Dillard's, Inc. (NYSE: DDS) may soon be facing a board and management shake-up after a several large activist investors took their campaign for change a step further yesterday. Barington Capital and the Clinton Group revealed in a Schedule 13D/A filing with the SEC that they are now on the verge of launching a proxy battle to install their own candidates to the company's board of directors. The two activist hedge funds requested a list of shareholders and other documents that typically point to a proxy contest. Unfortunately, the company's poison pill gives the Dillard's family majority control (8 of 12 board seats), but many believe that the two funds will seek to put a minority slate of directors on the board to increase pressure. So, does this represent a catalyst that could make Dillard's a buy here?

Barington Capital originally contacted the company at the end of January, insisting that the vast vlaue potential of the company was not being realied. In their opinion, if the company were more effectively managed it would be worth substantially more than its current stock price. Furthrmore, the company's sizable asset base provides the company with a number of untapped options to create additional value for stockholders. More specifically, the activist hedge fund sees the following opportunities for improvement (in their own words):

1. Dillard's $7.5 billion revenue base offers significant margin leverage capable of producing sizable cash flow gains from any future operating improvements. The Company’s geographic concentration, especially in high-growth areas of the Southeast and Southwest United States, offers unique regional opportunities for its 331-store portfolio. Furthermore, the Dillard’s brand name is well-regarded in the department store sector and the Company has received above average scores in the area of customer loyalty according to a recently released survey by Brand Keys.Clearly, Dillard’s has the scale and brand recognition to be a successful retailer.

2. As Dillard’s trailing twelve month operating free cash flow margin is 2.4% versus 7.7% for its department store peer group, we believe that stockholders can realize enormous upside if margins can be improved to the levels achieved by the Company’s peers. We see a number of opportunities to immediately reduce the Company’s cost base, including by improving sourcing, rationalizing SG&A expenses and lowering capital expenditures. We also believe that there are a host of initiatives in inventory management and merchandising that can drive customer traffic and enhance margins. Among other things, we believe that Dillard’s needs to tighten its current assortment of offerings and vendors and consider a more regular promotional cadence, as its stores, in our opinion, are over-inventoried. In addition, we believe that Dillard’s needs to embark upon an aggressive re-merchandising effort that features new vendors (including exclusive offerings) and updated private label and in-house collections to differentiate its value proposition for customers. Furthermore, it is our belief that the Company needs to enhance its brand marketing by adding more image and lifestyle campaigns that communicate a revitalized message to the marketplace. We are convinced that each of these initiatives would add excitement and newness to the Dillard’s shopping experience and attract customers to its stores.

3. Dillard’s owns approximately 75% of its store portfolio, comprised of approximately 42 million square feet of retail real estate. Currently, the Company’s shares trade at only 0.5x its tangible book value of approximately $32.50 per share. This represents a significant discount to the Company’s peer group, which trades at an average tangible book value multiple of approximately 2.0x. We also believe that Dillard’s tangible book value is understated, since the current market value of the Company’s owned real estate far exceeds its depreciated book value. In fact, in a November 26, 2007 research report, Deutsche Bank estimated Dillard’s net asset value before taxes to be $59 per share. Deutsche Bank also notes that “actions taken to unlock the Company’s real estate value would be positive for the shares, as the NAV [net asset value] for Dillard’s [is] greater than the value based solely on operating fundamentals.” It is our belief that there are a number of measures that the Company can take to enhance the value of its real estate portfolio, including converting certain properties to higher and better use, closing underperforming stores and engaging in sale/leaseback transactions.

These are all classic activist arguments that really do have merit and should be considered by the board. Unfortunately, Barington was shunned by Dillard's and is now being forced to take more dramatic actions in order to unlock value. In the meantime, their investment (and that of other investors) is quickly deteriorating as the company repored slower same store sales, subpar operating performance, and a falling stock price. Many analysts estimate that Barington Capital and the Clinton Group could have around 12% support from institutions, which bodes well for their odds in getting at least one board seat. Combined, these factors make DDS a stock worth watching!

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Yahoo Inc. (NASDAQ: YHOO), in an attempt to continue to thwart Microsoft Corporation (NASDAQ:MSFT), announced it is extending the deadline for nominating directors to its board. Nominations were due March 14, but now Yahoo will accept them until 10 days following the announcement of the date of its annual meeting - a meeting which itself does not have a date set yet.

The nomination process is key because Microsoft will almost certainly try to nominate its own directors to Yahoo's board. Directors that would be friendly to the proposed takeover. Yahoo CEO Jerry Yang spoke on this point in his ongoing e-mail conversation with employees, the full text of which follows:

"Subject: update

yahoos

we want to update you on some news we announced this morning. yahoo!'s board has decided to extend the deadline for nominating directors to our board from march 14th to 10 days following our announcement of a date for our annual stockholders meeting. we have not yet announced the date of this year's meeting.

why did we do this?

in light of the current circumstances, this change removes an imminent deadline. microsoft, of course, could still choose to name directors, but our objective here is to enable our board to continue to explore all of its strategic alternatives for maximizing value for stockholders without the distraction of a proxy contest. it will also make it easier for you to continue to focus intently on delivering on our business strategies and creating value.

