Yahoo Inc. (NDAQ: YHOO) elaborated on their discussions with various parties regarding a possible merger in its Form 425 filed with the SEC today. The Q&A for shareholders elaborates on the News Corp (NYSE: NWS) bid for the company as well as several other valid questions that have been raised during the past few weeks as the company looks towards a possible acquisition. It provides valuable insight for shareholders and arbitreurs looking at a possible deal.

Here’s a complete transcript of the Q&A direct from the filing:

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Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) shares moved sharply lower after the two telecom providers announced new flat-rate plans. The move marks a shift from high margin services to lower margin staples that could put pressure on margins and may spark further reduction in prices aimed at increasing users. The commoditization of the wireless voice service industry is a move that many investors expected but dreaded as it could end up curbing growth rates and reducing valuations for many telecom providers. So, what does all of this mean for shareholders of VZ and T?

Currently, both plans are priced at $99 per month, which means that it will only affect so-called power-users that would like their services consolidated into one predictable price. Moreover, the moves are also designed to increase customer loyalty by locking them down for longer contracts. The two companies are hoping to attract a number of new users from other service providers that offer more expensive services. Indeed, this could help boost revenues over the short-term as an increased number of users sign up but may put pressure on margins as the average revenue per user would likely decline while expenses would remain consistent or higher (in the event of a new marketing spend).

The downside is that this is a familiar path for the telecom providers that initially had contracts for their original services before being forced to take them down thanks to increased competition. The unlimited services are expected to meet the same fate eventually as prices continue to be lowered and contracts eliminated. Once these wireless services have switched to more of a staples service, they will likely meet the fate of phone companies now that operate on razor-thin margins and are forced to come up with new features in order to compete.

Investors may be better off looking at handset makers if they wish to benefit from this industry. Unlike services, handsets must be replaced every few years while rapid growth in emerging markets is maintaining and accelerating growth in many companies. Additionally, companies like Motorola are being targeted by activist investors bent on unlocking value for shareholders and converting them to more pure-plays in order to benefit directly. In the end, the industry as a whole is commoditizing and that means slower growth, smaller margins, and increased competition… it may be time for some investors to move on…

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Herzfeld Caribbean Basin Fund, Inc. (NDAQ: CUBA) shares are up sharply today on news that Fidel Castro has stepped down from Cuba’s top post. The fund is a non-diversified closed-end management investment company with a focus on investing in issuers located in Caribbean Basin countries, including Cuba. Obviously, any normalization of U.S.-Cuba relations would be a massive boost to the troubled Cuban economy which could be flowing in U.S. vacation dollars. In the past, the normalization of these relations seemed like nothing but a distant dream, but many are now speculating that this change in power could put a timeframe on the event. So, is Herzfeld worth watching?

The first thing to remember is that Fidel Castro’s step down from power does not necessarily mean that U.S. relations are imminent. After all, Fidel’s own brother Raul is the one that will be in power and there is no guarantee that he will do anything to mend relations with the country’s powerful neighbor. The good news is that many believe that the younger Castro brother will consolidate power and free him up to pursue soem kind of slow overhauls aimed at opening up the country’s closed economy and perhaps even its closed society. Indeed, Wall Street expectations proved to be very high today of an economic overhaul in the country at some point over the next few years.

There is also talk among U.S. politicians that changes be implemented back at home to encourage foreign travel and trade with the communist country. “We have had a bad policy for nearly 50 years for bad reasons that have nothing to do with Cuba,” said Democratic Representative Charles Rangel. Similar sentiment is shared by others who support lifting the travel ban on the country along with the trade embargo at some point in the future. After all, the U.S. trades freely with other communist countries like China with little regard for politics - why should Cuba be any different?

The second thing to remember is that this stock is extremely volatile as the company recently had a float of just 1.7 million shares and a market cap of $12.5 million before a rights offering doubled the number of shares. Additionally, the thin daily trading volume can also make swings much larger than they should be. Unfortunately, there aren’t many better options out there that are better exposed to Cuba in particular, which means that investors may have to stick with this stock for the time being. However, it may be wise to hold off on investing in this particular fund until shares return to normal levels.

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ECtel Ltd. (NDAQ: ECTX) is a small telecommunications firm that is starting to generate some big waves as the leading provider of revenue assurance solutions. The company’s flagship fraud management and revenue assurance products, collectively known as FraudView, leads the market and helps telecom operators reduce their financial risk while driving increased customer satisfaction and revenues. Recently, ECtel expanded its offerings to include its Integrated Revenue Management (IRM) platform, which features credit and risk monitoring, quality of services business impact analysis, roaming assurance, and business intelligence tools for enhancing profitability and scoring. Together, these solutions can help telecom operators improve their profitability and customer service.

