E*Trade Financial Corporation (NDAQ: ETFC) shares dropped more than 12 percent today after newly appointed chief executive Donald Layton announced that there are no plans to sell or break up the troubled online brokerage in an 8-K filing with the SEC. The troubled firm likely experienced some difficulty attracting a buyer with some $12 billion in troubled home equity loans on its books that may still present a going concern risk. Meanwhile, the firm is also facing lower revenues and higher expenses stemming from a mass exodus of its brokerage clients amid concerns about liquidity. So, is E*Trade a potential turnaround play or a hopeless cause?

E*Trade began its fall from glory when it announced massive write-downs related to its exposure to subprime mortgages that currently stand at around $12 billion. Private equity firm Citadel infused the troubled brokerage last year with $1.7 billion in debt to keep it alive, but many are still concerned that the firm could be insolvent in another quarter or two if write-offs continue at their current clip. Meanwhile, E*Trade continues to struggle with keeping its brokerage clients onboard, which is putting pressure on both its earnings and liquidity.

Despite these problems, many shareholders are finding hope in E*Trade’s new chief executive Donald Layton. Mr. Layton retired from JPMorgan in 2004 after 29 years where he supervised investment-banking and retail operatations at the bank. Since joining E*Trade, he has won praise for the way he tackled the mortgage mess and helped put the company on firmer financial ground. He also helped enact last month’s appointment of Robert Druskin to the brokerage firm’s board, which may end up paying some dividends in the future.

The price drop seen today is evidence that many shareholders were looking or a quick-fix in the form of a sale. There was speculation that E*Trade would break up its bank and brokerage business and sell them off, but Mr. Layton quickly rejected the notion saying that the ideas are “not practical and do not work”. Instead, he remains focused on being good, long-term fiduciaries focusing on shareholder value. He did caution, however, that the road would be a long one that would likely see lower earnings and liqudity pressures before spectacular results.

In the end, E*Trade is still facing some substantial issues, but it now has a great new chief executive and is hoping to turn things around. The road is likely to be long and dangerous, but investors willing to stick it out may see substantial gains. However, it may be prudent to wait until we figure out just how bad the $12 billion home equity portfolio losses will be before initiating an investment. Combined, these factors make ETFC a stock worth watching over the next year!

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Norwegian firm StatoilHydro (NYSE: STO) announced it's paying at least $1.8 billion to Anadarko Petroleum (NYSE: APC) for stakes in oil exploration and extraction projects in Brazil and the Gulf of Mexico.

StatoilHydro said it's paying $1.8 billion, and as much as $300 million depending on the market price of oil, to Anadarko Petroleum. StatoilHydro gets the 50% interest it didn't already own in the heavy oil Brazilian Peregrino project in return. StatoilHydro also gets a 25% interest in a deep-water oil platform in the Gulf of Mexico from Anadarko - slightly more than half of the platform is owned by BP (NYSE: BP).

"This acquisition strengthens our position in Brazil and adds an important new legacy operatorship to StatoilHydro's international portfolio. We are establishing leading positions in attractive core areas. This is exactly in line with the strategic roadmap we presented at the Capital Markets Day in January - here focusing on deep water and heavy oil," said StatoilHydro's Peter Mellbye, Executive Vice President for International Exploration & Production.
 
The Brazil project, estimated to begin production in 2010, is estimated to have at least 500 million barrels of oil, but StatoilHydro plans on stretching that number by improving the oil recovery factor.

StatoilHydro doesn't expect the Gulf of Mexico project to improve its profitability for some 6 years, but the acquisition is in line with its focus on increases its long-term reserves.
 
Anadarko said the offer was unsolicited but it was happy to complete the transaction and use the capital to invest in existing projects. Anadarko CEO Jim Hackett said, "With our anticipated double-digit production growth in the Rockies and the inventory of high-impact projects in our development pipeline, we are confident in our ability to achieve our targeted production growth rate of 5% to 9% annually - combined with organic reserve growth - over the next five years."

It remains to be seen which company got the better end of this deal - StatoilHydro need the increase in reserves and analysts estimate, based on current production projections, that it paid a very reasonable price for the projects; however, oil exploration is always a gamble.

