MAIR Holdings Inc. (NDAQ:MAIR) found itself under increased scrutiny today after 5.3% holder Riley Investments expressed concern that the company was not receiving fair value for its subsidiary Mesaba Airlines in connection with Northwest Airlines' (OTC:NWACQ) bankruptcy/acquisition. While talks between the two companies are still in very preliminary stages, Riley expressed concerns that relationships between the two companies might jeopardize shareholder interests.

The hedge fund changed its filing status from 13G to 13D today, issuing a letter to management explaining their position:

"Riley Investment Management holds approximately 5.2% of the outstanding shares of MAIR Holdings. As we have previously discussed, we are aware of acquisition discussions between Northwest Airlines and Mesaba Airlines, a wholly owned subsidiary of MAIR, and have noted Northwest’s most recent amended Schedule 13-D. We believe the $145 million claim amount proposed by Northwest is grossly inadequate. We believe that Lloyd Miller, who holds approximately 4.56% of the MAIR stock, Palmyra Capital Advisors which holds approximately 1.8% along with several other shareholders, share our concerns.

We believe that for meaningful discussions on claim values or acquisition values to occur between Northwest Airlines and Mesaba, it is necessary that MAIR’s independent shareholders participate. Northwest, MAIR’s largest shareholder with approximately 28% of the outstanding shares (not 39.5% as claimed in Northwest’s 13-D filing), has a clear conflict of interest in the negotiation process and the current MAIR directors may have long-standing relationships with Northwest due to its stake in the Company. To assure fairness in both substance and procedure, it is imperative that the interests of other significant shareholders are actively involved in the negotiation and approval of any transaction. The board cannot assume that Northwest will negotiate for the company or its shareholders’ best interests. Nor can it be assumed that, if the company’s shareholders are asked to approve any transaction with Northwest, Northwest, as a MAIR shareholder, will vote its shares in the best interest of the company or the company’s disinterested shareholders. Shareholders of MAIR should remember that Doug Steenland, president of Northwest Airlines, appears to have ignored similar conflict of interest issues when he served on the board of MAIR during the negotiation of Mesaba’s current ASA and also oversaw MAIR’s $30 million investment into Mesaba. Both the ASA and $30 million investment were completed less than three weeks prior to Northwest Airlines filing for bankruptcy and under Mr. Steenland’s watch as a MAIR board member.

To ensure the fair treatment of the company’s shareholders, any deal between Northwest and the company or its subsidiary should be approved by a majority of the company’s disinterested shareholders. We hope you concur. We are offering to play a constructive role in this process in the effort to receive fair value for our ownership of Mesaba. Because we represent a significant percentage of MAIR’s outstanding stock not held by Northwest and are not conflicted with regard to the negotiations with Northwest, we believe our participation would improve the negotiating process. We note there are currently three vacancies on the board and wish to enter into immediate discussions regarding placing our representatives on the board. 

Given the announcement by Northwest of its plans, and the need for a timely response, we would be interested in meeting with you soon to discuss our views. If you prefer, we will seek to include other significant holders in such a meeting.

If our concerns are not addressed, we reserve our rights to protect our interests and those of other holders by all reasonable methods, including intervention in the Mesaba or Northwest bankruptcy proceedings, or seeking to convene a shareholder meeting which would amend the MAIR bylaws to require approval by holders not affiliated with Northwest, and possibly also seek to enlarge the MAIR board in a manner that would let shareholders fill the new seats created by the expansion.

We hope that we can resolve these concerns amicably in the interest of all shareholders." (Read More)

Clearly there is a strong relationship between MAIR and Northwest that might be reason enough for an independent shareholder committee to evaluate the value of Mesaba in the event of a buyout. This deal is one worth following closely, as any deal would mean significant share appreciation for MAIR and perhaps even Northwest.

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Alltel Corporation (NYSE:AT) jumped over 4% in today's trading on rumors that the company could be the subject of a bidding war between private equity groups and other interested parties. Rumors began after the Wall Street Journal broke the news that various private equity groups were exploring the possibility of leveraged buyout of Alltel. While an Alltel spokesman refused to comment, the WSJ said that the company was attractive due to its low debt and strong balance sheet - enabling its bidders to utilize a substantial amount of debt in the event of a leveraged buyout.

Meanwhile, Stifel Nicolaus added to the conversation by noting that a buyout has been a key part of the company's strategy since it spun off its wire line assets earlier this year. The analyst also said they believed the company was a very attractive takeover target not only for private equity, but also larger competitors Verizon Wireless (NYSE:VZ) and Sprint/Nextel (NYSE:S). Overall, Stifel Nicolaus said it valued the company's shares as high as $85 in the event of a leveraged buyout, and would continue to retain its buy rating on the stock with a price target of $68 per share.

In the end, we know that Alltel could see a bidding war between private equity and other larger carriers; it would be a strategic acquisition for larger competitors like Verizon or Sprint, while it's low debt makes it attractive to private equity groups with deep pockets. Combined, these factors make for an interesting story that is definitely worth following in the coming months!

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Cypress Semiconductor (NYSE:CY) found itself under pressure today from Chapman Capital, which holds around 1% of the company's stock. The well known activist hedge fund sent a letter to the company's board demanding that they consider split off their Sun Power (NYSE:SPWR) stake and attempt to sell their core business via a leveraged buyout (LBO). Chapman said that based on prior estimates that the company obtained, along with their current cash position and Sun Power stake, the company's stock is worth $22 per share - a 35% premium over the current market price.

Since Chapman's stake was under 5%, he chose to issue this recommendation via a press release. The letter is rather lengthy (read it here), but here's the synopsis:

"Chapman Capital L.L.C. today announced that it has notified the Board of Directors of Cypress Semiconductor Corporation (NYSE: CY) of its recommendation that Cypress reorganize via a split-off and subsequent going-private LBO transaction. A letter dated today from Robert L. Chapman, Jr., Managing Member of Chapman Capital, has been sent to Cypress's full Board of Directors and is attached hereto.

Mr. Chapman commented, 'Like other significant owners of Cypress Semiconductor, Chapman Capital has recommended that its Board of Directors re-engage Credit Suisse to effect a corporate reorganization that separates Cypress's core semiconductor operations from its controlling stake in SunPower Corporation.' Regarding Chapman Capital's growing concerns regarding relatively immaterial Cypress share ownership by its Board of Directors, Mr. Chapman stated further, 'Cypress's core semiconductor business, which Mr. Rodgers founded nearly 25 years ago, deserves a much higher valuation than what it was ascribed the day Mr. Rodgers took it public two decades ago. Mr. Rodgers has stated publicly, 'you and I are going to make as much money as fast as we can on this.' Cypress's Board of Directors, despite their insignificant percentage ownership of Cypress, should expect that we are going to hold Mr. Rodgers to this promise.'"

The letter presents solid arguments for a $22 per share price as well as evidence that the M&A market still exists for companies like CY. Combined, these factors make Cypress a stock definitely worth watching into 2007. The stock moved up over 3% today on the news.

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Electro Scientific Industries Inc. (NDAQ:ESIO) is a company that provides high-technology manufacturing systems to the global electronics market, including advanced laser-based systems that are used to microengineer electronic device features in high-volume production environments. Recently, ESIO found itself under pressure today from 9.5% shareholder, Nierenberg Investment Management, to issue a $4 special dividend - a request that came after the company's stock price has remained stagnant at around $10 for several years.

The fund attached a letter to their 13D/A filing with the SEC that detailed the company's excellent market position and prospects, but expressed concerns over the company's stagnant share price. According to the letter:

"Anticipating that Electro Scientific Industries' (ESI) Board of Directors may meet before the company announces second quarter earnings, we respectfully request that ESI pay a one time dividend of $4.00 per share to all shareholders. Paying such a dividend would demonstrate powerfully ESI's commitment to maximizing both shareholder value and return on equity (ROE). We see no adverse consequences from such a dividend. (To be clear, we do not favor a share repurchase or an ongoing dividend. All we seek is a one time dividend similar to that paid by Microsoft. In our experience, repurchase and ongoing dividend programs are often more symbolic than real.)

When we visited you October 5th, after the company's annual shareholder meeting, you put your finger on exactly what has been troubling us about ESI: the stagnation of its share price. We discussed three things which you and the company could do to increase director ownership of ESI shares. Unfortunately most of what we discussed has not occurred, at least not yet, and what has occurred has been minor. Aggregate outright ownership of ESI shares by its eight outside directors has risen from zero to only 4,000 shares, an average of only 500 shares per director. Since we see little evidence that ESI is requiring outside directors to have meaningful "skin in the game," we have decided to stop pushing it. We will focus, instead, on the fundamental issue: the stagnation of ESI's share price, much of which we attribute to sub-optimal allocation of capital.

ESI's share price has fluctuated around $20 per share for a decade. One can contend persuasively that ESI deserves better than being a stock market "flat-liner." You and the other outside directors bring strong industry experience. ESI has a solid management team. We believe that Nick Konidaris is a terrific CEO and we have been positively impressed in our discussions with Tom Wu and John Metcalf, both of whom Nick hired. ESI enjoys leading market shares in its major businesses, where it solves the problems of sophisticated global customers. ESI is good corporate citizen in Oregon. Recently, ESI has introduced exciting new products, reinvigorating its existing businesses, and, we hope, launching several promising new ones. And the company enjoys a fortress balance sheet, fed and protected by a business model which should generate positive operating cash flow, even during downturns.

But ESI's balance sheet also depresses ROE and may encourage loose spending. 38% of ESI's current share price sits in cash and marketable securities, long awaiting deployment, earning only a 4% pre-tax return. For more than six years, ESI has carried over $4 per share in cash and marketable securities on its balance sheet. Since the beginning of 2000, ESI's total cash and marketable securities has nearly quadrupled, through a secondary offering and retained earnings. ESI's most recent balance sheet showed $7.33 in cash and marketable securities per issued and outstanding share.

We believe that just two factors drive a company's long term share price: growth in earnings per share and its ROE. While ESI's recent investments in R&D are beginning to drive higher sales and profits, it will be very difficult for ESI to reach and sustain a mid-teens ROE with cash-bloated shareholders equity of nearly $400 million. Even if ESI were to earn $1.00 per share in calendar 2007, this accomplishment would only drive a 7% ROE, half the level we consider appropriate for an enterprise with ESI's management quality and market share. We are convinced that unless ESI pays out a large special dividend, the company cannot reach and sustain an acceptable ROE. And, without a strong ROE, ESI's share price will continue to languish.

One of a Board's primary responsibilities is to be the ultimate allocator of capital. We are convinced that when a company retains too much cash, and does not use it for a long time, its other allocations of capital may be distorted by its wealth, further diminishing investor returns. For example, companies flush with cash may pour too much money into real estate, such as manufacturing facilities, laboratories, and offices. The current trend toward outsourcing makes such investments particularly ill-timed. Companies may sink too much money into expensive software system deployments, without adequate payback. They may even begin to act like diversified investment funds, putting the shareholders' money into other operating companies. The lesson of our experience is that cash is spent most wisely when there is less of it.

Paying out $4.00 cash per share will not stress or impair ESI. The company remains profitable; it is further reducing costs; and it should generate profits and positive operating cash flow in most foreseeable circumstances. Paying a special cash dividend should not jeopardize employee retention or customer or vendor relationships. Nor would paying such a dividend put ESI's growth strategy at risk. Even after paying out a $4.00 per share cash dividend, ESI would retain nearly $100 million of cash and $211 million of net working capital and have zero debt. Should the company find an acquisition, it still would have plenty of dry powder. Moreover, to fund a large acquisition, the company could issue stock to pay the seller; it could sell additional equity in a private placement or a secondary offering; and it could borrow.

You may recall from our prior discussions with you and management that our concerns about capital allocation and ROE are neither new nor casual. We also have been sharing these concerns with some of the company's large shareholders and some of the analysts who follow the company. Seven investment firms own almost half the company's shares.

You can expect us to continue discussions with ESI's largest shareholders, as only five or six months remain before we must decide whether and how to bring our concerns before the next annual shareholders meeting. It is possible that we may press for the dividend in several different ways, such as by introducing a resolution at the annual meeting or even by nominating our own outside director candidates. Our strong preference, like yours, would be to conserve time and money by avoiding an electoral contest, but we raise these possibilities here today to demonstrate the gravity of our concern and our willingness to invest in preparing, if necessary, a campaign of persuasion.

In conclusion, we want to reiterate our enthusiasm for ESI and note that our concern about allocation of capital is an issue which transcends the company. Too many public technology companies today are cocooned in green blankets. In allocating capital they often are fighting the last war, driven by memories of an era when growth was faster and cyclicality steeper. While understandable, this mindset undervalues what ESI management has done, and is doing, to reduce cost, broaden revenues, and diminish cyclicality. It is time for ESI's Board to share the green blanket with its ultimate owners, your shareholders. We are happy to discuss this issue further with you at any time." (Read More)

This letter serves as a great overview of the company for new investors in the company as well as a compelling argument for the company to issue a special dividend. If the company is able to illustrate its willingness to do what it takes to unlock shareholder value, this stock could finally move outside of its nearly-decade-long range. Combined, these factors make ESIO a stock worth watching closely into 2007.

