MGM Mirage (NYSE: MGM) is making headlines today after quadrupling its fourth-quarter net income on strong casino performance combined with a huge outside investment. Net income climbed to $872.2 million from $201.6 million a year ago with revenue increasing 4.5 percent to $1.93 billion, both of which exceeded analysts' estimates. These results were partially driven by a 5% increase in hotel revenue, a 2% increase in gambling revenue, and a 17% increase in lucrative baccarat volume.

Though MGM's core businesses of resorts and gambling seem strong, especially given the economy, they fail to account for the monstrous climb in net income. Instead, it was largely helped by Dubai World's $3 billion investment in MGM related to its CityCenter project - a new mega-resort on the Las Vegas Strip. This investment led to a one-time gain for MGM of $1 billion.

"Even while closing on the most historic transaction in our company's history - the CityCenter joint venture and strategic relationship with Dubai World - our dedicated employees delivered exceptional operating results," CEO Terry Lanni said, noting that the company is "ideally positioned to excel domestically and internationally." Though the deal with Dubai World is ironic given that gambling is banned in Dubai, most analysts agree that the partnership is good for MGM because of Dubai World's very deep pockets and extensive experience with real estate projects.

MGM is seeking such partnerships as it attempts to expand its existing Las Vegas holdings but enter into Atlantic City and abroad. MGM now sees itself not as a casino operator but a resort brand, and it is attempting to leverage that brand in new markets.

MGM operates resorts such as the Bellagio, Mandalay Bay and Circus Circus in Las Vegas, the MGM Grand Detroit aptly located in Detroit, and a casino property in the Asian gambling mecca Macau. Though gambling revenues are notoriously unpredictable, MGM is positioning itself strongly across markets through strategic partnerships and may preform accordingly in the coming years.

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Concord Camera Corp. (NDAQ: LENS) has more to worry about than a cold market as activist shareholders are now (in so many words) calling for an outright sale. The camera-maker has experienced steep declines in sales and margins that have resulted in over fifteen consecutive quarters of losses. This prompted the company to pursue its own evaluation of strategic alternatives as many are speculating that a financial buyer may be willing to step in and acquire the company at a premium. So, does this make LENS a buying opportunity before such an announcement?

Concord is engaged in designing, developing, manufacturing and selling single-use and 35-millimeter traditional film cameras. The firm manufactures the cameras in China and hands them over to retail distribution partners who put them on store shelves around the world. This is a market that still exists thanks to tourism, but faces steep declines in sales as digital cameras continue to replace traditional film cameras. Worse, the company is operating on razor thin margins due to its middle-man nature that makes it hard to compete effectively on price with a growing number of manufacturers that are doubling as distributors.

Everest Special Situation Fund recently purchased a five percent stake in the company and communicated their belief that Concord shares are extremely undervalued despite poor operating performance. The activist fund believes that the company is in an excellent position to initiate “substantial changes” to its business. To this end, the board of directors announced that their special committee established to explore strategic alternatives was close to making a decision. However many investors, including Everest, are worried that the result may be that the company is best off taking the lonely road rather than pushing for a sale.

Everest demanded (in so many words) a sale in its February 20th letter to the board. The fund noted that it has collaborated with a number of companies in situations similar to Concord’s in the past, acting as a liaison between investors and acquiring companies. Everest urged the board to utilize their expertise and pursue strategic alternatives or else they would seek representation on the board to protect their rights as stockholders and unlock value. Clearly, many people are looking for Concord to put itself up for sale at this point in order to reverse its sixteen straight quarters of losses and maximize value for stockholders. Indeed, privatizing the company alone would substantially reduce expenses for a company with a market cap of just $25 million!

In the end, Concord is a company that may be of interest to a financial buyer as its shares are extremely undervalued. In fact, privatization alone would likely save the company enough money in public company costs to justify a takeover. Many shareholders are in support of such a decision, but fear that the company may put up a fight before pursuing alternatives. Combined, these factors make LENS a stock worth watching closely over the next few months!

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The Procter & Gamble Company (NYSE: PG) recently announced that it would split off its Folgers coffee division into a stand-alone company. The conglomerate would offer its shareholders the opportunity to participate by exchanging their P&G shares for stock in Folgers. Interestingly, many analysts are expecting P&G to sweeten the deal by offering an attractive rate of exchange on Folgers stock to draw interest in the new company. This has many opportunistic investors watching to see just how sweet the deal will be as it could represent a great investment opportunity. So, is this a stock worth watching for your portfolio?

Foldgers will be a single product company in a difficult market once it splits off from its parent. The coffee maker may dominate the ground-coffee market in the U.S. with $1 billion in sales, but it is quickly losing ground to specialty coffee makers as demand for its plain-vanilla coffee is declining. Competitors like Starbucks Corporation (NYSE: SBUX) are stepping in to take their place. In fact, many are speculating that P&G is divesting the segment because its sales growht is below that of the conglomerate’s annual target. Foldgers will likely face a difficult market on its own and may require some work in the future before it can start posting impressive growth numbers.