Both StatoilHydro and Anadarko are down slightly on the news.

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Bond insurer MBIA, Inc. (NYSE: MBI) seem to be dropping like rocks, but that isn’t deterring respected value investor Martin Whitman’s Third Avenue Funds from increasing its stake in the company. The move pits him directly against the famous activist investor Bill Ackman’s Pershing Square, which has taken an aggressive short position in the bond insurers and sees imminent bankruptcy. So, where should you place your bets?

Whitman believes that there is much profit to be made in the bond insurers, whether they continue as going concerns or write no new policies and sell off their existing business. The value investor, known for buying up questionable assets, currently holds around 10 percent of MBIA. Whitman insists that the bond insurer is very well financed and it should easily qualify for an AAA rating with a $17 billion claims paying ability. The value investor went on to say that the MBIA is being victimized by a “well organized bear raid” headed by Ackman that is preventing it from winning a stable outlook.

Whitman believes that MBIA shares are currently trading at a 70 percent discount to tangible book value and represent a great investment opportunity. The value investor also believes that the company will be able to raise the cash that it needs to pay any upcoming claims. In fact, Whitman himself has put in over $300 million and now counts the company among his fund’s largest holdings. Meanwhile, the company itself is saying that the $3.7 billion mark-to-market loss on credit derivatives is completely reversible if the market doesn’t deteriorate any further. Obviously, any reversal in the losses and increased liquidity bodes well for the troubled firm.

Bill Ackman has taken the opposite stance, having been bearish on MBIA for around five years. He warned investors back in the 90s that the company’s collateralized debt obligations (CDOs) may put its Triple-A rating at risk and now his predictions are coming true. The activist investor also brought up several “questionable transactions” that involved insuring a loss after the loss and then collecting on the insurance. Ackman even decided to write a 60-page paper entitled “Is MBIA Triple A?” in December 2002 shortly before these problems began.

Ackman estimates that the bond insurer faces more than $11 billion of potential losses, which would make it nearly impossible to avoid bankruptcy if it does not find a substantial amount of outside capital. The activist investor took a particular interest in the holding companies, reasoning that if the bond insurers’ holding companies were deprived of cash flow, their ratings would fall, and their operating units’ ratings would fall as well. In fact, Ackman remains convinced that these companies will be forced into bankruptcy if they are not bailed out.

In the end, the reason these two great investors are at ends is a debate over liquidity. The crisis facing MBIA is not one based on losses perse, but rather one of how much loss they can handle before they are forced to sell. The fact is that nobody knows how much worse the credit markets will get and, as a result, how much lower these CDO valuations will become. Ackman estimates that claims will reach $11 billion, which would cause huge problems for MBIA. Meanwhile, the company itself and Whitman believe that the market will turn sooner than later and reverse Ackman’s fortune. Regardless, this is definitely a situation worth watching as two of the world’s best investors take opposite sides!

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Circuit City Stores, Inc. (NYSE: CC) directors may be forced to fight for their job after a major shareholder proposed an ouster of the entire board in a Schedule 13D/A filing with the SEC. Mark Wattles’ Wattles Capital Management, which owns a 6.5 percent stake, also proposed to repeal any bylaw amendments or new bylaws adopted by the board without shareholder approval. The move follows his sharp criticism of the company’s turnaround plan and push to pursue strategic alternatives mentioned in his previous January 22nd 13D filing. So, is Circuit City a stock worth adding to your portfolio?

Circuit City shares have fallen sharply from their 52-week high of $19.60 per share to their current levels between $3 and $4 per share - its lowest price since the 1990s. Recently, the electronics retailer has attempted to improve its performance by cutting its workforce by 3,400 last year and eliminating $150 million in general expenses. However, it has reported a $300 million loss so far this fiscal year and anticipates a weak fourth quarter despite the supposed benefit of the holiday season. This weak performance has caused many dissident investors to speak up and take action.