ECtel shares moved up over 6 percent today after the company announced that its new offerings were paying off. The telecommunications company reported that throughout 2007 it received a total of 12 orders for new systems of its Integrated Revenue Management solutions. The new clients are reportedly some of the most well-known and respected telecom service providers from Europe, Asia and the Americas, including Tele2, CAT Telecom, and Rostelecom. Meanwhile, the company’s flagship FraudView product also remains strong with over 75 deployments worldwide, boasting the industry’s largest installed base for wireline and wireless operators and the market’s first solution supporting 3G and VoIP networks.

“In 2007, we continued to see strong demand for our Integrated Revenue Management solutions from international telecom operators, strengthening our position as one of the leading revenue management companies in the world,” said Mr. Itzik Weinstein, President and CEO of ECtel. “The complexity of today’s telecom market makes it essential for operators to install an effective revenue management platform. ECtel’s solutions provide our customers with crucial insight into their revenue chains, allowing them to save money and run their businesses as efficiently as possible.”

ECtel is also trading at an attractive valuation for a company with an industry-leading product. The company has almost have of its market value in cash - $1.40 per share - while maintaining a book value of around $2.71 per share. Despite its negative growth in recent years, the company does appear to be headed towards a turnaround with its new strong product offerings. If it succeeds, the cash stockpile it has will no longer be in jepardy and its share price will likely increase to reflect that fact. Right now, the firm is trading at some of its lowest levels of the year and may be a stock worth watching!

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Wal-Mart Stores Inc. (NYSE: WMT) has been mentioned in two articles over the past few days on SECInvestor.com, and for good reason - as the world's largest retailer with a $200 billion market capitalization and $350 billion in annual sales Wal-Mart has innumerable impacts on other companies and the U.S. economy as a whole. Today, it reported results that bode well for its future and the U.S. economy but not so well for its competitors, as Wal-Mart beat analyst predictions about its fourth-quarter earnings.

For the quarter ending January 31st, the company saw earnings grow 5.1% to $4.1 billion from $3.9 billion for the same quarter last year. The results were largely due to an 8% increase in sales to a staggering $106.3 billion - a record quarter for the company and the first time it cracked the $100 billion mark in quarterly sales. Interestingly, these results came even though consumer confidence in the economy continues to erode.

"Clearly our underlying operational performance exceeded the expectations we had at the beginning of the quarter,'' Chief Executive Officer H. Lee Scott said, admitting that to maintain it the economy will "be a critical factor."

Wal-Mart has been able to drive sales and foot-traffic from its expanding grocery and electronics businesses. Though the grocery business is notoriously low-margin, Wal-Mart is in the unique position to be able to attract customers with its expanded food offerings but monetize the traffic with its other product offerings.

Despite these promising results, when a company is nearing $400 billion in annual sales how much sales or profit growth is realistic moving forward? Wal-Mart management is in the unique position of having tremendous brand-recognition and traffic advantages, but they are also in the unenviable position of trying to further leverage those advantages to grow already huge results - with shares up only about 1% the market sentiment seems mixed on the future.

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Barington Capital is an activist hedge fund that has never had a bad investment, according to Dealbreaker magazine. The firm recently filed its Schedule 13F-HR filing with the SEC detailing its current holdings. Unfortunately, Barington has been holding many of its stocks for a long time which means that it may be too late for investors to trade alongside the firm. Luckily, the recent economic downturn has pushed many of these stocks down off their highs and may give investors and opportunity to invest alongside one of Wall Street’s greats. So, without further adieu, here are some of Barington’s top holdings for your consideration!

Barington’s largest holding is The Pep Boys - Manny, Moe & Jack (NYSE: PBY) in which it has a stake worth approximately $64,586,000. The automotive retail and service chain has been beaten down nearly 50 percent off of its highs of $22.49 trading now at just $11.45. The company has been struggling since it announced that its losses widened it would close stores, and reduce staff in November of last year. Recently, Pep Boys struck a deal with Lanelogic to enable its customers to sell used vehicles, which many analysts believe will boost profitability for the struggling company. Meanwhile, the Chairman of the Board also picked up 50,000 shares ahead of the announcement. And finally, the same strong fundamentals that prompted hedge funds like Barington to take a stake in this company still exist, making it a stock that is definitely worth watching!

Barington’s second largest holding is Lancaster Colony Corp. (NDAQ: LANC) in which it holds a $60,606,000 stake. The manufacturer and marketer of specialty food products is down about 25 percent off of its highs, but recently reported strong earnings that have sent shares higher. The company has also been buying back its own shares and eliminated and has very little debt. Activists made big money in this stock back in 2007 when the company divested its automotive accessory divisions. Its willingness to unlock value and strong fundamentals despite a troubled economy has made Lancaster a stock that is definitely worth watching!