So, why is Foldgers such a great deal then? The first thing to consider is that P&G will likely be forced to offer an attractive valuation that will provide some immediate returns to shareholders. Secondly, the coffee maker may attract some interest in this financial environment because it is in a sector that is relatively insensitive to economic problems. Third, Foldgers will have a market cap small enough to make it a potential acquisition candidate for foreign companies looking to leverage the cheap dollar. And finally, spin offs statistically tend to outperform the overall market during their first two years for a variety of reasons.

In the end, it is likely that most P&G shareholders will opt out of exchanging their shares because they like the safety of P&G. However, there are many catalysts that could propel this new company to new highs and this may be a great opportunity to get in at a steep discount. Combined, these factors make PG a stock worth watching closely as it moves closer to splitting off its Foldgers division!

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IONA Technologies plc (NDAQ: IONA) shares moved up on the day after the company announced that it had hired Lehman Brothers to evaluate a broad range of strategic alternatives that could include a sale or merger. The stock is trading nearly 50 percent off of its 52-week highs after becoming one of Ireland’s top technology success stories back in the dot-com boom. Since then, shares have declined and many investors are now looking for some kind of catalyst in order to unlock value in the stock. So, is this evaluation of strategic alternatives the answer that shareholders have been looking for?

IONA grew from obscurity in the distributed computing group labs at TCD to a major player that counts large corporations like Boeing among its clients. In fact, the middleware technology firm became the fifth largest NASDAQ IPO of its time in 1997. The company withered during the technology downturn, however, and is now struggling to retain profitability despite new software and a series of acquisitions in the space. IONA’s most recent earnings report showed a loss of $1.7 million for 2007 compared with a profit of $3.6 million a year earlier. Since the company’s revenues only declined modestly, this can be attributed to rapidly shrinking margins that could continue to erode value until something changes.

Takeover speculation has filled the gap left by under performance and recently sent shares substantially higher. Earlier this month, the company confirmed that it had received an unsolicited “expression of interest” from a third party interested in acquiring the firm. Now, the company is taking the process one step further and launching a full-out evaluation in order to find the best possible price for any acquisition. There is no guarantee that a sale will result, but with a professional advisor shareholders can be sure that the best value will be sought. In the end, this could make IONA a stock worth holding.

The question then becomes: How much is IONA worth in the event of a takeover? Well, the company has very little to offer an acquiring firm financially, but it does have no debt and valuable technology. The company is also solid in terms of its revenues but is struggling with share compensation and other expenses that can be easily cut by an acquirer. As a result, the company’s technology and customer base may warrant a takeover price based on revenues instead of the usual EBITDA. This could mean a buyout price 25% to 30% higher than the current market price. Combined, these factors make IONA a stock worth watching!

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Wendy’s International (NYSE: WEN) shares are well off of their 52-week highs of around $42.22 but the company is moving forward with its turnaround plan while an activist investor is still pushing for a sale. Management is now facing a race against the clock to prove that it can remain a viable investment on its own before billionaire activist investor Nelson Peltz makes his second run at the board in an attempt to take over and sell the company. Luckily, shareholders benefit from either situation and it has never been a better time to own Wendy’s!

Wendy’s announced new plans today to roll out inexpensive sandwich wraps and a new hamburger to jump start sales as the U.S. economy weakens. The fast food chain acknowledged that the consumer environment has changed drastically from a year ago and is now focusing on growing the top line through unique new offerings. The chief executive is focused on ending five years of declining traffic with its most aggressive new product line-up since the mid-1990’s. Meanwhile, the company is also continuing to improve its bottom line by focusing on raising margins by restructuring and controlling costs. Some of these efforts have been seen in recent earnings, but the company still has a long way to go towards any meaningful turnaround.

Wendy’s has also been weighing a sale since June 2007 under pressure from billionaire activist investor Nelson Peltz, who owns nearly 10% of the company and is now seeking control after failing to successfully purchase it. Peltz announced his plans to overhaul the company’s board of directors on February 11th when he nominated his own slate of directors in a regulatory filing with the SEC. The legendary activist proposed expanding the board to 15 members and nominating six in a move that would give him effective control over the company as he already control three seats since 2006. Given his prior pushes towards a sale, once can assume that his motives have not changed and that he will push to sell the company at an attractive price.

In the end, this is all good news for shareholders who have nothing to lose and everything to gain is Nelson Peltz successfully takes over the company while the company itself is already working on a turnaround in case the move falls through. Wendy’s is a stock in transition and it will be interesting to see what happens to it over the next few months as the next annual meeting approaches. Combined, these factors make WEN a stock worth watching!

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3Com Corporation (NASDAQ: COMS) is down 20% in midday trading due to the seemingly collapse of its acquisition by Bain Capital LLC. The deal fell apart because a little-known wing of the Treasury Department known as the CFIUS appeared likely to block the acquisition.