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Harbinger Capital indicated that it would be seeking two board seats on Openwave Systems, Inc. (NDAQ:OPWV). The activist hedge fund changed its filing status today from 13G to 13D (indicating an activist stance) and filed preliminary proxy materials to elect James L. Zucco and Andrew J. Breen to the board of directors. This news comes as OPWV is well off its 52-week highs of over $20 per share. Currently the stock is sitting at around $9.60 per share aftering moving up over 9% on this news today.

What changes would the new board push to implement? Well, according to the 13D filing:

"Establish a unified and focused "platform" vision for the Company's overall product offering with the Company's most strategic core products. Currently, the Company is supporting a very broad product line with a divergent mix of products for each customer. The Company is now in the process of creating significant new technology (OPPS and ODP) which is unproven in the marketplace and with only minor tie-ins to existing products. Perceived delays in product development and the release of these new products have caused investors to worry about the future of the Company. We urge the Company to develop a unified vision and customer message with a coherent business, market, and technology strategy. The value proposition should clearly communicate that an investment in the Openwave platform can be leveraged across multiple applications and product generations.

Prune non-performing product lines to further reduce costs. Many of the Company's aging lower-margin products no longer warrant continued investment and allocation of resources to such products prevents management, sales organization, and R&D employees from properly developing and selling new products. The Company needs to apply a specific set of investment metrics against all current and planned products and products not meeting the criteria for continued investment should be discontinued.

Immediately reduce quarterly operating expenses to approximately $50 million. Given the uncertainty of deal flow for new products as well as declining revenues and pricing pressure for legacy products, the Company's revenue is more likely to remain in its current range for the next several quarters and there must be some contribution to margin generated by more significant reductions in operating costs. We believe that the Company can make this reduction through office consolidation, reduction in redundant headcount, sales reorganization, and other administrative cost reductions.

Immediately commence a significant share repurchase program. As of September 30, 2006, the Company had cash and cash investments totaling $505.1 million and net cash of approximately $355 million. While we recognize that a strong balance sheet is needed in order to compete for business in the Company's end markets, we feel strongly that the amount of cash currently on hand could only be justified by management's desire to make acquisitions. While we recognize that acquisitions are an important part of any growth strategy, Harbinger Capital Partners do not believe funding large-scale acquisitions would be a prudent use of this capital at this time. Harbinger Capital Partners would recommend that the Board take steps to implement a $200 million share repurchase program or dutch auction tender, reducing current shares outstanding by approximately 25%. This would leave the Company with net cash of approximately $155 million (gross cash of approximately twice the outstanding debt) which should provide ample financial flexibility." (Read More)

Clearly these are changes that would be beneficial for shareholders. Streamlining the company's product lines and operating budget would save millions of dollars, while a share repurchase program would increase the value of the stock by reducing the float by a quarter. If Harbinger is successful in installing its board members, we could see significant share appreciation from these levels over the medium to long term. Consequently, OPWV is definitely a stock worth watching going into 2007.

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IPSCO Inc. (NYSE:IPS) today revised its Q4 EPS outlook to $3.00 to $3.10, excluding any impact of the NS Group acquisition, foreign exchange gains or losses or effects of share price volatility, and assuming an effective tax rate of 36%. The company had originally estimated that earnings per share, on the same basis, would be in the range of $3.30 to $3.50 per diluted share. The Wall Street consensus stands at $3.50.

J.C. Penney Company, Inc. (NYSE:JCP) announced the termination of Catherine West as executive vice president and chief operating officer, effective immediately. West was just named COO of J.C. Penney in June, coming from Capital One (NYSE:COF), where she served most recently as president of one of its largest divisions, the U.S. Card business. West was also named one of Fortune's 50 Most Powerful Women.

Apple Computers (NDAQ:AAPL) is under pressure after CEO, Steve Jobs, was given 7.5 million stock options in 2001 without the required board authorization. The report said records showing a full board meeting had taken place to approve the award was later falsified. The SEC said it will evaluate this and other evidence as it decides whether or not to pursue a case. Shares of AAPL traded lower in today's session.

Ultra Petroleum Corp. (AMEX:UPL) -- UPL is down from a high of over $70 per share ealier this year to its current levels of around $48. Despite this drop, the company is still currently trading above enterprise value with a PEG of 1.21, which is slightly below the industry average.

CNX Gas Corporation (NYSE:CXG) -- CXG is a new public company trading nearly even since its IPO, currently sitting around $25 per share. The company is trading above its enterprise value, but has a PEG of around 0.98 - lower than the industry average.

XTO Energy Inc. (NYSE:XTO) -- XTO has been rangebound throughout this year, currently trading around $47 per share. The company currently trading well below enterprise value with a PEG of just 0.66 - substantially lower than the industry average. This makes XTO one of the cheapest companies in the oil and gas sector.

EOG Resources, Inc. (NYSE:EOG) -- EOG is off its 2006 highs of around $80 per share, currently standing at $63 per share. The company is trading just about at enterprise value with a PEG of 1.33.

Range Resources Corp. (NYSE:RRC) -- RRC is currently trading above the major moving averages at around $27 per share. The company is trading below enterprise value with a PEG of right around 1.15, making it a relatively attractive company from a value perspective.

Occidental Petroleum Corp. (NYSE:OXY) -- OXY is currently trading above its yearly lows of around $40 per share, currently sitting at close to $60 per share. The company is trading slightly below enterprise value with a PEG of 1.09.

China Netcom (NYSE:CN) moved up more than 14% today on rumors that the company could be bought out by China Unicom (NYSE:CHU), even though both companies immediately dismissed claims of negotiations between the two companies. Meanwhile, the broader Hong Kong market also continued its rally, moving to record highs today. Many attribute these moves to recent rallies in the Chinese domestic market combined with new favorable tax policy that would institute a unified flat tax rate of 25% for foreign and domestic companies.

Other stocks experiencing a rise in recent weeks include China Life (NYSE:LFC), Ping, The Industrial and Commercial Bank of China, and many others on the HK exchanges. Overall, Chinese companies (and their ADR counterparts trading on the NYSE) continue to perform extremely well.

ProQuest Company (NYSE:PQE) may get some much needed turnaround help after the Shamrock Activist Value Fund disclosed a 6.6% stake in the company. The activist hedge fund gave few details as to its plans in its intial 13D filing with the SEC; however, the fund has traditionally taken an active stance in its investments when appropriate. This event is significant because it is an initial sign of buying by a knowledgeable hedge fund while the company its near its 52-week low.

ProQuest Company is a publisher of information solutions for the education, automotive and power equipment markets. The Company provides products and services to its customers through two business segments: ProQuest Information and Learning (PQIL) and ProQuest Business Solutions (PQBS). PQIL is a provider of content to schools, academic institutions and public libraries while PQBS develops and deploys parts and service information products, and dealer performance applications for the automotive market. The company has suffered through 2006, dropping from a high over $30 per share to its current levels of around $10 per share. This comes after the company has experienced heavy losses and an ongoing accounting investigation, which could result in restatements from fiscal years 2001 to 2004. While these restatements have yet to be published, the company said that it expects earnings to be substantially lower.

So, is PQE a buy at these levels? Well, the company did recently sell off its business solutions division for over $500 million, which will give the company a boost in cash and allow it to focus on its core competencies. Moreover, Shamrock's involvement with the company will likely result in a faster turnaround and better returns for investors. And many argue that the drop from $30 to $10 is a deep enough discount to justify the risks associated with the retracement; however, without specific numbers, it is impossible to come up with a solid valuation. Consequently, it may be best for investors to wait on the sidelines for the retracement numbers before investing.

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Sempra Energy (NYSE:SRE) increases their 2006 EPS guidance, to exceed $4 per share. The increase from the previous per share estimate of $3.50 to $3.70 is due primarily to increased profitability at its commodities business. The consensus stands at $3.66.

InfoSonics (NDAQ:IFON) shares are trading higher, almost 44% today, after announcing the company will be distributing handsets for LG Electronics in the Caribbean and select countries in Latin America. InfoSonics has already received approval, certification and purchase orders from carriers in the region and will be delivering its first shipments in the coming weeks.

Inverness Medical Innovations, Inc. (Amex:IMA) and The Procter & Gamble Company (NYSE:PG) have signed a definitive agreement to form a 50/50 joint venture for the development, manufacturing, marketing and sale of existing and to-be-developed consumer diagnostic products outside of the fields of cardiology and diabetes. Both stocks were up today.  

Cadmus Communications Corporation (NDAQ:CDMS) and Cenveo, Inc. (NYSE:CVO) have entered into a definitive merger agreement for Cenveo to acquire Cadmus in an all-cash merger at a price of $24.75 per share. The total value of the transaction, including Cenveo's assumption of Cadmus' debt, is expected to be approximately $430 million at closing.

BigBand Networks, Inc. (NDAQ:BBND) filed a registration statement with the Securities and Exchange Commission today for a $140 million initial public offering. Given the strong IPO market recently, this stock is definitely one worth tracking into 2007. While the company still hasn't provided a pricing range or other related information, we did get a history of the company as well as an overview of the market in which they operate.

According to the S-1 filing:

"We develop, market and sell network-based platforms that enable cable operators and telephone companies, collectively called service providers, to offer video, voice and data services across coaxial, fiber and copper networks. We have significant expertise in rich media processing, communications networking and bandwidth management. We have delivered what we believe to be the only successful commercial deployments of switched broadcast, an application that substantially increases the volume of content that a service provider can offer. In addition, we were the first to implement what we believe has become the industry’s de facto network architecture for digital simulcast, an application that facilitates the insertion of advertising and the transmission of video in a digital format across a network while still providing service to analog subscribers. Our product applications of Digital Simulcast, TelcoTV, Switched Broadcast, and High-Speed Data and Voice-over-IP are a combination of our modular software and programmable video and data hardware platforms.

Our software and hardware product applications are used by leading service providers worldwide to offer video, voice and data services to tens of millions of subscribers, 24 hours a day, seven days a week. We have sold our product applications to more than 100 customers globally, including Cablevision, Charter, Comcast, Cox, Time Warner Cable and Verizon, which are six of the ten largest service providers in the United States. Our net revenues increased 59.6% to $113.6 million for the nine month period ended September 30, 2006 from $71.2 million in the same period in 2005. We achieved our first quarter of profitability in the three months ended September 30, 2006.

Service providers derive most of their revenue from consumer subscriptions and advertising. Service providers are increasingly bundling disparate video, voice and data services into integrated offerings, also known as “triple-play” services. Video is the most technically demanding, provides the richest user experience and currently offers the greatest revenue per subscriber of the triple-play services. As of December 2006, Yankee Group Research estimates that, on average, consumers spend per month $68 for digital video services compared to $47 for voice and $33 for data services.

Competition to deliver video, voice and data services has fueled recurring cycles of network investment as service providers seek to capture increasing revenues by offering additional services. Regulatory, technological and competitive factors are leading service providers to increasingly compete against one another for consumer subscription and advertising revenues. For example, cable operators have added approximately eight million voice-over-IP subscribers, while telephone companies are investing in video, such as Verizon’s announced plan to upgrade its fiber-optic network for video and data services at a cost of $18 billion. In addition to competing among themselves, service providers are facing competition from Internet and media companies, such as ABC.com, Apple Computer, Google and Yahoo, which use the Internet to deliver video content and advertising directly to consumers.

To differentiate their video, voice and data services from the competition, service providers are beginning to develop differentiated video offerings that more directly respond to consumer demand for more personalized and richer content, a higher quality experience and greater ease of access to this content. For example, subscribers are demanding more high definition television, or HDTV, and gaining more control over their consumption of video content through video-on-demand, or VOD, technologies. At the same time, advertisers are increasingly demanding that video-based advertising deliver more relevant ads with the interactivity to measure return on ad spending comparable to ads placed on the Internet. The need to respond to consumer demands for richer, more accessible and more relevant content, and advertisers’ demands for increased interactivity, is forcing service providers to improve their networks.

Current service provider networks are not well suited to deliver the entire triple-play bundle of services and relevant advertising. In particular, these networks lack sufficient bandwidth necessary to deliver rich video services such as HD programming and lack the interactivity and ability to tailor programming and advertising to subscribers. As a result, a simple expansion of network capacity is not likely to meet these challenges, and there is a need for platforms designed primarily for reliable and cost-effective video delivery, which in turn will enable the entire triple-play offering. The rapidly changing trends in consumer demands and advertiser requirements, coupled with the competitive environment, are forcing service providers to develop more intelligent, extensible networks to provide these advanced services, enable increasingly relevant advertising and make more efficient use of available network capacity." (Read More)

It is worth noting that the cable industry (this company's customers) have been performing well during the past few quarters, and are expected to outperform the general market into 2007. These companies have also reported record amounts of cash, enabling them to strategically purchase companies that interest them. While this company wouldn't make a core acquisition for any of these companies, it does remain a possibility. Combined, these factors make BBND a stock worth watching in 2007.

Shanda Interactive (NDAQ:SNDA) moved higher today as rumors surfaced that Google, Inc. (NDAQ:GOOG) was interested in acquiring Chinese literature site, Qidian (www.cmfu.com), owned by SNDA for between $400 and $600 million. This news comes after several tech acquisitions by search and media giants Yahoo, Google, and eBay in 2006. While both companies declined to comment, this is certain a story worth watching closely as a $400M+ acquisition would account for around a quarter of the company's current market cap. The stock is currently trading up 6.5% on the news.

