LDK Solar Co., Ltd. (NYSE: LDK) shares may be surging higher, but at least one short seller sees problems ahead. Asensio noted accounting irregularities at the company after an employee accused the company of making misrepresentations on its accounting of inventories. LDK's most recent financial statements show questionable entries, including its "inventories to be processed beyond one year" numbers. The 87% jump in inventory and 828% increase in accounts receivables are also suspect.

Asensio also questioned today's press release stating that LDK signed a contract to supply 440MW of solar wafers to Hyundai Heavy Industries over a seven-year period, from 2009 to 2015. However, LDK's press release from February 22nd stated that LDK signed a contract to supply 450MW of wafers from late 2008 to 2015. The only differences between the two releases are slight changes in the start date and amount of wafers. Interestingly, there is no reference to the prior announcement and makes it look like a new contact.

Asensio ends by stating: "LDK investors with questions on the company's accounting will not find many answers in its quarterly releases. LDK continues not to release the standard financial statements expected of companies trading in the US. The company apparently does not feel compelled to create greater transparency for investors. LDK only issued quarterly statements in the form of a press release, and even then it did not bother to include a basic cash-flow statement."

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Orange 21 Inc. (NDAQ: ORNG) shares are trading at a discount after a large holder made an offer to acquire the company in a Schedule 13D filing with the SEC. Costa Brava, a hedge fund that owns a 9.6% stake in the firm, offered to purchase the company's remaining shares for $3.90 per share, which represents a 6.8% premium over the current market price. The offer comes at a 30% premium, however, to the August 19th close, and also offers shareholders liquidity not available given the low trading volume.

The proposal is subject to performing satisfactory due diligence on the company and the execution of a mutually satisfactory definitive purchase agreement. Costa Brava indicated that they are available to start due diligence immediately and are prepared to conduct negotiations on a definitive purchase agreement in tandem with the due diligence. Notably, the purchase agreement would not be contingent on any financing, which gives it a higher probability of going through.

Orange 21 has yet to respond to the issues, but many shareholders are hoping that the process will move forward. Others are hoping that the company will hold out for a potentially higher offer that could give shareholders an even larger premium in the event of a buyout. However, it is uncertain whether or not Costa Brava would in fact issue a higher price. The risk of course is that they walk away from the merger and shares return to their $3.00 valuation.

Orange 21 Inc. designs, develops and markets products for the action sports, motorsports and youth lifestyle markets. The Company’s principal products, sunglasses and goggles, are marketed primarily under the brands, Spy and SpyOptic. These products target the action sport and power sports markets, including surfing, skateboarding, snowboarding, ski, motocross, and the youth lifestyle market within fashion, music and entertainment.

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IKON Office Solutions, Inc. (NYSE: IKN) shares are up sharply this week after Steel Partners' Warren Lichtenstein got his wish. The office repair company finally agreed to sell itself to Japan-based Ricoh Co. Ltd. for $1.6 billion after being pressured by the activist hedge fund for some time. Officially, the $17.25 a share deal was the result of the company's "strategic planning process", but the pricing made it a huge win for its largest investor Steel Partners.

Steel Partners is one of the most aggressive hedge funds in the world with a tendency to force changes upon companies. The firm owns about 1/8th of Ikon and paid around $10.50 per share for its stake. That makes this latest deal worth $6.75 per share in profit, which is a healthy gain even when spread over a few years. The news also comes just after Steel Partners won control of Point Blank Solutions (OTC: PBSO) in a hostile takeover attempt.

IKON Office Solutions, Inc. (IKON) is an independent channel for document management systems and services. IKON integrates copiers, printers and multifunction product (MFP) technologies from manufacturers, such as Canon, Ricoh, Konica Minolta and HP, and document management software from companies like Captaris, Kofax, eCopy, EFI, EMC (Documentum) and others, to deliver solutions implemented and supported by its team of global services professionals.

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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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TransAlta Corporation (NYSE: TAC) directors are facing increasing pressure to sell after a popular activist hedge fund added its voice to a chorus of dissident shareholders. The Children's Investment Fund Management, known as TCI in the investor community, filed its Schedule 13D with the SEC last week showing a six percent stake and demanding some changes. The activist hedge fund wants the company to consider an auction or stragic partnership to boost shareholder value.

Here's a transcript from the letter to the board:

TCI believes  that the public  proposal by LS Power  Equity  Partners and Global Infrastructure  Partners  published  on 21 July 2008 to  acquire  TransAlta  for Cdn$39 per share, significantly undervalues the company.