Mark Watson, who also founded Hollywood Entertainment, initially disclosed his stake in Circuit City back on January 22nd. The investor hinted back then that he may push for the company to pursue strategic alternatives, including a possible sale, but did not take the fight public until last week. Now, Watson has launched a proxy battle after being rebuffed by Circuit City’s board. His five nominees have a broad range of expertise and seek to replace CEO Schoonover, who moved to the company from Best Buy three years ago but still has not made public his proposal for changes.

“WCM is submitting the foregoing business proposals for consideration at the 2008 Annual Meeting in order to give shareholders a greater voice in the governance and future strategic direction of the Company,” said Mr. Wattles. “We do not believe that the Circuit City Board has been acting in the best interests of its shareholders … WCM [also] has serious questions as to whether the Circuit City Board as currently constituted can provide the best solutions to the Company’s current problems.”

In the end, it is clear that changes are needed at Circuit City. It will be difficult for Wattles to replace the incumbent board given their entrenchment, but the June annual meeting should prove to be one worth watching closely. Wattles has already indicated an interest in pushing the company towards a sale, which is only good news for investors who are facing mounting losses under current management. And at the very least, these dissident shareholders will send a message to the board. Combined, these factors make CC a stock worth following!

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Catalyst Paper Corp. (TSE: CTL) is a producer of specialty printing papers and newsprint in North America, including lightweight coated, uncoated mechanical papers and directory paper. The company recently filed a short-term prospectus in their F-10/A filing with the SEC related to its previously announced rights offering for gross proceeds of C$125.3 million. Under the proposed offering, each shareholder would receive one right per common share that they hold that would essentially give them an option with an exercise price of $0.75 per share. As with many rights offerings, this may be a situation worth watching closely!

Rights offerings are interesting since they can often result in the ability to essentially purchase “call options” for pennies on the dollar. Existing shareholders should always exercise or sell their rights, since their existing holdings will be diluted as a result of the offering. However, there are many investors who do not pay attention and rights offering often have extra securities available that weren’t exercised by shareholders. These extra shares are often made available to existing shareholders to purchase, which obviously represents a great opportunity to obtain the cheap “call option” on the stock.

The second half of the opportunity worth watching is the secondary market for these rights, which will trade on the TSX alongside the normal stock. Many shareholders will take the rights but not exercise them because it requires that they put additional capital into the company. As a result, they sell these rights on the secondary market. This increased selling can put downside pressure on the market price for the rights given the fact that there will likely be limited demand all at once. And this can create an attractive buying opportunity for enterprising investors! Combined, this rights offering is a situation that is definitely worth watching!

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American Express Company (NYSE: AXP) is a global payments, network and travel company well-known for its credit cards and travelers checks. The company has been struggling recently as consumers spend less money and more card-holders default on their monthly payments. However, recent purchases by key insiders are indicating to many investors that the end is in sight. So, is this a company worth putting on the radar over the next few months or simply some overzealous directors?

Director Steven Reinemund purchased 10,000 shares in cash at $45 per share in a transaction worth $450,000 on 02/21/2008, bringing his/her total holdings to 20,000 shares. Meanwhile, Director Ursula Burns purchased 1,000 shares in cash at $44.08 per share in a transaction worth $44,080 on 02/25/2008, bringing his/her total holdings to 16,000 shares. These transactions also follow earlier insider buying on February 11th when director Ronald Williams purchased 5,500 shares at $46.25 a piece. Notably, all of these transactions were “Code P” Form 4 filings, which means that they were voluntary purchases in hard cash rather than as a part of an incentives plan or required purchase.

Many are concerned that a weakened economy will hurt the company given its reliance on consumer spending in order to drive revenues. These concerns have driven the stock down to its 52-week low and caused it to trade at just over 12x earnings. Obviously, this is a cheap valuation but could be deserved if the company is indeed facing further problems ahead. According to its most recent 10-K filing, American Express took a $275 million charge thanks to defaults in its credit card division while adopting “cautious view” for the coming year. The company was forced to revise its estimates for 2008 lower s thanks to slower consumer spending and a sudden rise in defaults.