Shanda Interactive Entertainment Limited (Shanda Interactive) is an interactive entertainment company and an operator of online games in China. In addition to the Company's portfolio of online games that users play over the Internet, it provides users with access to additional content and services through Shanda Interactive's EZ Center platform, including literature, music, movies, radio, finance, e-commerce, travel, news and educational programs.

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Pirate Capital revealed a 5.6% stake in Mueller Water Products (NYSE:MWA) in a 13D filing today after it received shares as part of the company's spin-off from parent company Walter Industries (NYSE:WLT). While Pirate Capital did not disclose any plans with regards to its spin-off shares, they are likely to hold onto them as spin-offs statistically tend to outperform the market in general. Meanshile, Walter Industries has been nearly flatlined through most of this year; however, many argue that the stock remains undervalued. Pirate, it appears, would agree, as they continue to hold their $135 million stake in the company, although they did cut their stake slightly in October. Regardless, these are definitely two stocks to keep an eye on into 2007.

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Parlux Fragrances Inc. (NDAQ:PARL) may soon find itself in trouble as 12.2% holder Glenn H. Nussdorf disclosed he filed a preliminary consent statement in a 13D/A filing with the SEC today. This move comes after several attempts by the activist investor to institute changes within the company. While no additional details were provided in this filing, Nussdorf did outline his plans in past filings with the SEC. According to his initial 13D filing with the SEC:

"As the beneficial owner of a substantial percentage of the outstanding shares of Parlux, I believe that much can be done to increase shareholder value and that it is time for immediate change at both the Board and management levels. The decline in the Company's share price from a high closing price of $18.96 earlier this year (after adjusting for a 2-for-1 split in June 2006) to the current $6.26 level (a decrease in shareholder value of 67%), the Company's recent disclosure of decreased sales and earnings for the quarter ended September 30, 2006, and the allegations in the recently amended class action lawsuit that the Company improperly recognized revenues on sales to related parties, have led me to conclude that the Board of Directors is failing to act in the best interests of the Company's shareholders and is not exercising appropriate oversight of management. I am convinced that a continuation of the status quo risks a further destruction of shareholder value and, accordingly, I intend to protect the value of my significant investment in the Company through a consent solicitation to replace members of the Board of Directors.

As I have publicly disclosed in my Schedule 13D filing, I am exploring the possibility of making an acquisition proposal to acquire the Company in a business combination transaction. While I have not made a decision at this time whether to pursue such a proposal, I strongly urge the Board not to take any action (such as the previously announced and subsequently abandoned sale of the Perry Ellis brand) which would materially modify or impact the Company's business, products or assets and could adversely effect the Company's value. In addition, the consent solicitation will present Parlux shareholders with a unique opportunity to express their views on the future direction of the Company." (Read More)

Clearly, Nussdorf's most recent move indicates his continued conviction as to the company's intrinsic value. While he failed to give additional details as to his recent plans, he did indicate in the past that he would be seeking to replace the board (which is happening now) and would consider placing a bid to take over the company. Given the strong M&A market and the continued depressed PARL prices, this remains a possibility. This makes PARL a stock worth watching over the next few months.

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InFocus Corporation (NDAQ:INFS) shareholder Caxton Associates revealed that they increased their stake in the company from 8.9% to 9.9% in a 13D/A filing with the SEC. The activist hedge fund has long maintained that the company's intrinsic value and buyout prices are substancially higher than the current market prices. Although this filing gave no additional details, the fund did outline its argument in their intial October 13D filing:

"The Reporting Persons believe that the intrinsic value of the Company, and the amount a strategic or financial buyer would pay to acquire the Company, is significantly greater than the current market value of the Common Stock.  The Reporting Persons believe that this gap in value has resulted from the implementation by the Company's Board of Directors (the "Board") of a flawed business plan that has been detrimental to shareholder value. The Reporting Persons accordingly believe that the following steps should be taken promptly in order to preserve and maximize shareholder value:

1. The Reporting Persons believe that the Company's poor performance is the result of mistakes made by management and the Board's failure to grasp the strategic realities of the environment in which the Company operates.  At this time, we believe that the Company's operating management is capable of effectively executing the Board's strategic vision should it be given adequate guidance and oversight.  We do not, however, believe that the Board, as currently constituted, is providing the necessary strategic thinking.  Therefore, we believe that, unless significant changes are made promptly, changes in the Board are in the best interests of all shareholders.

2. The Board should include individuals with strong ties to large shareholders, as well as industry, legal and/or financial markets expertise, which have a firm grasp of the realities of the markets in which the Company operates.  Unless significant changes are made, the Board should be restructured to consist of Mr. Ranson, at least two individuals drawn from among the Company's largest shareholders, and other independent directors with relevant industry backgrounds.

3. As part of the Company's announced exploration of strategic alternatives, the Board should develop an operating strategy that not only protects and enhances the hard asset value of the Company, but also will allow the Company to be cash flow positive under any foreseeable circumstances.  The Board should immediately work with management to develop a business plan that, among other things, permits revenue growth only at a reasonable cost, fixes or exits money-losing operations, and leverages the Company's valuable brand name franchise and considerable intellectual property assets.  This new business plan should be assessed against other available alternatives, including the possibilities of a sale or restructuring of the Company.

The Reporting Persons continue to examine all of their options with respect to the possibility of taking actions that they believe will enhance shareholder value, including the option of actively seeking to replace members of the Board." (Read More)

While Caxton did not issue any additional comments, the fund's buying does indicate that it is still committed to unlocking shareholder value. Since their intial involvement with the company's the stock has been nearly flat, while the board's reponse to the fund's demands have been limited. Consequently, the possibility remains that the company could seek to replace members of the board. This makes INFS a stock worth watching over the next few months.

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TLC Vision Corp. (NDAQ:TLCV) may find itself in hot water soon after one of its largest holders changed its filing status from 13G to 13D, indicating a more activist stance. Sowood Capital Management, an 8.1% holder in the company, filed a 13D today stating that they are "filing this Schedule 13D because Sowood anticipates seeking to engage in discussions with management of the Issuer." This news comes as the company's stock has moved down from $7 per share in early 2006 to a low of $4 per share just a few weeks ago. Clearly, changes are needed in this company and shareholders are betting that Sowood has the answers, as the stock moved up over 5% in early morning trading today. While we do not know any details, this is definitely a stock worth watching in the next few months.

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ADTRAN, Inc. (NDAQ:ADTN) guides are below street estimates. The Q4 revenue is expected to range from $108 million to $112 million. GAAP earnings per share for the quarter, assuming dilution, are expected to range from $0.22 to $0.24. Non-GAAP earnings per share for the fourth quarter of 2006, assuming dilution, are expected to range from $0.24 to $0.26. The consensus is $126.5 million and $0.30, respectively.

Walgreen Co. (NYSE:WAG) reports Q1 EPS of $0.43, two cents better than estimates. Revenues were $12.7 billion versus $12.55 billion consensus.  Total sales in comparable stores (those open more than a year) were up nearly ten percent in the quarter, while front-end comparable drugstore sales rose almost six percent in the quarter.

El Paso Corporation (NYSE:EP) announced the sale of ANR Pipeline Company, its Michigan storage assets and its 50-percent interest in Great Lakes Gas Transmission to TransCanada Corporation and TC PipeLines, LP for $4.135 billion, including the assumption of $744 million of debt.  The company expects its after-tax cash proceeds to be roughly $3.3 billion, utilizing tax loss carryovers in this transaction.  In addition, El Paso expects to have approximately $1 billion of tax loss carryovers remaining after the close.

Shares of Pinnacle Airlines Corp. (NDAQ:PNCL) are higher this morning after the company announced that it has reached agreement with Northwest Airlines, Inc. (OTC:NWACQ) for an amended and restated Airline Services Agreement between the two parties, subject to confirmation by the bankruptcy court.  The agreement provides, among other things, that Pinnacle will continue to be a long-term partner of Northwest through at least 2017. In addition to reaching terms on an Amended ASA, Northwest and Pinnacle have also reached an agreement on certain corporate governance issues and agreed that Pinnacle will receive an allowed unsecured claim of $377.5 million (subject to adjustment in certain circumstances) in Northwest's bankruptcy proceedings in settlement of all claims that Pinnacle may have against Northwest. Once approved, the Amended ASA and related agreements will become effective January 1, 2007.  Shares of Pinnacle Airlines are 40% higher to $15 as of this morning prior to opening.  

News Corporation (NYSE:NWS) announced that it had signed a share exchange agreement with Liberty Media Corporation (NDAQ:LCAPA).  Under the terms of the agreement, Liberty will exchange its entire 16.3% economic position (324.6 million Class A and 188 million Class B shares) in News Corporation for a 38.4% stake (470.4 million shares) in The DIRECTV Group (NYSE:DTV), three Regional Sports Networks (FSN Northwest, FSN Pittsburgh and FSN Rocky Mountain) and $550 million of cash, subject to a working capital adjustment.

ADESA, Inc. (NYSE:KAR) has entered into a definitive merger agreement to be acquired by a group of private equity funds consisting of Kelso & Company, GS Capital Partners, an affiliate of Goldman Sachs, ValueAct Capital and Parthenon Capital.  Under the merger agreement, each outstanding share of ADESA common stock will be converted into the right to receive $27.85 per share in cash, representing a premium of approximately 10% to ADESA's closing share price of $25.40 on December 21st.  

TNS, Inc. (NYSE:TNS) moved higher today after founder and former CEO John J. McDonnell, Jr. offered to take the company private at $20 per share through a new blank check company, Dunluce Acquisition Corporation. While the premium isn't as much as other recent acquisitions, Mr. McDonnel's past involvement with the company as founder give this transaction a good likelihood of going through quickly.

According to a letter attached to the 13D filing:

"We are pleased to present this offer to acquire all of the outstanding shares of common stock (the Common Stock) of TNS, Inc. (the Company) at a cash purchase price of $20.00 per share through a new acquisition vehicle, Dunluce Acquisition Corporation (Dunluce), a Delaware corporation.  We believe that our offer is fair and in the best interest of the Company and its stockholders. This offer is fully financed and contemplates all-cash consideration predicated on all stockholders being treated equally.  Our offer represents a significant premium over the trading values of the Company’s Common Stock on a 1-day (16.8%) and 30-day average closing price (17.0%) basis. This offer is made without condition, except for the negotiation of definitive documentation and the satisfactory completion of confirmatory due diligence.

Dunluce has received commitments to underwrite the entire purchase price through a combination of debt and equity.  The equity for the transaction has been committed to, in its entirety, by ABRY Partners, LLC (ABRY). With $2.8 billion of capital under management, ABRY is one of the most experienced and successful private equity investment firms in North America focused on investing exclusively in the media, communications and business services industries.  Since 1989, ABRY has completed over $18.0 billion of leveraged transactions and other private equity and mezzanine investments, representing investments in more than 450 media, communications and business services properties. Additionally, we have secured debt commitments from each of JP Morgan, Morgan Stanley and SunTrust to fully underwrite the debt upon closing of the transaction. Commitment letters from ABRY and each of the lenders are enclosed herewith.

Given my longstanding involvement in the Company as its founder and CEO, our financing group will be in a position to complete confirmatory due diligence and finalize a merger agreement in an expedited manner. I am aware of the Board’s desire to minimize distractions to the Company and its management and have spent considerable time with each of the financing sources discussing the business.  Furthermore, each of the financing sources has performed significant due diligence from publicly available information.

At this point, all that is left to be done is to enable our financing sources to complete their confirmatory due diligence.  The legal and accounting advisors to ABRY and our lenders stand ready to begin their work immediately.  Additionally, we are prepared to negotiate a merger agreement concurrently with the confirmatory due diligence period." (Read More)

The transaction represents a 16.8% premium over yesterday's market price, and comes after a very volatile year for the stock; however, TNS traded as high as $22 earlier in 2006. While additional offers are not likely, shareholders may want this price to be higher. This stock is one to keep an eye on just incase such demands are made.

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RedHat, Inc. (NYSE:RHAT) said today that it sees Q4 sales of $112 to $113 million, versus the consensus of $111.15 million. It also noted that it sees Q4 adjusted EPS of $0.14 to $0.15, versus the consensus of $0.13. The stock moved up 12% in today's trading.

Micron Corporation (NYSE:MU) reported Q1 EPS of $0.25, which was $0.05 cents better than estimates. Revenues came in at $1.58 billion versus a $1.64 billion consensus. The company noted increases in its memory (DRAM and NAND) and imaging products.

Research in Motion (NDAQ:RIMM) reported Q3 GAAP EPS of $0.93 versus a consensus of $0.92. Meanwhile revenues came in at $835.1 million versus a $808.24 million consensus. The company said that it sees Q4 EPS between $0.92 and $0.99 versus a consensus of $0.96 and revenues between $900 and $940 million versus a $815.7 million consensus.

MAIR Holdings Inc. (NDAQ:MAIR) moved 18% higher today on news that Northwest Airlines (OTC:NWACQ) was interested in acquiring its bankrupt Mesaba Airlines unit. Mesaba Airlines currently operates as a Northwest Airlink affiliate under code-sharing agreements with Northwest Airlines. The company followed Northwest's into bankruptcy in the fall of 2005.

