Sparton Corporation (NYSE: SPA) executives may find themselves in hot water soon after an activist hedge fund built up a stake. Lawndale Capital Management disclosed a 9.9% stake and a series of demands to the board in a Schedule 13D filing with the SEC. The activist hedge fund demanded four new independent directors be installed, requested the board hire an experienced turnaround management team, and reiterated their request that the company explore its strategic alternatives.

With only the recent announcement of current management tasked to implement 'recommendations' of consultants and no mention of reputable outside advisors exploring strategic alternatives, we can only presume the Board is not pursuing obvious steps, preferring instead to remain unaccountable and entrenched," said the hedge fund in its letter. "Lawndale cannot sit idly by while a discredited board relies upon a discredited management team to extricate Sparton from a morass of their own creation."

Lawndale believes that the current management has been given more than enough time to effect a turnaround and it's time for new blood. The hedge fund proposed its own slate of four new directors that could add independence to the board and work to build long-term sustainable shareholder value. The hedge fund also warned that if the board turned a blind eye to its proposal, it would pursue a hostile takeover of the board. The deadline it set was August 29th.

"After years of dissipating shareholder wealth, further improper voting of the Sparton shares held in the employee pension plan and any improper influence over voting of employee 401K plan holdings may potentially expose you all to very costly liability," said the hedge fund. "It is time for Sparton's Board to turn over a new leaf and embrace a more enlightened approach to corporate governance and work with us."

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Cleveland Cliffs Inc. (NYSE: CLF) is fighting an activist hedge fund and seeking support from... shareholders? Harbinger Capital is currently the company's largest shareholder with a 15.57% stake, but it is seeking to increase its stake to as much as 33.33%. The move could damage the firm's plan to purchase Alpha Natural Resources for $8.1 billion, which Harbinger has ademantly opposed for quite some time. With a 2/3 majority required to approve the buyout, a 1/3 stake by Harbinger could be problem.

Recently, Harbinger requested that Cleveland Cliffs hold a shareholder value, required under Ohio law, that would allow the hedge fund to increase its stake to between 20% and 33.33%. The vote is scheduled for this Friday and may lead to the rejection of the $8.1 billion buyout bid. As a result, Cleveland Cliffs has been reaching out to shareholders in an effort to derail the attempt to gain approval - a move that is quite atypical for activist situations.

Today, Cleveland Cliffs came one step closer to buying out the firm by gaining anti-trust approval by the Federal Trade Commission. However, the vote on the proposed buyout is scheduled for October 3rd, giving Harbinger another month to build and prepare its stake to oppose the merger that it sees as a bad move for the company. So far, few other large shareholders have voiced their opinions on the merger, which makes it a situation certainly worth watching.

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99 Cents Only Stores (NYSE: NDN) may be getting more than they bargained for with one large investor. Akre Capital Management disclosed an 11.26 percent stake in the discount chain and recommended that it explore strategic alternatives to unlock shareholder value in a Schedule 13D/A filing with the SEC. These alternatives may include discontinuing certain businesses, repurchasing shares with excess cash and refocusing on maximizing profitability rather than expanding.

Akre Capital Management focused its message on 99 Cents Only Stores' Texas market, which has experienced substantial problems. The hedge fund recommends that the company reconsider maintaining a presence in Texas and asked two key questions for management to consider:

1. What existing Texas operating data can be referenced as evidence that this new strategy will be successful, what capital will remain actually invested in the market, what profits are expected, and how will this strategy be executed?
2. Why does the company believe that expanding finite management resources on a small opportunity in Texas make sense when the remaining 90%+ of the business remains distressed and offers much greater potential?
   

"We acknowledge that the company has begun to address shareholder concerns about a turnaround plan, store growth rate, and use of excess cash," said the hedge fund in a letter to the board of directors. "We are hopeful that these actions mark the beginning of an effort by the company to be more transparent about how it plans to create per share value."

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