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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