Griffon Corp. (NYSE:GFF) received some advice today from the Clinton Group who revealed a 5.2% in the company along with a series of recommendations to unlock shareholder value. The activist hedge fund said that the current stock price does not reflect the value of the company's operating subsidiaries, which is a notion that the company has also acknowledged. Consequently, the Clinton Group offered to help the company explore strategic alternatives, which include a potential tax-free spin-off of some or all of the companies subsidiaries or privatization of the company.

The hedge fund elaborated in a letter attached to their 13D filing:

"We greatly appreciate you and Mr. Edelstein taking the time to discuss with us Griffon Corporation  (Griffon or the Company) and its prospects, and we are pleased with management's willingness to listen to shareholder ideas and opinions. Currently, funds and accounts managed by Clinton Group Inc. (Clinton) beneficially  own in excess of 5% of the outstanding shares of the Company.

We have been impressed with the franchise that management has built, and continue to appreciate management's eye towards returning shareholder value through steady share repurchases. We have invested in Griffon because we believe the market price of Griffon shares fails to reflect the true value of the Company's operating subsidiaries, if they were to be valued on a stand-alone basis.

Given the apparent disconnect between each segment's intrinsic value and the Company's current stock price, we were pleased to hear on last quarter's conference call that management was proactively reviewing strategic alternatives with respect to the defense segment. We hope to work constructively with management to continue to evaluate multiple strategic alternatives, including, but not limited to, a tax-free spin-off or sale to strategic acquirors of one or more of Griffon's subsidiaries, or a going-private transaction for the Company. Given the market leading positions of Clopay Corporation's garage door division and  specialty films division, as well as Telephonics Corporation's well positioned and growing defense segment, we believe any of these initiatives, or a combination thereof, would unlock significant value for existing shareholders.

Based  on our due diligence, we firmly believe that competitors in each respective segment both hold the Company's subsidiaries in high regard and have tremendous strategic interest. Additionally, a publicly traded comparable company analysis as well as our due diligence supports the notion that ample demand would exist for Telephonics Corporation in the public market as a stand-alone company.

Our analysis ultimately suggests that fair value for Griffon's stock approximates $31-$35, prior to certain adjustments as footnoted below:

[Click Here to View Table in SEC Filing]

We enjoyed meeting with you and hope to continue an open and constructive dialogue. To that end, please feel free to call me at 212-377-4224 or Tobin Kim, Vice President, at 212-739-1830, anytime to discuss any and all issues further at your convenience." (Read More)

The Clinton Group's analysis (along with the company's own suspicions) is correct - the breakup value of the company is greater than the value currently reflected in the share price, based on industry valuations. With management already exploring ways to unlock this value and the Clinton Groups expertise in this area, there is good chance that this value could be unlocked in the near term. The company is currently trading at $25.66, after moving up over 6% today on the news. The valuation calculated by the Clinton Group suggests that the share price could reach $31 to $35, meaning a 20.6% to 36.2% premium over today's prices. While this process may take several months and there is no certain decision by the company's management, this stock is definitely one worth watching into 2007.

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Bill Ackman's Pershing Square disclosed an 11.3% stake in Ceridian Corporation (NYSE:CEN) today in a 13G filing with the SEC. The stock moved up more than 5% in early trading this morning on the news. Pershing Square is a well known hedge fund that tends to take an activist stance in the companies in which it invests - most recently, McDonalds and Wendy's. Currently, Perishing Square has only filed a 13G indicating that this is only a passive investment. However, activist hedge funds occasionally use this filing type to acquire shares quietly before taking a more active stance, since it does not require a "Purpose of Transaction". If and when Pershing Square takes a more active stance in the company, it will be forced to file a 13D with the SEC which will outline its investment objectives. Given Bill Ackman's background, this is a distinct possibility, and definitely a stock worth watching.

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3Com (NDAQ:COMS) reported a Q2 loss of $0.01 per share, including restructuring, amortization and stock-based compensation expense of $20 million, or $0.05 per share. The consensus stood at $0.00.

Ultratech Inc. (NDAQ:UTEK) lowered their guidance today. The company currently expects revenue to be down 25% to 30% sequentially from the third quarter 2006 compared to earlier guidance of revenue being down 8% to 10% sequentially as of October 2006. Q4 EPS is expected to be between $0.25 to $0.30 share. This compares with earlier guidance of $0.10 to $0.15 per share.

PMC-Sierra, Inc. (NDAQ:PMCS) now expects revenues for the fourth quarter to be between $100 to $105 million. The company's previous outlook was for a revenue range of $105 million to $112 million. The consensus stands at $108.9 million.

Cognos (NDAQ:COGN) reported Q3 EPS of $0.48 today - five cents better than estimates. Revenues were $247.8 million versus $241.11 million consensus. They predict Q4 revenues of $270 to $280 million versus the consensus of $276.4 million. They also foresee FY07 Non-GAAP EPS of $1.64 to $1.70 versus the consensus of $1.61. FY07 revenues are aimed to be around $965 to $975 million versus the consensus of $964.3 million.

Accenture (NYSE:ACN) reported Q1 EPS of $0.46, $0.04 cents better than estimates. Revenues were $4.75 billion versus $4.51 billion consensus. The company foresees Q2 revenues of $4.6 to $4.8 billion versus the consensus of $4.49 billion, while they raised their FY07 EPS outlook to $1.80 to $1.85, up from its previously expected range of $1.77 to $1.82. The consensus currently stands at $1.83.

Anheuser-Busch Cos. Inc. (NYSE:BUD) said its Board of Directors has approved a new, more aggressive leverage target to enhance shareholder value. The company intends to modestly increase leverage and reduce its cash flow to total debt target from the previous 30% to 40% range to the 25% to 30% range. In conjunction with the more aggressive leverage target, the Board of Directors of Anheuser-Busch Cos. Inc. has approved a new 100 million share repurchase program.

PHC, Inc., d.b.a. Pioneer Behavioral Health (OTCBB:PIHC) has finalized a contract with Behavioral Healthcare Options (BHO), a subsidiary of Sierra Health Services, Inc. (NYSE:SIE). The contract calls for Pioneer to operate four clinics in the BHO network in Las Vegas and northern Arizona, effective January 1, 2007. The contract is valued at $80 million, with an initial term of 10 years, or approximately $8 million annually. The contract more than doubles Harmony's annual revenues, from $5 million to approximately $13 million. The contract is expected to be accretive to the company during the first year of deployment.

M & F Worldwide Corp. (NYSE:MFW) and John H. Harland Company (NYSE:JH) announced that they have entered into a definitive merger agreement for M & F Worldwide to acquire Harland for $52.75 per share in cash, representing an approximate transaction value of $1.7 billion.

FedEx Corporation (NYSE:FDX) reported Q2 EPS of $1.64 versus the consensus of $1.76. Revenues came in at $8.93 billion versus the consensus of $8.91 billion, with Q3 EPS of $1.20 to $1.35 versus the consensus of $1.55. They foresee a Q4 EPS of $1.98 to $2.13.

CarMax Inc. (NYSE:KMX) reported Q3 EPS of $0.42, versus the consensus of $0.25. Revenues came in at $1.77 billion versus the consensus of $1.63 billion, with FY EPS of $1.75 to $1.85, versus the consensus of $1.55 to $1.65; the consensus stands at $1.64.

ElkCorp (NYSE:ELK) was a company that we first covered in early November, when we reported that the company considered putting itself up for sale. Since then the company moved up more than 25% after it accepted an offer from The Carlyle Group at $38 per share, outbidding Building Materials Corporation of America's $35 bid.

Now, there are rumors that Building Materials Corporation may be contemplating higher bid. The group currently controls over 10% of the company's outstanding shares, giving them excellent leverage in any battle for the company. Meanwhile, shareholders have jumped the price up over 5% to $40.90 in today's trading, giving substance to the rumors. This is definitely a stock worth watching as this situation unfolds; however, it remains a risky investment right now, trading above the sole accepted offer.

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DRAXIS Health Inc. (NDAQ:DRAX) announced today that it received approval from the TSX to renew its Normal Course Issuer Bid. This enables the company to repurchase up to 3,397,011 of its common shares, which represents nearly 10% of its float. The company's board determined that the underlying value of the Company is not reflected in the current market price of its common shares and has thus concluded that the repurchase of common shares pursuant to the proposed normal course issuer bid presently constitutes an appropriate use of financial resources and would be in the best interest of shareholders.

Intersil Corporation (NDAQ:ISIL) approved a $400 million stock buyback program. This is significant because it represents around a 10% repurchased based on today's prices, given the company's market cap of just over $3.3 billion. The company noted that the funding for this repurchase would come from future free cash flows along with a portion of their cash on hand.

UST Inc. (NYSE:UST) announced that it would be increasing its dividend 5.3% and instituting a $200 million share buyback program. While the share buyback only represents approximately 2% of the company's market cap at current prices, the moves do illustrate management's confidence in the company's future cash flows and committment to increasing shareholder value. The stock moved up 2% on the news in intraday trading.

The Brink's Company (NYSE:BCO) is again in the news today as Pirate Capital makes a move on the company. In a 13D/A filing with the SEC, Pirate disclosed an 8.5% stake in the company and said that they intended to nominate two of its own people to the board of directors at the next shareholder election. Specifically, the filing stated:

"The Issuer has not responded to Pirate's request that Thomas R. Hudson Jr. immediately be appointed to the Issuer's Board of Directors other than to indicate that Mr. Hudson's nomination for election to the Board will be considered in due course. Pirate is now contemplating proposing two additional nominees for election at the upcoming annual meeting. In the event that Pirate proposes the additional nominees, Pirate intends to give notice of their nomination for election to the Board, along with the notice of Mr. Hudson's nomination, prior to the expiration of the time set for shareholder nominations in the Issuer's by-laws." (Read More)

This move comes shortly after MMI Investments came out in support of any activist investors that would institute change in the company. As we said before, the combined group now accounts for nearly 25% of the company's outstanding shares. With such a large stake, this coalition has a good chance of forcing the board of directors to at least consider the possibility of a sale in 2007.

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Redback Networks Inc. (NDAQ:RBAK) announced a definitive agreement to be acquired by Ericsson (NDAQ:ERIC) for $2.1 billion ($25/share).

Hydril (NDAQ:HYDL) expects its fourth quarter 2006 earnings to be around $1.05 per diluted share (above previous expectations) primarily due to improved premium connection segment results. The current consensus stands at $0.87.

Darden Restaurants (NYSE:DRI) reports Q2 EPS of $0.41, one cent better than estimates.  Revenues were $1.39 billion versus $1.4 billion consensus.  Olive Garden's second quarter sales of $662.1 million were 7.1% above the previous year. The company expects total sales growth of between five and six percents in fiscal 2007.

Harrah's Entertainment, Inc. (NYSE:HET) has entered into a definitive agreement for affiliates of Texas Pacific Group (TPG) and Apollo Management, L.P. to acquire Harrah's in an all-cash transaction valued at approximately $27.8 billion, including the assumption of approximately $10.7 billion of debt.  Under the terms of the agreement, Harrah's stockholders will receive $90.00 in cash for each outstanding Harrah's share.

Christopher & Banks (NYSE:CBK) reported Q3 EPS of $0.24, in-line with estimates. Revenues were $139.3 million verus $142.13 million consensus. For the fourth quarter, earnings are anticipated to be in the range of $0.13 to $0.14 per diluted share. The current Q4 EPS consensus stands at $0.18.  

Palm, Inc. (Nasdaq:PALM) reports Q2 EPS of $0.12 versus the consensus of $0.15. Revenues came in at $392.9 million versus the consensus of $392.3 million. They predict Q3 revenues to be around $400 to $410 million versus the consensus of $416.6 million.

PSS World Medical, Inc. (NASDAQ:PSSI) has revised its fiscal year 2007 financial guidance due to lower sales of influenza vaccine compared with previous expectations. The company revised its fiscal year 2007 earnings per share goal to $0.69 to $0.71 per diluted share. The company reiterated its goal of achieving $58 to 60 million of cash flow from operations for fiscal year 2007.The current FY07 EPS consensus stands at $0.78.

Endeavor Acquisition Corp. (AMEX:EDA) is higher this morning after announced a definitive merger agreement to acquire American Apparel Inc., a leading domestic vertically-integrated manufacturer and retailer of cotton fashion basics and the largest T-shirt manufacturer in the United States.  Endeavor will also assume up to $110 million of net debt outstanding, create a one-time merger bonus pool of $2.5 million, and reserve up to approximately 2.7 million shares of additional Endeavor stock under a plan to be made available for issuance to American Apparel employees.

Alliance Imaging, Inc. (NYSE:AIQ) announced its financial guidance for 2007.  Full year 2006 revenue is expected to range from $452.5 million to $455.5 million.  The current FY06 EPS consensus is $456.20 million. For FY07, the company expects revenue to range from $431 million to $443 million versus consensus of $460.34 million.

Circuit City Stores, Inc. (NYSE:CC) reported a Q3 loss of $0.09 versus the consensus for a profit of $0.07. Revenues were $3.1 billion versus a $3.12 billion consensus. The company foresees the net sales growth between 8% to 9%, down from 9% to 11%.  

