Magnetek, Inc. (NYSE: MAG) directors and management may find themselves out of a job if a large activist hedge fund gets their way. Riley Investment Management (RIM) holds an 8.8% stake in the company and recently sent a letter to the board suggesting that the firm put itself up for sale. The hedge fund believes that the company's market size and ongoing pension liability will make it difficult for shareholders while its brand and niche may be interesting to potential buyers.

Here's a copy of the letter:

As you may know, Riley Investment Management LLC has been an investor in Magnetek for over 7 years. During this time, we have seen the Company transform itself from a bloated undisciplined company to a business with a significant presence in strong niche markets. While we have been pleased with the Company's operational performance, the devotion of the management team and the improved balance sheet, we strongly believe that the best course of action for the shareholders would be to immediately begin a sale process of the Company. We believe that this process could garner a price at significant premiums to the current market capitalization and attract multiple large bidders.

The Company's most recent quarter was impressive. Revenues of $26.4 million were up 16%, your book to bill was 118% and your cash increased to $16 million. Most importantly, operating income almost doubled from last year. These numbers were particularly strong given your investment in the alternative wind business. We applaud your improvements to the operations.

However, we believe that your market size, market capitalization and ongoing pension liability will make it difficult for your shareholders to receive fair value on the open market. Conversely, it is our opinion that larger corporations who have long been interested in the Magnetek brand and niche markets will be willing to acquire the Company's businesses at significantly higher values than the current market capitalization.

Moreover, we believe that value may be best maximized by selling your businesses in pieces as opposed to a total sale. This process, while perhaps more time consuming and difficult, can result in each business unit receiving full value as opposed to a sale to a single buyer who will discount the pieces that they don't want.

We urge you to formally begin this process right away. Additionally, as a large shareholder with a significant track record in creating shareholder value we request a board seat immediately. Given our involvement in the sales of companies with several business units (i.e. Alliance Semiconductor, Celeritek), we believe we can be a great help in this process. Additionally, it is our experience that a large shareholder involved not only adds a sense of urgency but also creates an environment in which service fees are more carefully reviewed and possible options are more broadly considered.

We have written many letters to the board over the last few years and made many requests of management. This one is unique in that we hold the Board and management of Magnetek in high regard. However, our view that shareholders would recognize more value through a formal sales process is strong, and we hope that this message is well received. We will continue to evaluate all of our options as it relates to our Magnetek position.

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General Growth Properties (NYSE: GGP) shares surged higher after activist investor Bill Ackman’s investment was followed by another large purchase by Morgan Stanley. The stock nearly doubled at the end of November when Ackman’s Pershing Square disclosed a 19.9% ownership stake in the troubled real estate investment trust. The rally was extended this week after Morgan Stanley increased its stake to 5.1%, presumably upon making a similar conclusion to that of the hedge fund.

General Growth Properties stock has plummeted over the past two months as investors grew increasingly concerned that the heavily leveraged mall operator may be unable to refinance billions of dollars of debt coming due late in 2008 and 2009.  The REIT had hired the Sidley Austin law firm as a financial advisor to refinance its hefty debt, but very little progress appears to have been made.

Investors are now speculating that Pershing Square and Morgan Stanley may be betting on a change of heart on the part of banks. The bailout packages designed to encourage lending may make the prospects of a refinancing more probable. Alternatively, others are betting that Morgan Stanley, Pershing Square or other large institutions/funds may be interested in providing financing using successful properties as collateral. In fact, Pershing Square did something like this with Borders Group where it held the international division as collateral for a high-interest line of credit to keep the company going…

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Consolidated-Tomoka Land Co. (AMEX: CTO) directors may face some competition at the company’s next annual meeting. Wintergreen Advisors, which owns a 25% stake in the firm, made several proposals aimed at improving corporate transparency and generating shareholder value in a regulatory filing with the Securities and Exchange Commission.

Wintergreen believes that Consolidated-Tomoka is sitting on several promising properties, including its Daytona properties and others in Volusia county. The hedge fund has held discussions with the company on maximizing the value of these properties through direct development or partnerships, but no significant progress has yet been made.

On November 20, Wintergreen delivered three shareholder proposals to Consolidated-Tomoka designed to add board members and improve corporate governance. These proposals included the nomination of four independent candidates to the board, a provision requiring annual election of all directors, and a provision requiring the chairman of the board to be an independent director.

Wintergreen’s nominations to the board of directors include four highly qualified individuals who are independent from the hedge fund and who they believe possess the expertise necessary to work to restore and enhance shareholder value. Furthermore, the nominees are committed to exploring all alternatives to increase shareholder value.

Wintergreen believes that its second proposal to hold board elections annually is the strongest way for shareholders to influence the directors of any corporation. The current board’s staggered elections prevent shareholders from effecting change inside of three years as only one third of the board is up for election per year.

Finally, Wintergreen believes that its third proposal to mandate an independent chairman of the board is the best way to ensure that management is treated objectively by shareholders. In fact, the National Association of Corporate Directors includes independent board leadership as one of its key principles to strengthen corporate governance.

Wintergreen’s proposals have been seen in a positive light by many shareholders as the price edges higher with each SEC filing threatening action. The hedge fund’s large stake in the firm also ensures that its voice will be heard if it attempts a coup to take over the board as it has hinted. All in all, this is good news for shareholders who could finally see some value unlocked in Consolidated-Tomoka.

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