3Com is a billion dollar company that has seen better days but still has a valuable business providing secure network solutions, which is exactly why the CFIUS didn't like the proposed $2.2 billion deal. Bain Capital LLC partnered with the Chinese company Huawei Technologies to purchase 3Com, and though Bain would have had the lions share of the equity, over 80%, Huawei's stake concerned the Committee on Foreign Investment in the U.S. or CFIUS.

Huawei, the largest network company in China with strong ties to the country's Communist government, has been accused in the past of selling communications equipment illegally to rogue states such as Saddam Hussein's Iraq. In addition, the company raises concerns even superficially as it is run by a former Chinese Army Officer.

3Com provides some network security solutions to the U.S. Defense Department, and with Chinese hackers seen as a major threat to U.S. infrastructure this acquisition was a hot political issue. In fact, the senior Republican member of the House Foreign Affairs Committee even sponsored a bill to specifically prevent 3Com's sale.

Under such scrutiny, Bain decided to drop its request for approval of the deal by the CFIUS, effectively meaning the deal is dead in its current form. The problematic Defense Department business is actually done only by a small wing of 3Com known as TippingPoint, and there is a possibility the deal could be renegotiated to exclude that unit.

3Com's CEO Edgar Masri said "We are very disappointed that we were unable to reach a mitigation agreement with CFIUS for this transaction,'' but that 3Com and Bain "remain committed to continuing discussions.''

It is possible that a deal could still be done given that TippingPoint accounts for only 8% of 3Com's revenue, but in a slow economy with 3Com trading some 40% below the proposed acquisition price, Bain might be just as happy to let the deal die for the time being.

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Crocs, Inc. (NDAQ: CROX) shares fell sharply today after the company announced an 84 percent jump in profits on revenues that nearly doubled on international demand, but reaffirmed a 2008 outlook below Wall Street expectations. Momentum stocks like these trade largely on expectations in addition to physical numbers. Unfortunately, there were problems with both today as the stock sank more than 10 percent mid-day as shareholders consider whether or not the company will be able to keep up its stellar track record of success. So, is Crocs a stock worth a look now or is there more downside?

The first thing to consider is valuation. The valuation of a high-growth company is often set by its expected growth in addition to its actual performance. This is why high-growth companies like Crocs can drop when reporting spectacular results - it depends largely on expected growth rather than actual performance. The reaffirmed 2008 guidance in this case was not what many investors were expecting. This is clearly visible if we take a look at the company’s historic PEG ratio, which shows in plain view that investors were expecting much faster growth. Meanwhile, if we take a look back at the company’s earnings announcements, we see that its earnings surprises are slowly declining and now risk being flat or negative with a reaffirmed guidance.

Crocs’ earnings call also gave some valuable insights into why the firm’s shares dropped so dramatically. Analysts were most concerned about a 27.2 percent rise in inventory build-up during the third quarter. The company ended the fourth quarter with $248.4 million - up $195.3 million from the end of the third quarter. Management defended the build-up by arguing that they have chased demand since inception and felt that the planned build-up was necessary to meet first half forecasted customer demand. However, the carry cost of excess inventory - that is, warehousing and distribution costs - can be steep and may end up costing the company big money if they are wrong during future earnings announcements.

All of that being said, Crocs currently trades at just 10x forward earnings, which is far below that of its peers. The company also has a strong product line and expects to see continued growth through 2008 despite a decline in the U.S. economy through strong international growth that is already showing up in today’s announcement. In the end, Crocs carries a lot of risk with its slowing earnings and large inventory, but the stock is trading at historically cheap levels. In the end, it is clear that growth is slowing but the concern is that management may not realize it and be overbuilding inventory…

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The Brink’s Company (NYSE: BCO) directors may face some competition during this upcoming proxy after MMI Investments unveiled its own slate of board candidates in a PRE14A filing with the SEC. The activist hedge fund charges that the security company’s valuation has chronically lagged its peers while management has failed to address the issues of strategic configuration that have caused this under-performance. MMI contends that its nominees are highly qualified and committed to selecting and executing the strategy that will maximize shareholder value. So, is Brink’s worth a second look now?

MMI Investments currently owns approximately 8.4 percent of Brink’s with other activist shareholder holding additional substantial stakes, which increases the chances of success in this particular scenario. The activist hedge fund believes, as many others have in the past, that has a best-of-breed portfolio of assets but is chronically undervalued thanks to a “conglomerate discount”. Activist hedge funds have long recommended that the company spin-off its various divisions in order to unlock value for shareholders.

MMI’s proposed slate of directors are totally committed to the creation of shareholder value and have the necessary experience and skillsets to execute on that commitment, both operationally and strategically. They offer substantial expertise in the security industry and have the strategic vision to value creation. Translated: Not only will they push for a spin-off, but they will also effectively oversee the various resulting companies and/or obtain the most favorable pricing in the event of a sale of any divisions. Combined, these factors make Brink's a stock worth watching with the upcoming board of directors!

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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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