Scholastic Corporation (NASDAQ:SCHL) reported Q2 EPS of $1.75, four cents better than estimates. Revenues were $735.5 million versus a $702.97 million consensus.  Scholasticed continues to expect fiscal 2007 revenue of $2.1 to $2.2 billion, earnings per diluted share of $1.55 to $1.85. The current FY07 revenue consensus is $2.15 billion and EPS is $1.69.

The Brink's Company (NYSE:BCO) may find itself in trouble soon as an increasing number of shareholders are taking an active role in changing the company. We first mentioned Brinks back in September of this year (when the stock was at $57 per share) when activist hedge fund Pirate Capital, an 8.5% holder of the company, expressed its opinions on the company's future direction. In a letter attached to a 13D filing at the time, Pirate said that the company would represent an excellent buyout candidate due to its market leadership, and could attract offers between $68 and $72 per share. Later, in November, Steel Partners (another major activist hedge fund) increased their stake from 5.5% to 8%. Now, MMI Investments added their support to the cause issuing the following letter in their recent 13D/A filing with the SEC:

"MMI Investments, L.P. is the owner of 4,008,000 shares of The Brink’s Company (“BCO”) or approximately 8.3% of the outstanding stock. We believe BCO’s brands, financial performance, market positions and management are among the best in its industry. We therefore remain extremely frustrated with its continued undervaluation relative to its operating success, its peers’ trading multiples and the value it might achieve from pursuing one of several potential strategic alternatives.

Another large stockholder has raised the question of BCO pursuing a strategic alternatives review and indicated that it intends to submit a stockholder proposal to that effect at BCO’s 2007 annual meeting of stockholders. As we understand the proposal described in their Schedule 13D amendment, we are in support of it. The reasons for our support are reflected in our presentation transmitted for filing with the SEC today, a copy of which is enclosed herein, which indicates that BCO has many attractive, value-enhancing strategic options including an LBO, sale to a strategic acquiror, tax-free split-up of the company, leveraged recapitalization or another significant stock repurchase. Details underlying these analyses are included in the presentation materials, but in summary we believe that BCO’s potential value from following one of these strategic alternatives is likely to be $70 or more per share. Moreover, we believe that because BCO has multiple options, more than one could be explored simultaneously which we believe makes the likelihood of success much greater.

For the reasons described in the accompanying presentation materials, we believe that, as with the BAX sale process last year, BCO’s stockholders’ interests could best be served by a formal review of strategic alternatives by a qualified investment banker, whose mandate would include an active canvassing of potential buyers and the debt and equity markets. As discussed therein, BCO’s valuation and operations are complex subjects which require explanation and study to appreciate fully. We believe that several factors obscure the value that potentially could be achieved by pursuing strategic alternatives, such as the expected significant increase in 2007 (and beyond) EBITDA, the future transference of the cash burden of the legacy liabilities from the company’s operations to the VEBA assets (which we believe will shortly be overfunded if not utilized soon) and the aggressive growth of BHS which hinders cash flow generation. We believe that an active canvassing of the market is essential in order that interested parties properly appreciate these factors in estimating BCO’s true value.

Further, we believe that given the current strength of the mergers and acquisitions market (as evidenced yesterday in the robust price paid for HSM Electronic), as well as the equity and credit markets, that BCO would be well advised to pursue its alternatives in the beginning of 2007. A costly and time-consuming proxy contest with such stockholder during the first half of 2007 unnecessarily risks missing this window of opportunity." (Read More)

Combined, these investors account for nearly 25% of the company's outstanding shares. With such a large stake, this coalition has a good chance of forcing the board of directors to at least consider the possibility of a sale in 2007. The stock is currently trading up more than 6.7% on the news, sitting at $64.23. The fundamental valuation of the company along with this coalition of activist shareholders bent on unlocking value make BCO a stock worth watching in the next couple of months.

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Biomet, Inc. (NDAQ:BMET) agreed to be acquired today for $44 per share by a private equity group consisting of members of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG. The $10.9 billion deal is expected to close on or prior to October 31, 2007.

We first mentioned this company back on November 2nd when there were rumors that Smith & Nephew (NYSE:SNN) was interested in the company. The stock was trading around $38 per share before rising around 15% to its current levels after receiving the current private equity offer at $44 per share. Now rumors have surfaced that Smith & Nephew may become a buyout target, with potential bids from companies like Zimmer (ZMH), Johnson & Johnson (JNJ), and Stryker (SYK). This makes SNN a stock to watch if the Biomet transaction does go through.

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CEMEX, S.A.B. de C.V. (NYSE:CX) expects Q4 revenue of $4.3 billion, an increase of 9% versus the same period a year ago; the current consensus is $4.21 billion. For the full year 2006, CEMEX expects to meet its guidance of $4.1 billion, an increase of 15% versus the same period last year.

Oracle Corporation (NDAQ:ORCL) reports Q2 EPS of $0.22, in line with estimates. Total revenues were $4.16 milion versus the $4.15 billion consensus.

Applied Signal Technology (NDAQ:APSG) reports Q4 EPS of $0.05 versus consensus of $0.22.  Revenues were $45.38 million versus $59.58 million consensus.

DynCorp International (NYSE:DCP) shares are trading higher after reports surfaced that the company has been awarded an Army contract worth as much as $4.6 billion.

ElkCorp (NYSE:ELK) announced it has entered into a definitive agreement to be acquired and taken private by global private equity firm The Carlyle Group in an all-cash transaction valued at approximately $1.0 billion, including the assumption of approximately $173 million of net debt. Under the terms of the agreement, ElkCorp shareholders will receive $38.00 in cash for each outstanding ElkCorp share. This represents a premium of approximately 51% over ElkCorp's closing share price on November 3, 2006. We discussed the possibility of this buyout in a previous article.

Joy Global Inc. (NDAQ:JOYG) reports Q4 EPS of $0.71, which was 5 cents better than estimates. Revenues were $689 million versus a $655.64 million consensus. Revenues over the coming 12-months are expected to be in the range of $2.70 to $3.00 billion, EPS is expected to be between $2.85 to $3.25. Current FY07 revenue consensus is $2.84 billion and EPS consensus is $2.95.

Matria Healthcare, Inc. (NDAQ:MATR) foresees FY07 EPS between $1.67 to $1.74 and revenues between $385 to $395 million, higher than the current FY07 EPS consensus of $1.36 and revenue consensus is $386.34 million.

Exelixis, Inc. (NDAQ:EXEL) and Bristol-Myers Squibb Company (NYSE:BMY) announced a worldwide collaboration today. Bristol-Myers Squibb will pay Exelixis an upfront payment of $60 million in cash. Exelixis will also receive $20 million for each of up to three different drug candidates selected by Bristol-Myers Squibb at IND.

Norsk Hydro (NYSE:NHY) and Statoil (NYSE:STO) have agreed to recommend to their shareholders a merger of Hydro's oil and gas activities with Statoil, creating the world's largest offshore operator with a strengthened platform for future growth.

Express Scripts, Inc. (NDAQ:ESRX) offered to acquire Caremark Rx, Inc. (NYSE:CMX) for $29.25 in cash and 0.426 shares of Express Scripts stock for each share of Caremark stock. The offer has a value of around $58.50 per Caremark share or approximately $26 billion in the total.

Oxigene Inc. (NDAQ:OXGN)
Form 4 Filing
Director Per-Olof Soderberg disclosed purchasing 65,800 shares at $4.94 in a transaction worth $325,052. This brings his total stake to 702,130 shares. The purchase comes as the stock has moved off of its highs of $5.70 to its current levels of $4.90.

Perma-Fix Environmental Services Inc. (NDAQ:PESI)
Form 4 Filing
CFO Steven Baughman disclosed purchasing 100,000 shares at prices ranging from $2.14 to $2.19, bringing his stake to 300,009 in a transaction worth around $215,000. This brings his total stake to 300,009 shares. The purchase moved the stock up over 6% today, adding to its existing ~44% gains on the year. The waste removal company stated recently that it was shedding low margin contracts in order to focus on better opportunities. Moreover, it said it was negotiating with the DoE and DoD to spread their waste removal operations more evenly throughout the year.

Wyndham Worldwide (NYSE:WYN) has increases its guidance for the 2006 total revenues from a range of $3.67 billion to $3.77 billion to a range of $3.79 billion to $3.84 billion.  Meanwhile, revenue consensus remains at $3.8 billion.

Isilon Systems, Inc. (NDAQ:ISLN) opened for trading this week, trading at $22.38 after pricing at $13 per share, above the expected $11 to $12 range which was raised from $8.50 to $9.50.

Affymax, Inc. (NDAQ:AFFY) IPO'd this week, trading at $30.40 after pricing 3.7 million shares at $25.00 per share, above the expected range of $22 to $24.

Zoltek Companies, Inc. (NDAQ:ZOLT) reported $92.4 million for 2006's net sales for the fiscal year, an increase of 67% from net sales of $55.4 million in fiscal 2005. Meanwhile, the current FY06 revenue consensus is $103.23 million.

Overstock.com, Inc. (NDAQ:OSTK) announced that institutional investors have agreed to purchase over 2.7 million shares of its common stock for $14.63 per share.

USA Truck, Inc. (NDAQ:USAK) announced that it sees full year 2006 fully diluted earnings per share of $1.08 to $1.12, versus the consensus of $1.25. Revenue, excluding fuel surcharges, is expected to be in a range of $378 million to $383 million, versus the consensus of $478.85 million.

ChipMOS Technologies, Ltd. (NDAQ:IMOS) raised its prior guidance for the fourth quarter ending December 31, 2006. The company now expects the revenue for the fourth quarter of 2006 to be in the range of US$176 million to US$181 million, compared to prior guidance of US$168 million to US$172 million.  

Illinois Tool Works Inc. (NYSE:ITW) announced that it would decrease its forecasted earnings range to $0.72 to $0.74 from the prior range of $0.77 to $0.81. As a result, the company's full-year forecasted earnings range is now $2.96 to $2.98 compared to the prior range of $3.01 to $3.05. Current Q4 EPS consensus is $0.78 while the FY EPS consensus is $3.02.

The Black & Decker Corporation (NYSE:BDK) announced that their net earnings per diluted share would be about $1.30 to $1.35 for the fourth quarter of 2006 and approximately $6.50 for the full year, compared to a consensus of $1.86 and $7.01, respectively. The company also noted that it expects to report a sales decline of approximately 8% for the quarter.

Weyerhaeuser Co. (NYSE:WY) moved higher the last few days after Franklin Mutual Advisers, a 7.6% holder in the company, increased its pressure on Weyerhaeuser to convert itself from a C-corp to a Real Estate Investment Trust (REIT). According to the hedge fund, the move would enable the company to avoid unnecessary double taxation along with a host of other disadvantages to running the company as a C corporation as opposed to a REIT. As a result, the company could save as much as $24 per share in value that would be lost between now and 2010.

Franklin submitted their full proposal today in a 13D/A filing with the SEC:

"Franklin Mutual Advisers (FMA) owns approximately 18 million shares of Weyerhaeuser stock and has been a 13-d filer on the company since April 2005. We acknowledge the positive steps the company has taken over this period to restructure the business, including the sale of the Fine Paper business that is scheduled to close during the first quarter of 2007.

However, FMA continues to believe that the share price of Weyerhaeuser reflects a substantial discount to the intrinsic value of its underlying assets and core businesses. While the restructuring actions taken to date have been rational and objective, we believe the management and board of directors of Weyerhaeuser must act with an increased sense of urgency and accelerate its efforts to enhance and crystallize this intrinsic value for the benefit of all shareholders.

These steps include (1) a corporate reorganization that will eliminate the tax disadvantages of owning timber properties in a C corporation and (2) accelerating the time frame for the planned restructuring of the containerboard business.

Despite the best efforts of the company and other similarly situated entities, it now appears that the tax law will continue to favor holding timber properties in entities such as Timber Investment Management Organizations (TIMOs) or Real Estate Investment Trusts (REITs). The structural disadvantages to Weyerhaeuser include the inability to competitively bid on timberlands undergoing a sale process, a higher weighted average cost of capital and the full double taxation of timberland generated earnings. According to a recent report from one major Wall Street analyst, by 2010 the current structure, as opposed to a REIT structure, would destroy an incremental $24 per share of shareholder value, or nearly 35% of today’s equity value. FMA strongly believes Weyerhaeuser must immediately take steps to eliminate this disadvantage, including possibly converting the current corporate structure to a REIT.