American Express also announced the sale of its banking subsidiary last week for around $823 million, which equals the net asset value of the target at completion plus $300 million. This sale provides the company with an opportunity to add capability, scale and momentum to its strategically important Financial Institutions and Private Bank businesses. As part of the transaction, Standard Charter (the buyer of the banking business) also has an option to buy 100 percent of American Express International Deposit Co 18 months from today with the consideration payable being the net asset value of the target at the time the option is exercised. This move could provide the bank with even more spare cash for use in other areas.

The future of the economy remains uncertain with rising consumer prices, slower job growth, and a dollar that is rapidly losing value, but the sell-off in American Express may be overdone. Several key insiders have definitely expressed support for the stock at these levels and it may be worth watching given their insider knowledge of the company. Combined, these factors make AXP a stock that is definitely worth following over the next year or so!

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Endo Pharmaceuticals (NDAQ: ENDP) had an interesting week after it received a letter from a large shareholder and announced that it was exploring strategic alternatives in a most unusual way. The news comes after the company reported strong results and continued successes in its core businesses, but seems to be more and more focused on making a large acquisition or pursuing in-licensing deals that has many shareholders up in arms. So, is Endo Pharmaceuticals a stock that you should look at adding to your portfolio?

D.E. Shaw Valence Portfolio LLC, a 9.8 percent owner, demanded in a letter to the board that the company immediately hire an investment bank to explore strategic alternatives to increase shareholder value. The activist hedge fund said in its Schedule 13D/A filing with the SEC that it was concerned that the company is overly focused on the need to complete a large acquisition or in-licensing deal, rather than on optimizing the value of its existing business including lead assets Lindoderm and Opana and the profitable generic pain business. This focus on non-core development activities has shifted the company’s focus away from optimizing its increasingly cash rich balance sheet, which they believe is essential in order to unlock the intrinsic value of the company for the benefit of its shareholders.

D.E. Shaw also continues to believe there is strategic interest in the company on financial terms that a substantial majority of the company’s shareholders would, in their view, fully support. Moreover, the hedge fund believes that the company could leverage its free cash to fund a $1.5 billion share repurchase that could substantially improve its earnings per share. Meanwhile, the company’s most recent 10-K filing just reported high quality results for the fourth quarter for full year 2007, highlighting the strength and momentum of its underlying business and core assets. Clearly, this combination of an EPS increase and growth prospects (which leads to higher multiples) is a situation that makes this company ripe for activism.

Despite these arguments, hopes came crashing down when Corporate Communications Vice President Bill Newbould told a reporter from The Philadelphia Inquirer that the company wasn’t evaluating a possible sale following the letter from D.E. Shaw. However, the company then made a surprise announcement in an 8-K filing that it was in fact working with financial advisors and consultants in evaluating strategic alternatives. Apparently, Mr. Newbould was unaware of these developments and unauthorized to make a statement. As a result, he was removed from his position and shares rose 2.3 percent on the day.

In the end, we now know that Endo Pharmaceuticals is exploring a sale and has a good chance of finding a suitor with the help of activist hedge funds like D.E. Shaw. Moreover, the other actions suggested to leverage up the balance sheet and unlock value that way should also help improve shareholder value. Either way, shareholders stand nothing to lose and everything to gain from these recent announcements. Combined, these factors make ENDP a stock worth watching!

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Nabi Biopharmaceuticals (NDAQ: NABI) is engaged in the development and marketing of products that target medical conditions in the areas of transplantation, infectious disease, nicotine addiction, and hematology/oncology. The pharmaceutical company has been an activist target for some time now and recent developments have increased the likelihood that something may happen to unlock value for shareholders. As a result, this company is one that is definitely worth putting on the radar.

Nabi recently announced its fourth quarter and full year earnings in its most recent 10-K filing, which it indicated a momentous year culminating with the sale of their biologics business unit in December. This was a move that Third Point pushed for with much gusto in the past. The company also reported positive data on its up-and-coming NicVAX clinical trial, aggressively reduced operating costs and cash utilization rates, initiated a share repurchase program and significantly reduced their debt. Combined, these moves will not only improve the company’s EPS but also increase their growth prospects in the coming quarters.

