# Friday, April 04, 2008
Select Comfort Corporation (NDAQ: SCSS) shares may be well off of their $19/share 52-week highs, but at several professional investors are giving this stock a second look. The depressed levels have led to several analyst upgrades as well as at least one activist hedge fund that has taken a positive stance. The Clinton Group not only commended management, but also increased its stake to 6.1% in recent days.

The Clinton Group previously expressed disappointment with Select Comfort in a series of letters, but is now convinced that the company is moving in the right direction. The activist hedge fund met with Chairman Ervin Shames and CEO William McLaughlin regarding the prospects and strategy of the company and liked what they saw. In particular, the two executives told the hedge fund that the company was improving operating practices by focusing on driving sales through new marketing strategies and implementing appropriate cost reductions where necessary.

The two parties also discussed implementing changes that the Clinton Group proposed during their last letter to the board, which included:

  1. Revise marketing strategy to refocus on direct marketing.
  2. Disband the "Quality of Life Advisory Board" as a wasteful use of company resources.
  3. Review its store portfolio to eliminate underperforming stores.
  4. Immediately cease all new store openings and spending on unnecessary capital expenditures until sales results improve.
  5. Eliminate stores in regions where the Company does not have the critical mass to justify its advertising and the overhead for that region, and then eliminate the excess regional and corporate overhead.
  6. Freeze spending on the SAP system installation until it is evaluated by an independent consultant.
  7. Consider subleasing or disposing of the costly new corporate headquarters and conduct a study on the future needs of the Company in light of its anticipated growth.
  8. Revise new Chief Executive Officer performance metrics to earn 2008 base salary to align with shareholders interests.
  9. Consider outsourcing its call center operations.

It is clear that Select Comfort has been experiencing difficulty due to a weak macroeconomic environment, but the Clinton Group now believes management and the board is now cognizant of its previous missteps and focused on improving the company's performance in 2008 and beyond. Even assuming a difficult environment for consumer spending, the company is trading at historically low multiples and at a valuation discount to its comparable peers.

The Clinton Group believes that this valuation gap between Select Comfort and its peers will close as its new initiatives begin to bear fruit and the company will soon return to historical levels of profitability and valuation. As a result, their conviction is stronger than ever that the company has exceptional long-term growth prospects. In fact, they even recently purchased 461,244 more shares in a vote of confidence.

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Friday, April 04, 2008 6:31:36 PM UTC  #     |  Trackback
Apple Inc. (NDAQ: AAPL) has reportedly surpassed Wal-Mart Stores Inc. (NYSE: WMT) to become America's largest music store by sales.

According to market research firm NPD Group, Apple's iTunes digital store sold more albums in the first two months of this year than any other music retailer. Though consumers still buy more physical music in the form of CDs than the digital song files that iTunes sells, iTunes has been able to vault ahead of Wal-Mart because it dominates the music download market – even though the music download pie is smaller, iTunes has such a big slice that it has overtaken all individual CD sellers.

This announcement is not so much immediately important for Apple's or Wal-Mart's profitability as it is symbolic – the fact that the biggest music retailer doesn't sell CDs or have physical stores signifies the transformation the music industry has undergone in the past decade.

Port Washington, NY based NPD Group computed the figures by counting every 12 individual songs sold as one album, which is absolutely key to the claim that iTunes sold more albums than any other retailer because in reality few iTunes customers purchase complete albums.

In the long-run, this news is much more significant for Apple than Wal-Mart because Apple's results are far more dependent on iTunes and its complimentary digital music players, iPods, than Wal-Mart's results are dependent on CD sales. Though Apple doesn't release specific results for iTunes – probably part of a strategy to prevent music companies from complaining about its profitability – if downloading music is now officially the standard, Apple could not be in a better position to capitalize on it.

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Friday, April 04, 2008 5:50:54 PM UTC  #     |  Trackback
Honeywell International Inc. (NYSE: HON) announced an agreement to purchase personal protective equipment manufacturer Norcross Safety Products LLC for $1.2 billion from Odyssey Investment Partners.

Honeywell is the world's largest manufacturer of cockpit displays but also provides products ranging from security technologies for buildings to specialty chemicals. Last year, the company had net income of $2.4 billion on revenue of nearly $35 billion.

Norcross makes safety equipment for "the fire service, utility and general industrial worker segments" and had approximately $609 million in revenue last year according to the press release on the deal.

"With more than 100 years of industry experience, best-in-class solutions and trusted brands, and a strong management team with exceptional talent and depth, Norcross is a globally recognized industry leader that will bolster our offerings to our customers in key Life Safety segments," Honeywell CEO Roger Fradin said.

President of Honeywell Life Safety Mark Levy highlighted the logic of the deal, "This acquisition creates an exciting adjacency for Honeywell Life Safety -- especially our Fire Systems and Gas Detection businesses, which share common distribution channels with Norcross. We expect strong sales synergies across Honeywell businesses and opportunities to add value to Norcross products with Honeywell electronic gas sensors, fire detection and advanced fiber material technologies."

The obvious question, given that Norcross seems an excellent fit, is did Honeywell pay a good price for the company? Norcross is currently held primarily by Odyssey Investment Partners, a private equity firm, which frankly means almost no material financial data for Norcross is publicly available to analyze. Private equity firms can invest in companies traded on stock exchanges – which means they have to file legally required financial documents – but often instead purchase equity stakes in private companies or take public companies private.

This strategy allows private equity firms to be freed from answering to Boards of Directors and company shareholders in the management decisions of companies they own but it also makes private equity firm performance, and the performance of their respective companies, very difficult to track. Honeywell certainly had access to Norcross' financial data while formulating this deal, but for now all that can be said for certain is the synergies of the purchase are obvious but the fairness of the price is not.

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Friday, April 04, 2008 5:33:56 PM UTC  #     |  Trackback