosenzweig on Friday saying that it was “unfortunate” that PeopleSupport did not engage in serious discussions with the company “despite repeated attempts to have confidential dialogues regarding our proposal.” Some shareholders are clearly in support of a deal with shares rising close to the buyout price instead of surpassing it or falling below it in anticipation of rejection or in actual rejection of such a proposal.

Other shareholders believe that the company was correct in rejecting the $15 bid. Indeed, PeopleSupport revenues for 2008 are expected to be between $180 million and $190 million, which is higher than Wall Street estimates of $170 million. Offshore competitors for PeopleSupport are trading at about 2 to 3 times sales, which would translate to a valuation of around $18 per share, or $405 million for PeopleSupport. So, perhaps the new bid will get a little more attention.

Overall, PeopleSupport is like to continue seeing pressure from its largest shareholder who has pressured the company to conduct an auction to solicit other acquisition offers. Many are hoping that this offer will be at least considered by the company, however, given that it is close to the true valuation suggested by many analysts. Combined, these factors make PSPT a stock worth watching!

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Document Security Systems (AMEX:DMC) recently announced a new credit arrangement that has many investors and activist groups questioning the motives of the company’s management and board. A recent proxy statement by the company revealed a $3 million loan inked with Fagenson & Co’s Robert Fagenson, who owns 7.4% of the company and also happens to be on the board of directors.

Despite DMC’s $88 million market cap with no outstanding debt, the company decided to forego traditional financing and instead take a loan from its largest shareholder. Interestingly, the loan was collateralized with DMC’s largest subsidiary, Plastic Printing Professionals Inc., which is also the company’s only profitable division producing a product. Asensio and other large activist groups and shareholders have since questioned the motives behind such arrangements.

The arrangement will allow Fagenson to either profit from DMC’s rise or become the new owner of Plastic Printing Professionals if the loan doesn’t get paid back – either way, he’s a winner. However, the outlook is not so great for DMC’s other shareholders who stand to lose the most profitable division of their company with financing that was unnecessarily collateralized when alternative financing was available… they will be forced into court in order to recover any money they lose.

So, is Robert Fagenson setting himself up to obtain the company’s most valuable asset by using it as collateral for a small $3 million loan that could have easily been obtained elsewhere? Well, even the possibility of such a disastrous move should be enough to frighten some shareholders. DMC is also involved in some questionable dealings – the firm is currently engaged in a stock-financed legal battle against the European Central Bank over its patented anti-counterfeiting technology. The move comes after the company tried to sue the U.S. Treasury Department for infringements when the new $100 bill was release (which was rejected).

In the end, investors may want to stay away from this company while its most valuable asset is put at risk for a small $3 million loan. A loss of this division would be devastating while shareholders continue to face significant dilution as a result of frivolous lawsuits against central banks. While a court victory would almost certainly provide a massive boost to the share price, it is a probability that seems minute at this point.

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Bank of America (NYSE:BOC) agreed to purchase the troubled Countrywide Financial (NYSE:CFC) in a $4 billion all-stock deal today after speculation of a bailout drove shares up over 50% late in yesterday’s session. The deal would give Countrywide shareholders 0.1822 shares of Bank of America for each share they own – or about $7.16 per share. The number came in about 7.6% lower than shareholders predicted yesterday with the stock’s jump after-hours, but is non-the-less a welcome offer for the company.

“We are aware of the issues within the housing and mortgage industries,” said CEO Ken Lewis to the WSJ. “Mortgages will continue to be an important relationship product, and we now will have an opportunity to better serve our customers and to enhance future profitability.”

Many are hoping that this move could help prevent a recession that so many have been predicting. A weak economy combined with rising mortgage and credit card delinquencies have become a substantial threat to the economy. Retailers reported weak sales in December and American Express reported reduced spending and increased delinquencies among its more affluent user base. Meanwhile, unemployment jumped and many economists pegged the odds of a recession close to 43%.

Ben Bernake indicated a willingness yesterday to cut rates more deeply, which helped boost the markets. Meanwhile, the bush administration starting throwing around the idea of a direct economic stimulus, such as tax rebates. Now, Bank of America’s move signals that some of the troubles in the mortgage market may finally be coming to the end of the climb in delinquencies and closer to regularity.

In the end, this is great news for shareholders and the economy in general. Countrywide shareholders no longer have to worry about bankruptcy and further declines while economists are now confident that at least one major company believes that the crisis is finally coming down from a high.

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Countrywide Financial (NYSE:CFC) shares spiked over 10 percent today after dropping substantially over the last few days on bankruptcy concerns. The bounce has been widely attributed to recently commentary that the mortgage lender may be too large to go bankrupt in the same way that Long-Term Capital Management was too large to go bankrupt – there’s too much at stake.

Countrywide recently announced that foreclosures and late payments on mortgages in December rose to their highest levels in five years, spelling out even more problems for the troubled mortgage lender. The huge number of bad loans alarmed many mortgage analysts, one of which said “the extent of the deterioration is a surprise”. Currently, Countrywide has a portfolio of around $1.5 trillion in loans that could prove to cause a crisis on Wall Street if the firm went belly-up.

So, could Countrywide go bankrupt? Well, Guy Cecala of Inside Mortgage Finance was quoted on PBS’ Nightly Business Report yesterday as saying that lawmakers would most likely lean towards propping up Countrywide and readying it for a merger rather than see it fall into bankruptcy. Indeed, any failure on the part of Countrywide would cause widespread problems throughout the mortgage industry. Loans would be significantly more difficult to obtain while liquidity in the marketplace would be impaired.

In the end, Countrywide is clearly in trouble right now. Foreclosures and rising defaults are dealing a double blow to the company as the firm is not only suffering losses on the loans themselves but also its mortgage securities are becoming increasingly difficult to sell due to their substantial drop in value. Whether or not the government will allow Countrywide to go bankrupt remains to be seen, but if they do, there will be huge problems in the United States housing market and economy.

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