Many paper and forest product companies such as Rayonier, Potlatch, Georgia Pacific, International Paper and the former Boise Cascade have become more competitive, realized substantial operating benefits and experienced significant share price appreciation by either converting to a REIT or by selling their timberlands. For example, since becoming a REIT in January, 2004, Rayonier produced (according to Bloomberg) an annual equivalent return (including reinvestment of dividends) of 20.4% through 12/12/06. Potlatch has produced (according to Bloomberg) an annual equivalent return (including reinvestment of dividends) of 25.3% through 12/12/06 since becoming a REIT in January, 2006. In contrast, Weyerhaeuser has generated (according to Bloomberg) an annual equivalent return (including reinvestment of dividends) of 3.9% since January, 2004. While we are not today suggesting that Weyerhaeuser divest its timberlands, we are strongly suggesting that the Company must modify its corporate structure to become more efficient vis-à-vis the REIT structure. FMA believes that this step, along with the closing on the sale of the Fine Paper business and executing and accelerating the current restructuring plans in the containerboard business, will enhance shareholder value over the long-term." (Read More)

Weyerhaeuser immediately responded in a subsequent 8-K filing with the SEC, citing uncertainties surrounding current legislation as their reason for hesitation. The 8-K filing also noted several other actions that the company has taken to actively unlock shareholder value:

"Weyerhaeuser’s Board of Directors and management are firmly committed to improving the company’s financial performance and enhancing shareholder value. Our ongoing review of options to create additional value has included a detailed analysis of the benefits, complexities, and risks of various alternative structures. That review has led us to the determination that the most value creating alternative would be equitable tax treatment for C-corp. timberlands owners. We will continue to actively support the industry initiative for tax legislation, however, in light of the uncertainties surrounding a legislative remedy we are now revisiting alternatives.

As you note, during the last 18 months we have taken action to restructure Weyerhaeuser’s operations to create value for shareholders. In August 2006, we announced a definitive agreement to combine our Fine Paper business and related assets with Domtar. The transaction will give Weyerhaeuser shareholders 55 percent ownership in the new company, which will be the North American market leader in fine paper, and includes a $1.35 billion cash payment to Weyerhaeuser. The transaction with Domtar will provide Weyerhaeuser shareholders with the opportunity to participate in the benefits of owning the combined company. This compelling combination is expected to be tax-free for Weyerhaeuser and its shareholders and is on-track to close in the first quarter of 2007.

With regard to the Containerboard Packaging restructuring, the benefits of increased customer service and more efficient asset utilization are already being realized. Upon completion of the restructuring, we expect to achieve substantial earnings improvements. We share your sense of urgency and are committed to completing the restructuring of these operations in the shortest time possible.

In addition to the actions discussed above, we strategically grew our real estate business through the acquisition of Maracay Homes to give us access to the high-growth markets of Phoenix and Tucson, and expanded existing real estate operations into the Portland, Oregon and Sacramento markets. We are also growing our timberlands in South America and we have begun a process of constructing converting facilities.

The Board has demonstrated a strong commitment to returning value to shareholders. Over the last 18 months, we have increased Weyerhaeuser’s annual dividend twice to $2.40 per share, an increase of 50 percent. We have also continued to aggressively execute on Weyerhaeuser’s 18 million share repurchase program." (Read More)

While the company has a very competent management team that is actively increasing shareholder value, Franklin's recommendations becoming public only increase the pressure on the company to institute new restructuring plans aimed at unlocking shareholder value. This pressure has already materialized in Weyerhaeuser's announcement late Thursday that it will revamp its lumber operations in Washington to be more competitive. Many analysts are also excited by the value potential of the C-corp to REIT proposal along with other structural changes, which caused a series of upgrades lately by USB and others. This long-term value potential makes WY a stock worth watching!

Related Companies
Rayonier Inc. (RYN)
Wausau Paper Corp (WPP)
Buckeye Technologies, Inc. (BKI)

Isilon Systems, Inc. (NDAQ:ISLN) soared 72% higher to $22.75 in its first day of trading after being priced at $13 per share. That number was already above the company's expected range of $11 to $12, which was raised not long ago from $8.50 to $9.50. Is this stock worth the price? Well, let's take a look at the company and its industry. According to their S-1/A filing with the SEC:

"We are a leading provider of clustered storage systems for digital content. As more information is recorded and communicated in images and pictures rather than text and words, the volume of digital content — which includes video, audio, digital images, computer models, PDF files, scanned images, reference information, test and simulation data and other unstructured data — is growing rapidly. Enterprises are utilizing this digital content to create new products and services, generate new revenue streams, accelerate research and development cycles and improve their overall competitiveness. Recognizing the growth and importance of this type of data, we designed and developed our clustered storage systems specifically to address the needs of storing and managing digital content. Our systems are comprised of three or more nodes. Each node is a self-contained, rack-mountable device that contains industry standard hardware, including disk drives, a central processing unit, or CPU, memory chips and network interfaces, and is integrated with our proprietary OneFS®  operating system software, which unifies a cluster of nodes into a single shared resource. To date, we have sold our clustered storage systems to more than 275 customers across a wide range of industries.

The worldwide market for external disk storage systems will grow from approximately $17.4 billion in 2005 to approximately $22.7 billion in 2010, according to estimates from a May 2006 market analysis report by International Data Corporation, or IDC. The market for storage systems dedicated to digital content is estimated to grow at a much faster rate. According to a January 2006 research report by the Enterprise Strategy Group, or ESG, certain industries including multimedia, oil and gas, scientific research, healthcare, personal Internet services and software development will experience rapid growth in file-based storage capacity. For example, in disk-based digital archiving, which is one portion of the market our systems address, ESG forecasts that the demand for storage capacity will grow from 377 petabytes in 2005 to nearly 11,000 petabytes in 2010, representing a 96% compound annual growth rate, with the substantial majority of this stored information comprised of unstructured content, such as office documents, web pages, digital images and audio and video files." (Read More)

The company's primary product is OneFS, which it describes as:

"OneFS® is Isilon's patent-pending distributed file system that provides the intelligence behind Isilon® clustered storage. It combines the three layers of traditional storage architectures - file system, volume manager and RAID - into one unified software layer, creating a single intelligent file system that spans all nodes within a cluster. OneFS combines mission-critical reliability and high availability with state-of-the-art data protection to help storage administrators worry less and do more."

Certainly a 96% compounded growth rate through 2010 represents a growth industry. Moreover, Isilon Systems already has more than 275 customers and is a solid player in this market with an innovative product. However, the company noted that it experienced a $19.2 million loss in 2005 and a $10 million loss in the first six months of 2006. Given their short operating history, it is difficult for them to project future earnings; however, their industry outlook and products appears promising. This is definitely a stock to watch during the coming year!

MathStar (NDAQ:MATH) -- CEO Douglas Pihl disclosed, in a form 4 filing with the SEC, that he had purchased 20,000 shares on December 12th at $3.99, bringing his total stake in the company to 1,537,836. MathStar shares have declined from $6.00 per share in July of this year to their current levels around $4.15 per share; however, the stock has recently formed a high-volume base between $3.70 and $4.15. This nearly $80,000 insider purchase could indicate a possible turnaround, making MATH a stock worth watching.

Cimarex Energy Co. (NYSE:XEC) -- Chairman and CEO F. H. Merelli disclosed, in a form 4 filing with the SEC, a 20,900 share purchase today at prices ranging from $37.10 to $37.36, bringing his total stake in the company to 280,646 shares. The oil and gas exploration company faced a decline from $45 to $35 per share in 2006 as the company faced exploration and production issues. Recent insider buying could indicate that these issues will soon be resolved, which could mean share appreciation. This is definitely a stock to watch.

Advanced Microdevices Inc. (NYSE:AMD) CFO Robert Rivet met with analysts today in New York to discuss the company's financials and industry prospects. Investors and analysts were particularly focused on AMD's recent acquisition of ATI, which some thought could hurt the company's balance sheet. However, Rivet dispelled these concerns, stating that cost cuts from the ATI deal were much higher than expected and projected that ATI would add $80 million to the company's $160 million in new revenue this year as a result of the acquisition. The CFO also noted that he expects laptop chip demand to outpace desktop chips in 2007 - something which the company is well prepared for. Meanwhile, AMD CEO Ruiz told analysts, "The future is incredibly bright". These comments moved the stock up over 4% in intraday trading.

But is AMD a buy yet? Well, the company's shares have cut in half from $40 to $20 per share in 2006, after lackluster results combined with the then-questionable purchase of ATI caused investors to dump their shares, and Intel Corporation (NYSE:INTC) shares also faced a steady decline from $25 to $20 per share during the same period. But where do the two companies stand in terms of valuation? Well, one of the best ways to quickly determine valuation is using the PEG ratio, because it takes into account a company's growth rates. AMD currently trades with a PEG of 1.20 while INTC's stands at 2.06, with the industry PEG at 1.57. This indicates that AMD shares remain undervalued in relation to their competition, and particularly in relation to Intel. This discount was likely due to uncertainty surrounding the company's acquisition of ATI along with a poor industry outlook; but, with AMD's new projections today, along with their comments regarding the ATI cost savings, we could AMD shares return to industry valuations. This makes AMD a stock worth watching.

Related Companies
Silicon Storage Technology (SSTI)
GTSI, Corp (GTSI)
Transmeta Corporation (TMTA)

The Home Depot Inc. (NYSE:HD) has authorized the repurchase of $3 billion of outstanding shares through an accelerated share repurchase agreement.

Dell Inc. (NDAQ:DELL) is delaying their 10-Q filing with the SEC after it reported a probe into its accounting practices.

Adobe Systems Inc. (NDAQ:ADBE) reports Q4 EPS OF $0.33, in-line with estimates, with revenues coming in at over $682 million.  

Intuit Inc. (NDAQ:INTU) announced its intention to acquire Electronic Clearing House Inc. (NDAQ:ECHO) for $18.75 per share in cash, in a transaction worth approximately $142 million.  

E*TRADE Financial Corporation (NYSE:ET) announced 2007 earnings guidance of $1.65 to $1.80 per share on Total Net Revenue of $2.75 to $3.0 billion.

YRC Worldwide Inc. (NDAQ:YRCW) lowered their fourth quarter 2006 EPS to $0.95 to $1.05 and their full year 2006 earnings to $5.00 to $5.10 per share.

California Micro Devices (NDAQ:CAMD) expects revenue between $16.5 and $18.5 million compared to $19.6 million a year ago. Current Q3 revenue consensus is $17.7 million.

Asta Funding, Inc. (NDAQ:ASFI) report Q4 EPS of $0.93, versus the consensus of $0.78; revenues came in at $30.5 million versus the consensus of $25.3 million.

Thermo Fisher Scientific Inc. (NYSE:TMO) is raising its 2007 EPS to a range of $2.35 to $2.45, from $2.27 to $2.37. Current FY07 EPS consensus is $2.36; revenues in 2007 are expected to grow to $9.4 to $9.5 billion vs. current consensus of $9.36 billion.

Lehman Brothers Holdings Inc. (NYSE:LEH) reports Q4 EPS of $1.72 versus the consensus of $1.68; revenues came in at $4.5 billion versus the consensus of $4.41 billion.

Bear Stearns Companies Inc. (NYSE:BSC) reports Q4 EPS of $4.00, above the consensus of $3.36; revenues came in at $2.4 billion versus the consensus of $2.2 billion.

Magellan Health Services, Inc. (NDAQ:MGLN) expects to generate net revenue in the range of $2.05 billion to $2.15 billion (consensus is $2.02 billion) for the 2007 fiscal year; net income in the range of $68 million to $83 million.

Ryerson Inc. (NYSE:RYI) may find itself in trouble soon after Harbinger Capital disclosed a 9.7% stake in the company and voiced their concerns with management and the company's board of directors. The materials distribution company went from a high of $31 earlier this year to its current levels in the low $20s, as its lackluster numbers failed to impress investors. These numbers have also prompted investors like Harbinger to take a more active role in unlocking shareholder value.

In the Purpose of the Transaction section of the SC13D form filed today, Harbinger elaborated on their problems with the company:

"The Reporting Person initially reported their investment on a Schedule 13G on November 27, 2006. Since that time, the Reporting Persons have examined the financial and operating performance of the Issuerand have grown  increasingly concerned that the board of directors and senior management of the Issuer have not been appropriately vigilant in their management of the Issuer, particularly with respect to its lack of focus on profitability and the management of inventory.

The Reporting Persons observe that the Issuer's peer companies have been consistently successful in turning inventory more rapidly than the Issuer and have also consistently earned high gross, operating and net margins throughout the business cycle. Given this persistent under performance by the Issuer since it was established as a stand-alone enterprise in 1999, the Reporting Persons have concluded that the board of directors has provided insufficient oversight of management's ability to deliver acceptable performance in the key factors that are critical to maximizing the value of the Issuer's existing asset base, geographic presence and product portfolio. The Reporting Persons believe that the current board of directors, while talented and undoubtedly qualified in general business matters, lacks the specific qualifications necessary for understanding the value drivers within the metals processing and distribution business which drive acceptable shareholder returns.

As a result, the Reporting Persons are considering a range of actions by which they may be able to encourage the Issuer to improve its performance. Such activities may include taking a position (including by contacting management and other shareholders of the Issuer) with respect to potential changes in the operations, management, or capital structure of the Issuer as a means of enhancing shareholder value. Such suggestions or positions may include one or more plans or proposals that relate to or would  result in any of the actions required to be reported herein. In addition, the Reporting Persons are also considering nominating one or more persons for election to the Issuer's board of directors at the Issuer's next annual meeting of shareholders." (Read More)

Ryerson is currently trading at just 8.15x earnings compared to an industry average 16.36x, making the company's stock worth $44.50 at the industry's valuation. Harbinger maintains that this poor valuation is a result of lackluster growth stemming from poor inventory turnover and low margins. If the company is able to improve these numbers, it could mean significant returns for shareholders. This makes RYI a stock definitely worth watching closely into 2007!