since we last updated you, our board and management team are aligned in ongoing efforts to explore a number of alternatives to create stockholder value. we believe we are making progress clarifying the many options available to us. and, of course, throughout this process, management and the board are both speaking with--and listening carefully to--our stockholders. this ongoing dialogue has provided us with helpful feedback.

let's all be clear about one thing: we have a great company, a company with a truly unique set of assets -- including our global brand, large worldwide audience, significant recent investments in advertising platforms, future growth prospects and the excellent momentum we have created behind our core business strategy. so it should come as no surprise that this situation is receiving such a high level of attention -- from national media to blogs.

we ask you to continue to put aside all the rumor and speculation you may be hearing. none of us should allow external reports to shift our focus away from doing what we do best -- transforming the experiences of our users, advertisers, publishers and developers, all while enhancing our leadership position in the online marketplace.

we want to thank all of you again for your continued hard work and dedication to yahoo!. we'll continue to update you as new information becomes available.

jerry and roy"

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Barnes & Noble Inc. (NYSE: BKS) shares fell sharply after the company warned that recessionary pressures will make 2008 a difficult year for the bookseller, as it now expects earnings to be well below analyst expectations. The bookseller also noted that the business environment remains very competitive despite record-setting sales of Harry Potter and improved sales of The Secret in late 2007 and 2008. Currently, Barnes & Noble trades below enterprise value at just over 12x earnings and many investors - including well-known activists - insist that it is cheap these days. So, is this bookseller a turnaround play or flop?

Famed activist Bill Ackman has been one of Barnes & Nobles most faithful supporters and still holds over $125 million worth of stock in the troubled company, according to his latest Schedule 13F filing. Many investors are predicting that he will eventually push the company to utilize its spare cash to pursue share buybacks in order to boost its earnings per share and encourage a higher share price to maintain its current multiples. However, he may run into problems if the company cannot sustain its growth as this is a key factor to encouraging and increasing multiples. Considering he is already sitting on a large loss, many are hoping he will take action to also turn around the business itself rather than focusing purely on unlocking value.

Some insiders have also shown faith in Barnes & Noble by purchasing large amounts of shares on the open market, according to recent Form 4 filings with the SEC. Chairman of the Board, Leonard Riggio, purchased 300,000 shares earlier this month at prices ranging from $32.29 to $33.86 in cash on the open market. These actions by such high ranking members suggest confidence in the company's management to turn the situation around and improve growth prospects, which would increase the company's trading multiple, especially if Ackman took action. Meanwhile, the company has already instituted a dividend and share buyback program aimed at encouraging investors to properly value the company.

Just what actions is the Barnes & Noble taking to orchestrate a turnaround? In its most recent 8-K, the bookseller said it was focusing its efforts on managing its expenses and working capital with a realistic view of market conditions, as well as continuing to refine its marketing strategies and grow the member program to maximize top line growth profitability. Unfortunately, these actions will take awhile to come to fruition as it now expects full-year earnings to come in between $1.70 and $1.90 per share for 2008 - flat with 2007 on an operating basis. However, the company believes that its strong balance sheet and free cash flow will give it flexibility to compete effectively in 2008 as well as continue to unlock value.

In the end, Barnes & Noble is a company with a strong balance sheet and a dedication to unlocking value. However, it has been struggling recently with its growth prospects, which has led to a lower valuation and share price. It will be interesting to see whether management can take action to turn this company around. Clearly, both major insiders as well as activists are confident which should lead many amateur investors to the same conclusion. Combined, these factors make BKS a stock worth watching closely over the next year or two!

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Apple Inc. (NDAQ: AAPL) announced after-hours yesterday that the company has no plans for a share buyback or dividend despite strong rumors that the iPod-maker would return some of its more than $18 billion in cash and short-term investments to shareholders. Instead, the company announced that it was taking a very conservative stance when investing its cash. This has caused some speculation that Apple may be facing a cash crunch or gearing up for a larger investment in the near future. So, is Apple stock a buy at these levels anyway or is their refusal to unlock value a sign of bad news to come?

Apple announced that it expects its current estimates and guidance to be on track, despite speculation that its iPhone sales may be in trouble. The company also announced that it is working with Nike to make the iPod compatible with gym equipment. The two companies are partnering with gym equipment manufacturers and health clubs to allow members to plug their iPod Nanos into cardio equipment to track workouts, set goals and upload information to a Nike website. Many are hoping that this new partnership will help spur sales of its slowing iPod to make up for an expected decline in iPhone sales.

Meanwhile, Apple stock continues to trade at a reasonable multiple of 27x and a cheap 19x forward earnings. These numbers put the stock's PEG ratio at around 1.09, which indicates that it is fairly priced given its current growth, while the forward earnings are a clear indication that there is some concern about FY2008 results. Some analysts find it hard to believe that the company will be able to retain its current growth given the weakness in the U.S. economy combined with the many potential problems facing the iPhone - a key factor in Apple's future.

All in all, it is hard to argue with a 29% ROE and strong growth now, but there are many concerns about the company's future. Many analysts believe there could be trouble for their iPhone ahead; however, it looks like the majority of this risk is already priced into the stock. In the end, this is a stock that is definitely worth watching through 2008 given its cheap valuation now and strong potential growth prospects if it surpasses expectations!

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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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