Barington’s third largest stake is in A. Schulman, Inc. (NDAQ: SHLM) in which it holds $51,019,000 worth of stock. The stock is trading about 20 percent off of its highs for the year, but recently announced steps that it was taking to improve its profitability in North America. The company plans to shut down its manufacturing facility in St. Thomas, Ontario and to pursue a sale of its plan in Orange, Texas. This consolidation of production will improve overall capacity utilization and restore long-term profitability and stead growth to its North American operations. There has also been some speculation that the Schulman may pursue strategic alternatives after Ramius Capital installed two board members while Barington still holds a large stake. Combined, these factors make SHLM a stock worth considering!

Barington also holds stakes in Consolidated-Tomoka Land Co. (AMEX: CTO), Convergys Corp. (NYSE: CVG), Dillards Inc. (NYSE: DDS), Fisher Communications Inc. (NDAQ: FSCI), Griffon Corp. (NYSE: GFF), Macy’s Inc. (NYSE: M), and Syms Corp. (OTC: SYM). In the end, these are all stocks worth watching given the activist hedge fund’s impeccable record of success, especially given that many of them are now available at bargain basement prices!

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SourceForge, Inc. (NDAQ:LNUX) is starting to feel the pressure from a large institutional shareholder calling for the web services company to unlock value through a share buyback. Trivium Capital Management, which owns a 10.1 percent stake, recommended on many conference calls and discussed with management the possibility and importance of a stock buyback. Many investors are grateful for the intervention as they have had similar concerns about the company’s overcapitalization and fear that it may make acquisitions that could hurt it going forward.

The activist hedge fund argues that SourceForge has gone through many transformative changes during the past year, but the overall business plan has been mediocre at best. This has resulted in a modest enterprise value of $60mm with a total market capitalization of $120mm, leaving the equity value of the business at $60mm. Clearly, this is unacceptable in terms of the valuation metrics that Wall Street is ascribing to the business prospects of the firm. The board has a fiduciary responsibility to shareholders to close this valuation gap and enhance shareholder value.

Trivium suggested that a share buyback may be the best option as it could result in a stock price between $5 and $15 per share. A share buyback is also seen as necessary given that its 2008 to 2010 earnings are seen to be highly accretive to EPS; the company has excess cash that stands at about 50 percent of equity value; it would send a message to investors and employees that the company believes in itself; and it might increase the share price which would benefit shareholders. For these reasons, the activist hedge fund recommends that the company pursue an initial 10 million share buyback and consider selling Collabnet in order to fund additional buybacks.

In the end, Trivium understands that economic times are difficult and SourceForge is in a transitional phase, but still insists that they should look to unlock value rather than pursue acquisitions. Moreover, if the company is unable to execute in 2008 and 2009, the hedge fund believes that management should pursue strategic alternatives, which could include a sale of the company. Combined, these factors make LNUX a stock worth watching closely over the next few months!

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Toshiba Corporation' (OTC: TOSBF) promotion of its HD DVD format as the successor to DVD is seen as coming to an end. HD DVD and Sony Corporation's (NYSE: SNE) Blu-ray format both offer superior sound and audio quality as well as total data capacity compared to DVDs, but they were fighting eachother to become the accepted standard in what amounted to an updated version of the Betamax versus VHS war of two decades ago.

Originally the battle was seen as a stalemate with no clear edge for either HD DVD or Blu-ray technologically or from industry support, but this changed rather abruptly in the last few weeks with Warner Bros. Studio announcing it will only release movies in Blu-ray followed by Wal-Mart Stores (NYSE: WMT) decision to stock only Blu-ray movies and players. This left Dreamworks Animation Studios, Universal Studios and Microsoft Corporation (NASDAQ: MSFT) as the only major backers of HD DVD.

Though about one million stand-alone disc players have been sold for each format, the inclusion of a built-in Blu-ray player in the Playstation 3 was seen as a major gamble that may now pay-off for Sony. The entire movie market is also anxious to see a format winner decided as consumers are hesitant to buy either standard when there is a chance the equipment and discs will become obsolete.

Toshiba has not made an official announcement saying it will discontinue its HD DVD format, but an anonymous insider at the company says the anticipated move will likely come at a meeting tomorrow. Despite having sunk billions of dollars into the format, Toshiba's stock responded positively to the speculation because with HD DVD all but dead investors want to see the company cut its losses and instead move money into areas of its core competency such as computer chips, especially flash memory.