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Reliance Steel & Aluminum (RS)
Olympic Steel, Inc. (ZEUS)
Nucor Corporation (NUE)

Midwest Air Group, Inc. (AMEX:MEH) said it has received an unsolicited takeover bid from AirTran Holdings (NYSE:AAI) today for $11.25 per Midwest share in cash and and stock, in a deal worth $290 million. The bid was first discussed back in October when AirTran Chairman and Chief Executive Joe Leonard sent a letter to Midwest executives stating that he was interested in such a transaction. On December 6th, the company issued a response to this letter stating that the offer would not be in the best interest of shareholders. The communications were made public today in an 8-K filing by AAI, sending the stock up over 20% to settle at around $11 per share. AirTran said that it went public with the offer in part because of Midwest's "extensive" defenses and opposition to the proposal.

Would the deal make sense? Well, a combined company would have pro forma revenue of about $3 billion in 2007 and 1,036 daily departures with 173 unique markets between 74 cities across the U.S., according to AirTran. Furthermore, they said that a deal could be completed by the end of the first quarter of 2007 and would add to earnings by the end of the first full year following the close. This makes it a very tempting target for AirTran, who said that they could offer more if they were able to conduct due diligence. The airlines have also been on fire recently: This is the second hostile bid in the airline industry in recent weeks, after U.S. Airways offered $8.5 billion in cash-and-stock to acquire Delta Air Lines. And there is also continued speculation surrounding Northwest Airlines and Continental Airlines, who are rumored to be considering M&A themselves. Combined, these factors make MEH a stock to watch closely during the coming months.

Related Companies
Northwest Airlines (NWACQ)
Continental Airlines (CAL)
Delta Airlines (DARLQ)

Cost-U-Less, Inc. (NDAQ:CULS) is under pressure yet again from Monarch Activist Partners as the hedge fund increased its stake and again demanded that the company put itself up for sale. The hedge fund first got involved with Cost-U-Less back in September, when it issued its first 13D filing disclosing a 5.4% stake in the company with purchases dating back to early August of this year. Since then, Monarch has held multiple discussions with management over the phone discussing ways in which the company could unlock shareholder value. In particular, the hedge fund urged management to consider putting the company up for sale. Monarch filed its most recent 13D/A filing yesterday, which disclosed a 6.4% stake in the company and elaborated on their reasoning for suggesting a sale of the company. In a letter attached to the filing, they said:

"While we appreciate your desire to grow the business organically, it is apparent that the market refuses to assess fair value to the company in its current form. A quick review of your peer group clearly states this point. Currently, Pricesmart (PSMT), your self-acknowledged closest competitor, trades at an Enterprise Value to EBITDA multiple of close to 16 times, whereas CULS trades at approximately a 4.5 multiple. Taking a very conservative valuation approach by applying a 40% discount to the median EBITDA multiple of your industry peer group, CULS is worth at least $12 a share.

Compounding matters, the business, according to your latest earnings release, is dealing with a 9% increase in operating expenses which is largely attributed to rising utility expenses, an issue that does not lend itself to a quick resolution. Outside of operating expenses, the cost of being public with Sarbanes Oxley expenses and other regulatory costs makes the rationale of "going it alone" far less viable.

We fail to see how even the most ambitious growth plan will resolve the deep multiple discount the market attributes to CULS. Not to mention, given the capital required to open each new store combined with all the site specific requirements, rapid expansion appears highly improbable. In light of the issues raised in this letter and as a significant shareholder we ask you and the Board to engage the services of an investment banker to facilitate the sale of the company. While you have stated that the Board continues to look at all options and keeps an open mind to any potential offer, it is time for the company to take a far more proactive stance." (Read More)

According to this analysis, CULS should be worth near $12 a share, which is a hefty 44.75% higher than the stock's current price. Monarch also noted that if management failed to acknowledge their advice, they may choose to seek board representation - in other words, they threatened a proxy battle. Those considering investment in CULS should know that the stock is thinly traded, and therefore subject to increased volatility. Moreover, if management decides against putting the company up for sale (which is a definite possibility), a proxy battle is often a long and drawn out process. And finally, there is no guarantee that there will be bidders in the $12/share range. However, if Monarch is able to convince or force management to put the company up for sale, it could mean a very nice 40%+ return on investment in (likely) less than a year. This makes CULS a stock worth watching closely into 2007.

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Costco Wholesale Corporation (COST)
PriceSmart, Inc. (PSMT)
Wal-Mart Stores, Inc. (WMT)

Nasdaq Stock Market, Inc. (NDAQ:NDAQ) took a more hostile stance in its bid for the London Stock Exchange today, refusing to raise its bid higher than $5.3 billion unless the LSE's board accepts a friendlier approach or another bidder emerges. Moreover, they appealed to shareholders by stating that if they received support from just an additional 20% of the outstanding shares, they would alter the offer to "unconditional" (making it a hostile bid). The LSE quickly responded today by saying they would issue a statement to shareholders soon explaining why they rejected Nasdaq's buyout offer. Currently, Nasdaq owns approximately 30% of the LSE, giving it significant leverage over other potential bidders. This, combined with the fact that the financing required on this transaction would total more than $5.03 billion, make the probability of a significantly increased bid rather unlikely. Shareholders may also get a little nervous if the transaction fails since the company nearly doubled this year, thanks in part to the M&A speculation surrounding the exchange. Regardless, these are definitely two stocks to keep an eye on between now and January 11th (when the offer expires).

Related Companies
NYSE Group, Inc. (NYX)
CBOT Holdings, Inc. (CBOT)
Chicago Merchantile Exchange Holdings (CME)

Nestor Inc. (NDAQ:NEST) has been seeing an increasing amount of open market insider buying lately (revealed in Form 4 filings with the SEC) ahead of its quarterly earnings release. The trend continued today as the company's CEO, William B. Danzell, disclosed a 20,000 share purchase valued at almost $28,000, bringing his stake up to 10,069,396 shares. Yesterday, the company's director, Michael C. James, also disclosed purchases totaling 20,000 shares, bringing his stake up to 331,641 shares. There were several other recent open market purchases by these two earlier this year, each totaling around 20,000 shares. The buying began just after the company transferred its listing to the Nasdaq Capital Market and announced that it was cutting 20% of its workforce in an effort to reduce current operate expense levels and focus on the company's operations on program delivery and support. It appears that management is confident that the increased liquidity of the Nasdaq Capital Market combined with their efforts to reduce costs will help turn the company around after its drop from $4 earlier this year to just $1.35 now. It is also worth noting that much of management holds many out-of-the-money stock options, which should motivate them to do anything they can to increase the share price. This makes NEST a stock worthy of our watchlist.

Related Companies
Microsoft Corporation (MSFT)
CA, Inc. (CA)
Novell, Inc. (NOVL)

Six Flags, Inc. (NYSE:SIX) revealed their game plan for 2007 today, in which they announced deals with Thomas & Friends, The Wiggles, Tony Hawk, mtvU, Cold Stone Creamery and Heinz. But perhaps most notably, the company announced that it would reach a decision on potential asset sales by the end of the year and added that if the parks are sold it will be strictly as ongoing concerns. Six Flags had said that it was considering the sale of some of its parks in an effort to reduce is $2.2 billion in debt last year; however, many are skeptical that the the company will be able to receive a bid high enough to meaningfully reduce the company's debt - a number that may need to be as high as $800 million. This skepticism comes after the company's unsuccessful attempt to sell itself last year along with a rumored $650 million offer for six properties from MidOcean Partners and theme-park operator Herschend Family Entertainment Corp - a number far less than expected.

With shares already down 20% this year, investors are becoming increasingly restless. Investors were hoping for a clean turnaround after Syder, the company's largest investor, won a three-month battle with former CEO Kieran Burke for control of Six Flags last year. However, shares have only continued their decline with the recent quarter still showing decreases in net income and revenues across the board. Management insists that this is a "transition year", and the situation would improve through 2007. If the asset sale is successful in attracting meaningful bids and management is able to reduce the debt load and turn around the company, Six Flags could see significant share appreciation. This makes SIX a stock worth watching over the following year.

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Applebee’s International (NDAQ:APPB) may find itself under fire after Breeden Capital Management LLC announced that they would be nominating four of their own candidates to the company's board of directors. The hedge fund insists that this action is necessary due to the board's disregard of shareholder interests and company's long term underperformance. It is important to note that Breeden is run by Richard Breeden, who is a former chairman of the U.S. Securities and Exchange Commission. His fund is very well regarded and experienced in these kinds of situations.

Why are they targeting Applebee's? According to a letter attached to the fund's 13D/A filing with the SEC:

"During the three years ended December 1, 2006, the price of Applebee's shares fell from $26.13 per share to $22.34, a decline of 14.5%, while total shareholder return fell 13.4%.(1) Applebee's performance in total return to shareholders during this period ranked 13th worst out of 14 comparable public companies. (2) During this period other metrics of operating performance, growth and efficiency have declined as well.

In contrast, during this same three-year period shares of Darden Restaurants ("Darden"), operator of Red Lobster and Olive Garden restaurants, rose from $20.47 to $40.06 (up 99% in total return), California Pizza Kitchen rose from $18.40 to $31.48 (up 71.1% in total return), and Brinker International, operator of Chili's, rose from $22.24 to $30.36 (up 38.3% in total return). If Applebee's shares had matched Darden's share price performance record during this time, shares of Applebee's would be trading at more than $50 per share, and the company would have created substantial new shareholder wealth. Instead, the aggregate value of Applebee's shares has fallen by hundreds of millions of dollars.

We have communicated proven ideas for maximizing Applebee's return on invested capital and shareholder value to your management team. When we did so, it was our hope that the new management would welcome ideas on how to correct the slide in shareholder value as well as key operating metrics that has been going on during the last three years. We were politely received, and we were assured that many changes were being studied. We were advised to wait to see the company take action. Like other shareholders, we have been waiting to see that action, but the company has not disclosed anything of significance.(3) As demonstrated by the extremely poor third quarter results, the company continues to perform poorly. Evidently the board has not yet decided that action is required to stop Applebee's further deterioration. In this environment, we do not believe that hope is an adequate strategic plan from the board." (Read More)

The fund was also angered by a last second change in bylaws that made it more difficult to nominate candidates to the board. They elaborated in their letter:

"Last August, shortly after Breeden Capital Management informed management that our funds were significant shareholders, the board saw fit to amend the company's bylaws to institute a requirement that the company be notified nearly six months in advance of the company's annual meeting of any candidate wishing to stand for election to Applebee's board. As you know, this is a fairly unusual length of time, and it appears unrelated to any legitimate need of the company beyond entrenching board members even further than what the company's staggered board already does.

Absent this change in your bylaws, Breeden Capital Management would have had more time to watch the company's performance before making a decision whether or not to put forward board candidates. However, by your choice we must submit nominations now, or be foreclosed through the annual meeting in 2008 from having a chance for the company's shareholders to elect new members of the board. While we would have preferred to be able to continue observing the company's performance before deciding whether to submit our own candidates, the board's bylaw amendment forces us to make that decision now. As a result, we are today nominating four candidates for election to the company's board at the 2007 annual meeting." (Read More)

Finally, Breeden also revealed five changes that he would implement if elected to the board of directors:

1. Significantly reduce the number of company-owned restaurants by re-franchising a substantial number of restaurants in a multi-year program.
2. Cease all further capital expenditures to open new company-owned restaurants, and minimize capital expenditures to renovate company-owned restaurants pending their sale.
3. Reduce overall expense levels, especially in corporate level overhead, and dispose of non-core assets.
4. Use excess cash generated from these steps and improved performance to increase the return of free cash flow to shareholders.
5. Improve various governance practices, including reducing the number of insiders on the company's board, precluding former CEOs from continued board service, strengthening independence requirements, eliminating the personal use of corporate aircraft and abolishing your staggered board.

In the end, to paraphrase the fund's letter, all shareholders would benefit from a stronger, independent board that is able to evaluate and act upon opportunities for creating value. If the proposed nominees are elected to the company's board of directors, it could mean significant share appreciation over the long-term for the company's shareholders. This makes APPB a stock to keep a close eye on into their 2007 elections.

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Darden Restaurants, Inc. (DRI)
The Cheesecake Factory, Inc. (CAKE)
Mexican Restaurants, Inc. (CASA)

Continental Airlines (NYSE:CAL) and UAL Corp (NDAQ:UAUA)
SEC Filings Watchlist
The Wall Street Journal reported today that Continental and UAL were exploring a possible merger, that would result in one of the largest carriers in operation. While talks have been going on for some time, there are reports that they are accelerating in light of US Airways' (NYSE:LCC) hostile bid for Delta Airlines (OTC:DARLQ). Skeptics, however, point out that Northwest Airlines' (OTC:NWACQ) "golden share" in Continental could prove to be a significant roadblock to any such merger.

The Goldman Sachs Group, Inc. (NYSE:GS)
8-K Filing by the Company
Goldman Sachs announced yet another quarter of record earnings today, with Q4 EPS of $6.59 versus a consensus of $6.00. Meanwhile, revenues were $9.41 billion versus a $8.81 billion consensus. According to the CEO: "We are very pleased with this year's performance. The breadth of our franchise, the diversity of our businesses and the performance of our people enabled us to serve our clients around the world." Shareholders were expecting more, however, as the stock moved down over 1% in the day's trading.