Nabi also announced that it would explore strategic alternatives on January 22, 2008 amid pressure from Daniel Loeb’s Third Point LLC – one of the most famous activist hedge funds on Wall Street that produces a rumored annualized return of 22%. Recently, DellaCamera joined the cause by initiating a 5.1% stake and supported the decision to explore strategic alternatives, according to a Schedule 13D/A filing with the SEC. Many believe the the successful drug trials and strong pipeline may make this company an attractive buyout target by a larger firm with an aging pipeline.

Nabi now finds itself in a much stronger financial position with a focused pipeline of high value vaccine programs and well-positioned to pursue their strategic alternatives process – their self-proclaimed key financial goal for this year. With Third Point on the board, shareholders can be assured that something will come from this process. Combined, these factors make NABI a stock that is definitely worth watching!

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Novell, Inc. (NDAQ: NOVL) shares moved sharply higher after the company reported better-than-expected earnings in its latest 8-K filing with the sEC. Shareholders were surprised by a swing to profitability as well as strong growth in its Linux business. Meanwhile, many are looking forward to seeing how the company will integrate its new acquisitions as potential upsell opportunities to expand revenues even further. So, what does the future hold for this once-struggling technology company?

Novell reported revenues of $231 million on net income of $8 million profit in the first quarter. This compares to revenues of $218 million on a net loss of $21 million during the same time period last year. The swing to profitability caught many investors by surprise as the company was boosted by strong performance from its Linux platform business, which grew 65 percent year-over-year. However, the majority of its revenues were still derived fromits workgroup products, which grew a modest 1 percent year-over-year.

“We are very pleased with our results this quarter. We delivered product revenue growth across all business units and continued expense control this quarter,” said Ron Hovsepian, President and CEO of Novell. “These results are indicative that our strategic initiatives are yielding tangible results and that we are on the right path to achieve long-term, sustainable profitability.”

Novell’s partnership with Microsoft is one of the main drivers for growth in its Linux platforms business. Although they are only into the second year of the deal, Novell has already earned $141 million from the arrangement - or 59 percent of what the five-year agreement stipulates. There is also a lot of opportunity for upselling inside of those relationships, which could prove to be even more of a boost in the future. And finally, Novell also sees opportunity with the launch of Microsoft’s new Windows Server 2008, which it sees as an opportunity to attack Microsoft’s installed base.

“Microsoft is managing the outward competition, but they are also managing their older installed base and the different versions that they are on,” Hovespian said. “We see that as opportunity for our company to attack that installed base. I’m sure the competitive fires will remain strong between both companies.”

The majority of today’s stock price movement, however, likely comes from Novell’s strong guidance. The company upped its guidance for 2008 with revenues now slated to be between $940-970 million compared to prior estimates of $920-945 million. Meanwhile, the company expects operating margins to be between 7 and 9 percent excluding all acquisition-related intangible asset amortization. This is far higher than what many analysts were expecting and may even be raised in the future if the company continues to see stronger growth on the heels of its Linux platforms division.

In the end, this is all great news for shareholders as Novell continues to push forward. Shareholders are not only looking towards solid growth in its Linux business but also for the results of the firm’s acquisitions of virtualization management vendor PlateSpin and open source collaboration vendor SiteScrape earlier this month. It will be interesting to see how the company integrates these businesses as more potential upsell opportunities. Combined, these factors make NOVL a stock that is definitely worth watching!

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3Com Corp. (NASDAQ: COMS) is up almost 20% on reports that Bain Capital LLC and Huawei Technologies Co. plan to reapply for U.S. regulatory approval to buy the network-equipment maker.

The financial terms of the original deal probably won't change much - a $2 billion price, 85% stake for Bain and the remaining minority share of Huawei. The difference is Huawei would not have access to sensitive technologies that blocked the deal in the first place.

Last week, the deal fell apart because a little-known wing of the Treasury Department known as the CFIUS appeared likely to block the acquisition. As SECInvestor's earlier article said on the matter:

"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."

Though it seemed likely that Bain would be just as happy to leave the deal dead given the state of the economy and 3Com's rather weak business currently, instead the firm may look to capitalize on the regulatory hurdles in order to secure a lower purchase price. With 3Com's core business still a distant second to giant Cisco Systems (NASDAQ: CSCO), even a deal at a lower price is good news for 3Com shareholders.

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