TCI urges the Special  Committee to immediately  undertake a review of strategic alternatives,  complete  this  expeditiously  and  take all  necessary  steps to maximise value for shareholders.

Further, TCI agrees with the  representations  made to you by Seneca Capital in its  public letter dated 22 July 2008.

TCI  would  welcome  an open and  direct  dialogue  with the  Special  Committee throughout the strategic review process.

TransAlta is a wholesale power generator and marketer focused on the western regions of Canada and the United States. The company owns, operates and manages a contracted and geographically diversified portfolio of assets, and has capability in generation fuels, including coal, natural gas, hydro and renewable energy. Approximately 70% of its capacity is contracted under government-mandated power purchase agreements or long-term contracts.

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Cablevision Systems Corporation (NYSE: CVC) management may find themselves in hot water after an acitivst hedge fund built up a substantial stake in the cable operator. Harbinger Capital disclosed an 8 percent stake in the company and demanded changes in a Schedule 13D filing with the SEC. The activist hedge fund suggested that shares of Cablevision are undervalued and the company must take certain actions to unlock value.

Traditionally, activist hedge funds aim to force companies to unlock value through a variety of so-called strategic alternatives. These can include a sale or breakup of the company, a change in capital structure, a share buyback or a special dividend. Companies that aren't open to taking these actions will typically face an expensive proxy fight, which involves the activist hedge fund nominating its own directors to the company's board.

Harbinger Capital has experience in this industry as well. Media General and The New York Times were both subjected to demands from the activist hedge fund. Representatives from the hedge fund won three seats on the board of MEdia General while the New York Times agreed to nominate two of its directors after it threatened a proxy fight. So far, Cablevision has agreed to institute its first-ever dividend and is holding meetings with shareholders to discuss other ideas.

Cablevision shares are trading up marginally on the news, moving to $32.47 per share in mid-day trading. It will be interesting to see how many changes Harbinger can force upon Cablevision to unlock value, or whether they will be forced into a proxy battle to overthrow management and institute them themselves.

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HSN, Inc. (NDAQ: HSNIV) complted its spin-off from IAC Interactive (NDAQ: IACI) today as a part of Barry Dillar's move to unlock value for shareholders. HSN is a leading multi-channel interactive retailer with some of the most dynamic brands and experiences in the retailing industry. As an independent company, investors are hoping that shares will be valued much higher than it was as a part of IACI. However, some experts aren't so sure that value will be unlocked...

Traditionally, spin-offs have outperformed the S&P 500 by a wide margin during their first three years as a public company. The reason is simply because parent company shareholders often have little appetite for the new spin-offs while they are also loaded with debt and have no fall-back. This combination of factors often lead to a sell-off during the first year that leaves room for enterprising investors to jump in and realize substantial gains as the stock returns to a fair value.

Chief Financial Officer Tom McInerney said in an interview that the value of the new companies should be much more than it is now and he hopes that it will be very obvious in a year. However, some analysts aren't so confident in additional value being unlocked. HSN was considered the division that was most undervalued, but analysts insist that HSN's problems are significantly worse than expected. Other businesses under the IACI umbrella are also continuing their decline early on.

In the end, these spin-offs may present opportunities to shareholders, but not in the obvious way. Many believe that the shares of these new companies, like HSNi, will fall substantially early on. Only after this initial fall will investors have a good entry point to get in and profit. The reason? Parent company shareholders will likely sell the new spin-offs while the performance of the companies continues to deteriorate in these tough markets.

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Epicor Software Corporation (NDAQ: EPIC) may be in for a shake-up after an activist hedge fund unveiled a sizable stake in the software firm. Elliott Associates disclosed a 9.9% stake in the company and is inquiring about possible strategic alternatives in a Schedule 13D filing with the SEC. The hedge fund has been steadily purchasing shares since June, but acquired the majority of its stake during the past month. So, is this a stock investors should watch?

Activist hedge funds like Elliott Associates are known for pushing companies to pursue strategic alternatives to unlock value for shareholders. Strategic alternatives refer to efforts designed to sell all or parts of a company, spin-off business divisions, change the capital structure, or pursue a share buyback or special dividend. All of these efforts are designed to return immediate value to shareholders like Elliott Associates and YOU!

Epicor Software Corporation designs, develops, markets and supports enterprise application software solutions and services primarily for use by mid-sized companies and the divisions and subsidiaries of larger corporations worldwide. The company's products include back office applications for production management, supply chain management, retail management and financial accounting, as well as front office customer relationship management and service management.

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