Tobacco companies may face an uphill battle against regulators after new legislation was proposed that would give the U.S. Food and Drug Administration (FDA) authority of tobacco products. The House Energy and Commerce Committee voted 38-12 in favor of the proposal that is now ready to be passed on to the U.S. Senate before becoming effective. Shareholders of tobacco companies are divided as the legislation may benefit some while hurting others.

The new legislation is expected to impose significant restrictions on marketing as well as require larger warning labels. These are developments that are more likely to hurt smaller tobacco companies rather than the nationally-recognized and established brand names. This means that big companies like Philip Morris International (NYSE: PM), which recently spun off from Altria Group (NYSE: MO), stand to benefit at the expense of other smaller players like Carolina Group (NYSE: CG) and Reynolds American (NYSE: RAI).

This may sound great for larger companies, but there is a big downside. The FDA will also likely require manufacturers and importers of tobacco to pay user fees to fund the new regulatory responsibilities under the bill. These fees are expected to net $90 million this year, but increase to $755 million by 2018. These fees would be assessed based on market share, which means that the lion's share of the fees will be levied on companies like Philip Morris.

The best options for shareholders may be those tobacco companies with greater international exposure. Companies like Imperial Tobacco Group (NYSE: ITY) with particular strengths in the United Kingdom, Germany, The Netherlands, Belgium, the Republic of Ireland, France, Spain, Greece, Poland, Ukraine, Russia, Australia, Taiwan and sub-Saharan Africa are of particular interest. Strong international brands may become more important than strong domestic brands if the measures pass.

In the end, tobacco companies are likely to suffer from these new measures. Reduced marketing will put pressure on top-line growth by limiting their ability to attract new customers. Meanwhile, the fees associated with the new regulation will put pressure on margins and negatively impact the bottom-line. Combined, this is bad news for tobacco companies if the bill is passed in its current state.

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Bassett Furniture Industries Inc. (NDAQ: BSET) management was caught sitting around on the job, according to at least one activist hedge fund. Costa Brava, which owns just over five percent of the company, recently expressed its disappointment with the furniture business and initiated a proxy contest in order to install its own board members to enforce change. So, should shareholders support these new board candidates?

Costa Brava believes that the board of directors should put a plan in place to reduce the capital needs of Bassett's furniture business and to maximize the value of Bassett's investment and real estate assets. The hedge fund argues that the furniture business has been contracting for several years as Asian imports have severely undercut domestic pricing. Meanwhile, the housing market turmoil has reduced fundamental demand for furniture.

The real value in Bassett is apparent in its balance sheet. Perhaps the most interesting highlight is Bassett's 47% ownership stake in a 3 million square foot exhibition space in High Point, NC. Net operating income from this property are around $30 million, which (capped at 10%) carry an implied valuation of $300 million. Subtracting the $105 million in debt yields $195 million in equity, which means Bassett's stake is worth around $91 million.

Bassett also has cash and investments of over $80 million, hedge fund investments of $51 million, marketable securities of $25 million, and a profitable International Home Furnishings Center (IHFC) division. The IHFC and hedge funds have been subsidizing the furniture business for years. In fact, the "core" furniture business hasn't been able to generate a stable cash flow for nearly 10 years with over $85 million being wasted since 2001.

Costa Brava recommended that Bassett focus on the value in these less risky assets and scale back or eliminate its risky and unprofitable furniture business. The hedge fund's board nominees have vast experience in many different businesses, including real estate and hedge funds. Costa Brava insists that substantial value can be unlocked by monetizing these assets and returning the cash to shareholders.

Bassett responded Monday by issuing a special dividend for shareholders while recanting its prior dedication to unlocking value through its past dividend hikes. However, many believe that these measures may be too little too late. The special dividend was only $1.25 per share and the dividend hike was only 12%. The reality is that these numbers pale in comparison to the amount of value that could be unlocked by the hedge fund.

In the end, this is all great news for shareholders who stand to benefit from such measures to unlock value. It will be interesting to see just how much support Costa Brava receives from shareholders. Combined, these factors make BSET a stock worth watching closely into the April 18th annual meeting!

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Motorola Inc. (NYSE: MOT) will be calling upon two of Carl Icahn's nominees for election to its board as part of a truce with the activist shareholder. Let's just hope their using Motorola phones: The cellphone-maker's shares have fallen nearly 50% over the past year thanks slowing sales. The decline prompted Mr. Icahn to recommend a spin-off of the company's Mobile Devices unit in order to unlock value and enhance both businesses.

"We are pleased to have reached this agreement with Carl Icahn," said Greg Brown, president and chief executive officer. "We look forward to continuing the process we announced on March 26 to create two independent publicly-traded companies and we are pleased to avoid a costly and distracting proxy contest."

Carl Icahn lost a proxy contest last year, but management's failures in 2007 increased the odds this time around. Management fought briefly with the activist, but ended up implementing his plan for a spin-off of the Mobile Devices unit. However, the activist was still concerned with the speed and manner in which a new management team is selected for the mobile division. As a result, he insisted that his own directors be elected to the board to oversee the process.

Motorola finally agreed today and the two announced a truce that will enable Icahn to implement his activist agenda while allowing Motorola to avoid an expensive proxy contest. The cell phone maker also agreed to seek input from the activist investor in connection with significant matters regarding the separation of the Mobile Devices business.

"This is a very positive step for Motorola in that shareholder representatives will have strong input into board decisions affecting the future of our company," said Carl Icahn. "In addition, the Motorola Board has also taken an important step forward for corporate governance in that the separated company which includes Mobile Devices will be essentially free from poison pills and staggered boards, both of which, in my opinion, serve to make democracy a travesty in corporate America."

In the end, this is great news for shareholders as they will finally have their own represented on the board. Meanwhile, a successfully spin-off should help both companies focus on their core competencies and improve their bottom-line. This has made MOT a stock worth watching over the next few months!

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