So, who are the winners and losers in Blu-ray's victory? Well, Sony is the most obvious big winner as it owns the format's technology and its PS3 is seen as getting a sales advantage because it includes the player. Indirectly, all movie studios and retailers will benefit as consumers are much more willing to invest in a new technology once it becomes the standard. The biggest loser is Toshiba, but the extent of the loss will really be determined by how the company rebounds and invests its newly freed capital - after all, Sony lost the last standard battle with its Betamax format but it not only survived but thrived.

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GenCorp Inc. (NYSE:GY) is taking fire from several activist hedge funds bent on unlocking value in the company’s shares. Pirate Capital, Carl Icahn, Steel Partners, and Sandell Asset Management have all taken stakes in the defense company and pushed for changes in order to unlock value for shareholders. This “who’s who” list of activist investors has many believing that changes may finally be implemented to help jump the company’s lackluster share price. So, should you look at picking up some shares of GenCorp?

Warren Lichtenstein’s Steel Partners has been a GenCorp shareholder for several years and first agitated for change in December of 2002. The activist hedge fund continued the assualt that culminated in a $700 million bid for the defense company in 2004. The company then issued new stock that effectively raised the takeover price by $127 million and Steel Partners withdrew its bid. Shortly after, Lichtenstein announced his first proxy contest that was eventually dropped when the company added a corporate governance expert to its board. Now, Steel Partners is renewing its push to unlock value by nominating a new slate of six directors that they believe can help unlock value.

Thomas Sandell’s Sandell Asset Management is another activist hedge fund that began its push for changes in March of 2005. The firm requested that the company make more changes to improve governance and also sell a chemicals unit. More recently, the hedge fund demanded that the company remove its anti-takeover measures and allow large shareholders to call special shareholder meetings. Clearly this would lend more credibility to the board, but would also open the door for hedge funds like Steel Partners to step in the door.

Thomas Hudson’s Pirate Capital was yet another activist involved with the company back in 2006 when it nominated its own directors to the company’s board of directors. The move was mollified when the company agreed to abandon its “poison pill” anti-takeover protection, but Pirate succeeded in winning three seats. Pirate noted that the company had substantial value tied up in its real estate that it believed should be unlocked through a strategic transaction. In particular, the hedge fund was interested in the company’s Sacremento real estate holdings.

In the end, there are a lot of activists circling around this stock. No doubt, Steel Partners is most interested in unlocking GenCorp’s real estate value while Sandell is bent on making governance changes and selling a chemical unit. Whether or not the hedge funds will succeed in getting their wishes remains to be seen, but this is definitely a stock that is worth watching over the next few months - with three activist involved, the odds of change are much higher!

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Best Buy Co. (NYSE: BBY) is the 800-pound gorilla of electronics retailers with a market capitalization of nearly $20 billion and a stellar record of revenue and earnings growth – but today its CEO admitted that it is not immune to a weak economy.

Brad Anderson, Best Buy's CEO and Vice Charmian, said in a statement that, “Soft domestic customer traffic in January, coupled with our near-term outlook, now indicate that our fourth-quarter revenue will fall short of our planned targets.”

The effect of lower fourth-quarter revenue projected into this year means that Best Buy is expecting 2008 earnings of only about $3.05 per share compared to previous guidance of $3.10-$3.20 per share.

Given an undeniably weak economy led by a dangerous housing market situation, lower guidance and weaker sales are no surprise, but Best Buy's response certainly is: the company plans on continuing to expand its U.S. retail space by 10% this year. There is certainly logic to this contrarian move in the spirit of Warren Buffett's advice “Be greedy when others are scared,” and Best Buy thinks it can leverage its strong brand and recently updated store format into new customers and sales even in a poor economy by cannibalizing business from competitors like Circuit City Stores Inc. (NYSE: CC). But, though Best Buy is certainly in a better position than Circuit City, taking sales from rivals only works to buoy growth if the total number of sales in the sector don't shrink too much – if the sales pie gets small enough it doesn't matter how many pieces you get, growth is still in trouble.

More than counting on a superior business, Best Buy executives have said they remain “upbeat about the long-term outlook,” but is this optimism justified? Interim Chief Financial Officer of the company, Jim Muehlbauer, admits that “The macroeconomic environment grew more challenging after the holidays [leading to] our post-holding results [not being] what we originally expected.” What should confuse investors is what makes CEO Anderson or CFO Muehlbauer think the “macroeconomic environment” is going to turnaround any time soon. As a commentator for the WSJ noted, foreclosed homes don't need home theaters with $2,000 flat-screen TVs.

A discussion of the company's prospects wouldn't be complete without mentioning the 800-pound gorilla of all retailers – Wal-Mart Stores Inc. (NYSE: WMT). Wal-Mart continues to expand its electronic offerings while stealing market share from specialty retailers across all sectors. With Best Buy under assault from not only the U.S. economy but the biggest corporate driver of the economy, now might not be the time to be greedy.

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