White Electronic Designs Corporation’s (NDAQ: WEDC) earnings conference calls may be turning into more of a soap opera after a hedge fund was jilted. Wynnefield Partners said in a Schedule 13D/A filing with the Securities and Exchange Commission (SEC) that they were unable to ask questions on the company’s conference call despite repeated attempts. As a result, the 9.8% holder then submitted a letter nominating its own directors to the board.

White Electronic Design doesn’t exactly have the best track record with shareholders. The existing board has granted cash-less, dilutive equity awards to management that vest 50% each year without requiring management or the market price of WEDC’s stock, to meet any performance targets or financial metrics. The board also refused to disclose of consider bona fide acquisition proposals at a slightly premium to market in an apparent effort to save their jobs. And finally, the board squandered more than $25 million on two failed acquisitions and a drawn out termination process for its former chief executive.

Wynnefield Partners proposed several changes that it would make at the company to address these concerns:

• Refrain from risking additional shareholder capital on any further acquisitions.
• Provide shareholders with the honest and transparent process that they deserve by exploring the full range of “strategic alternatives”.
• Cease diluting shareholders via the outright grand of “risk-less” equity awards to management that have no performance criteria.
• Implement compensation policies that align the interest of management and the board with interests of shareholders.

"WEDC’s current board and management have presided over a massive destruction of shareholder value," said Wynnefield Partners in its letter to the board. “Why should shareholders believe that the current board now suddenly has the ability to reverse its historical failures and the desire to correct the lack of alignment of its interests with the interests of all WEDC’s shareholders. With the exception of Ed White, virtually no board member has ever purchased a share."

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OpenTV Corp. (NDAQ: OPTV) received a proposal from an activist investor that shareholders may want to consider. Discovery Equity Partners proposed that the firm undertake a Dutch Auction Tender Offer to repurchase at least $30 million of common stock. The hedge fund believes that this action will help to unlock substantial value in the company’s stock price that has been falling in recent weeks.

Discovery backed their proposal with four key facts:

1. The current cash balance of almost $100 million far exceeds the amount necessary to run the business.
2. The current level of cash is well outside the bounds of normal business practices for comparable firms.
3. Retaining cash for potential acquisitions threatens to distract management, introduce risk and dilute shareholder value.
4. The share repurchase will greatly enhance value for all shareholders.
   

According to the Schedule 13D filing with the SEC:

We believe OpenTV will generate over $10 million in free cash flow in 2008, net of capital expenditures, up from $7 million in 2007.  Since Kudelski SA acquired a controlling stake in early 2007, management has expressed its commitment to improve profitability and appears to be making progress. Thus, we expect operating cash flow to remain positive.  We think it is reasonable for OpenTV to maintain $25 million of cash (approximately three months’ sales) to demonstrate financial stability to customers and weather extraordinary business pressures.  Retaining cash considerably beyond that amount appears to contradict management’s confidence in the business.

OpenTV’s cash has nearly doubled from $52 million to $99 million over the four years ended September 30, 2008.  Compared to over 1100 comparable U.S. public companies (based on market capitalizations of $50-500 million and revenues of over $50 million), OpenTV’s ratio of cash-to-revenue ranks in the top decile, which we believe indicates lax balance sheet management.  We believe this proposal is a start toward better stewardship of shareholder resources

A critical element of OpenTV’s improving performance is the recent divestiture of several non-core businesses amassed through acquisitions.  We fear that excessive idle cash could encourage new acquisitions that would reintroduce management distractions and unknown risks.  We are also concerned that acquisitions might be pursued to meet the global business objectives of Kudelski rather than for the financial benefit of all shareholders.  Further, we expect any acquisitions to be highly dilutive to shareholders because there are few companies OPTV can acquire for less than its current valuation of only 0.6x revenue and 5.2x EBITDA, based on our projected 2008 results for OpenTV and its 3-month average stock price of $1.21 as of December 17, 2008

We believe a partial return of excess capital to shareholders is a smart financial move. The Dutch Auction share repurchase method will provide an orderly mechanism for shareholders seeking liquidity, while greatly improving the potential return on equity for shareholders who choose to retain some or all of their OpenTV shares. After the repurchase, the business will still be well funded with approximately $70 million of remaining cash.

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NitroMed (NDAQ: NTMD) buyout offer from Archemix received some opposition from an activist hedge fund. Deerfield Partners said that the merger overvalues Archemix and contains numerous conflicts of interest. Moreover, Deerfield, which holds a 12% stake, offered to acquire the company for $0.50 a share, liquidate the company and distribute the proceeds to shareholders. This would represent a substantially higher value than the current offer on the table.

The majority of NitroMed’s value can be found in its $17.8 million in cash, equivalents and short-term investments as of September 30th. The company also stands to get an additional $26.3 million from the pending sale of heart failure drug BilDil, which was approved for African-American patients in 2005 but never gained significant market share. Assuming these sales, NitroMed would have about $44 million in cash to offer either shareholders or Archemix.

“We ask that you seek a tangible means to deliver NitroMed shareholders fair value for their ownership of the BilDil assets,” said James Flynn of Deerfield. “If there is a means for shareholders to appreciate your current proposal provides in excess of $0.50 per share, it should be simple to articulate, and the shares should appreciate appropriately. If this cannot be demonstrated and you remain committed to your currnt course, additional costly actions will be unavoidable.”

It’s not common for investors to push for liquidation, but Deerfield believes that NitroMed’s cash, including the payment for BilDil, minus the costs winding down the company, would allow a distribution to shareholders of $0.50 per share in cash and potentially a good deal more. This would represent a substantial premium over the firm’s current share price of just $0.36 per share.

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