Salesforce.com (NYSE:CRM)
8-K Filing by the Company
Salesforce.com revised its revenue outlook upwards today, citing continued momentum of their AppExchange ecosystem. The company now expects revenue to be in the range of $710 million to $720 million for its fiscal year ending January 31, 2008. On November 15, 2006, salesforce.com said that it expected FY08 revenue to be between $700 million and $710 million.

Martin Marietta Materials, Inc. (NYSE:MLM) may be a stock worth watching today after Daniel Loeb's Third Point disclosed a 5.4% stake in the company, according to a 13D filing with the SEC. Daniel Loeb and his Third Point are well known (and well regarded) within financial circles as activist investors who are quite outspoken - having called CEO's everything from "Chief Value Destroyers" to "toothless cronies". However, aside from his often entertaining (yet extremely insightful) letters, Daniel's fund has averaged an enviable 30% annualized return over the last ten years, making his fund one of the most successful on Wall Street. And with over $2.1 billion currently invested, his fund is definitely one worth keeping an eye on - especially in early stage investments like MLM (in which he only holds 5%). You can view a complete listing of their funds holdings as of November by looking at their recent 13F filing with the SEC.

Currently, Item 4 (purpose of the transaction) of his MLM 13D filing simply indicates a generic investment in the company:

"The purpose of the acquisition by the Funds of beneficial ownership of the securities is for investment. The acquisition was effected because of the Reporting Persons’ belief that the Company represents an attractive investment based on the Company’s business prospects. The Reporting Persons are engaged in the investment business. In pursuing this business, the Reporting Persons analyze the operations, capital structure and markets of companies, including the Company, on an ongoing basis through analysis of documentation and discussions with knowledgeable industry and market observers and with representatives of such companies (often at the invitation of management). Depending on prevailing market, economic and other conditions, one or more of the Reporting Persons may from time to time, among other things, hold discussions with third parties or with management of such companies (including the Company) in which the Reporting Persons may suggest or take a position with respect to potential changes in the operations, strategy, management or capital structure of such companies as a means of enhancing shareholder value. Such suggestions or positions may relate to one or more of the transactions specified in clauses (a) through (j) of Item 4 of Schedule 13D of the Exchange Act, including, without limitation, such matters as disposing of or selling all or a portion of the company or acquiring another company or business, changing operating or marketing strategies, adopting or not adopting certain types of anti-takeover measures and restructuring the company’s capitalization or dividend policy. The Reporting Persons presently do not have any plans or proposals that relate to or would result in any of the actions required to be described in Item 4 of Schedule 13D. Each of the Reporting Persons may, at any time, review or reconsider its position with respect to the Company and formulate plans or proposals with respect to any of such matters." (Read More)

Third Point averaged in at around $90 per share, meaning that they are currently sitting on a 10%+ profit on their investment; however, given the fact that this is still an early stage investment for them (only buyers since October) and given that the company is in the construction industry, Loeb is probably expecting much more significant upside on this investment with his most recent purchase on December 1st. Any changes in his position can be seen in future 13D/A filings with the SEC. This is definitely a stock to keep a close eye on in the coming months!

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Rinker Group Limited (RIN)
Vulcan Materials Company (VMC)
Florida Rock Industries, Inc. (FRK)

Northwest Airlines Corp (OTC:NWACQ) moved higher by another 20% today as speculation of a possible buyout continues. The runup began after Owl Creek - a fund that owns 4.4 million shares of the bankrupt company - said that Northwest shares could be worth between $18 and $33 per share in the event of a buyout. Now, when a company goes bankrupt, it is not uncommon for their shares to become worthless upon emerging from bankruptcy. After all, common stock shareholders are at the very end of the bankrupcty line. So, why would anyone buy shares of Northwest then? Well, if the company can orchestrate a buyout before it emerges from bankruptcy that satisfies the bankruptcy court and debtors, then common stock shareholders could see significant share appreciation. They outlined their argument in their most recent 13D/A filing with the SEC:

"Though it is early to value Northwest for recovery purposes, Owl Creek submits that, based on Wall Street analyst reports, the trading markets value Northwest's legacy carrier peers (American, Continental, United, and US Airways) at 5-1/2 to 6 times "EBITDAR."(3) Carriers like Northwest with a higher likelihood of being a merger candidate trade for more than 6x EBITDAR and carriers with a lower likelihood of being a merger candidate trade closer to 5.5x EBITDAR. Based on similar 2007 fuel price assumptions to those underlying the comparable company valuations, Owl Creek forecasts Northwest's 2007 EBITDAR to be $2,700,000,000. Given a valuation of 6.0x 2007 EBITDAR, Northwest should have a total enterprise value of over $16,200,000,000 at the time of its expected emergence from bankruptcy protection in September of 2007. With a cash build up of over $1,000,000,000 during the remaining pendency of the bankruptcy cases, this would result in an equity value of $19.75 per share AFTER covering all claims with interest and the preferred stock.

Furthermore, US Airways' hostile offer for Delta Airlines last week -- aside from signaling directly the consolidation trend in the legacy carrier market from which Northwest's value undoubtedly will increase -- demonstrates the inherent value, recoverable by Northwest's equity holders, that a merger of Northwest with a strategic partner will create. US Airways announced that it expects the combination to generate $1,650,000,000 of annual synergies, which is 6.2% of the combined Delta/US Airways passenger sales. Assuming comparable proportional synergies to a Northwest merger with Continental (Continental Airlines is the most logical partner, but this analysis would be equally applicable to another carrier), then the synergies generated by a combination of Continental Airlines with Northwest would be approximately $1,250,000,000 annually. Valuing the company at a post-merger multiple of 5.25x EBITDAR including one half of the synergies accruing to Northwest (the other half to the merger partner) results in an implied stock price of $33.50 per share.

This is not a "what if" analysis. Experts have been calling for consolidation for some time, and US Airway's offer for Delta Airlines suggests the starting point. SEE, E.G., Benjamin Silverman and Susan M. Donofrio, TWO EVENTS MAY TRIGGER AIRLINE CONSOLIDATION THIS FALL, Cathy Financial Industry Report, September 22, 2006; Jeff Bailey, A REVITALIZED US AIRWAYS IS CREATING A MERGER BUZZ, N.Y. Times, July 31, 2006, at C2 ("The surprising early success of
US Airways Group, the result of a merger last year, has led to some behind-the-scenes talks among investors and airline executives that could lead to more industry consolidation in the months ahead"); Susan Carey and Melanie Trottman, MERGER TALKS BRING OUT FEAR OF FLYING, Wall Street Journal, April 21, 2006, at C1 ("Most airline investors agree that consolidation would be great for an industry with too many airlines chasing too few dollars"). The value of the mergers becomes immediately apparent in the change in trading prices of Delta Airlines unsecured bonds following the November 15, 2006 announcement of US Airways' offer. The trading price of Delta Airlines bonds increased by fifty percent in the week after the announcement, and Delta's board has neither accepted nor closed that transaction yet. Owl Creek believes, in fact, that Northwest is a MORE strategic asset to an acquirer than Delta Airlines due to its strong international network and its "Golden Share" in Continental Airlines." (Read More)

Meanwhile, Owl Creek has also petitioned the U.S. courts to create a Shareholders Committee to represent preferred and common stock shareholders in bankruptcy court. If granted, this representation would greatly improve the chances of shareholders receiving something after the company emerges from bankruptcy. Owl Creek gave six reasons for this (which they elaborate upon in their 13D/A filing):

• the Debtors' cases are large and complex;
• the Northwest stock is widely held and actively traded;
• the interests of Northwest's shareholders are not otherwise adequately represented;
• the Debtors do not, under reasonable (non-strategic) valuations, appear to be "hopelessly" insolvent;
• Owl Creek's request is appropriately timed based on the status of the Debtors' cases; and
• the necessary costs do not significantly outweigh the concerns for adequate representation.

Combined, Owl Creek believes that the company has a good chance of being able to emerge from bankruptcy with enough capital to retain preferred and common stock. Moreover, they insist that in the event of further industry consolidation, the company could see a large enough premium to pay of debtors and have plenty left over for common stock shareholders. While the stock is obviously extremely risky at this point, any further news of a buyout or creation of an equity committee could give some meaning to the stock's current valuation. This makes Northwest a good stock to keep an eye on over the next couple of months.

Related Companies
AMR Corporation (AMR)
UAL Corporation (UAUA)
Continental Airlines (CAL)

Taro Pharmaceuticals (NDAQ:TARO) shares moved higher today on news that the company was in talks with the Ofer Fund. The Yedioth Ahronoth daily is reporting that the buyout would be worth around $450 million or $15.36 per share - a 38% premium over Friday's closing price. The company has not reported receiving or accepting an offer as of yet.

Taro Pharmaceuticals is an Israeli generic drug producer that has been struggling since 2004, with its stock down over 80% since those highs. Since then, the stock has struggled with poor financials and a possible delisting from the NASDAQ. Only recently did the company receive a filing extension on November 16th. The stock moved up 6% in today's trading on the news. It is important to remember that no offer has been made or accepted yet, and given the fact that Taro has not filed its 20-F (foreign annual report), we do not have a good picture of the company's financial condition. The deal could still fall apart if it is contingent upon a review of these financials (due diligence). But regardless, this is definitely a company to keep an eye on in this very strong M&A market.

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Teva Pharmaceuticals (TEVA)
Alpharma, Inc. (ALO)
Perrigo Company (PRGO)

Allegiant Travel Company (NDAQ:ALGT)
S-1 Filing by the Company
Allegiant Travel began trading this friday on the Nasdaq at $24.01 per share, above its initial range of $15 to $17 per share. Allegiant Travel is a leisure travel company focused on linking travelers in small cities to world-class leisure destinations such as Las Vegas, Nevada and Orlando, Florida. This stock is definitely one to watch as the U.S. IPO market has been on fire as of recent.

Catalina Marketing Corporation (NYSE:POS)
SEC Filings Watchlist
The company announced on Friday that they had hired Goldman Sachs to explore a possible sale of the company. Goldman Sachs will begin soliciting expressions of interest from interested third parties and present these offer to the board of directors to consider. The company had already attracted up to six private equity offers in the $30 range. The stock moved up over 15% on Friday to close just under $30 per share.

HEELYS, Inc. (NDAQ:HLYS)
S-1 Filing by the Company
HEELYS began trading Friday on the Nasdaq at $33.08, after pricing above its initial IPO range of $16 to $18. HEELYS is a designer, marketer and distributor of innovative, action sports-inspired products under the HEELYS brand targeted to the youth market. This stock is definitely one to watch as the U.S. IPO market continues to suprise to the upside.

Northwest Airlines Corp. (OTC:NWACQ) moved over 34% higher in today's trading on news that the company hired Evercore Group LLC for "strategic advice". We discussed a possibility of a merger in a previous article on this blog, where we noted that Owl Creek Asset Management - a 5% holder in the company - said that the company could be worth as much as $19.75-$33.50 per share in the event of a merger with Continental Airlines (NYSE:CAL). This estimate was based on the cost savings and other synergies that could benefit both companies, which Owl Creek explained in its 13D/A filing with the SEC. Meanwhile, Jon Ash, president of InterVistas-GA2, a Washington consulting firm said, "Northwest would be a good fit for Delta Air Lines Inc. or US Airways Group Inc. because they have complementary route systems". We first started watching this stock at $3.49 per share back on November 22nd and now the stock trades at $4.44 - this is still a great stock to keep an eye on as more information becomes available!

Related Companies
AMR Corporation (AMR)
UAL Corporation (UAUA)
Continental Airlines (CAL)

CNBC's Joe Kernen listed off his top takeover targets for the near-term today. The list included many names that have been thrown around recently, but he maintains that these are among the most likely takeover candidates:

• Micron Technology (NYSE:MU)
  
• RadioShack (NYSE:RSH)
  
• Deere & Co. (NYSE:DE)
  
• Ingersoll-Rand Co. Ltd. (NYSE:IR)
  
• OSI Pharmaceuticals Inc. (NDAQ:OSIP)
  
• Gap Inc. (NYSE:GPS)

There appears to be no signs of the merger mania slowing down anytime soon, as large cap companies continue to be eaten up in multi-billion dollar deals. This year has already become a record year for private equity acquisitions, topping $50 billion. Consequently, the stocks above are excellent potential targets to keep an eye on over the next few months.

Barclays Bank (NYSE:BCS) moved up over 4% early in today's session on comments made by Merrill Lynch suggesting the company may be a takeover target. The Merrill Lynch analyst said that Bank of America (NYSE:BAC) may be very interested in acquiring Barclays Bank, citing more international exposure in fixed-income, high yield, treasury management services, European credit card operations and other banking businesses. Bank of America has said in the past that its next step is to become a global leader in commercial and investment banking. Barclays is very well known internationally in these areas, particularly in corporate investment banking. If the merger went through, it would be the third largest of all time - a deal worth over $117 billion. According to the analyst, the deal would enable BoA to generate savings of up to $3 billion, enabling them to pay a 25% to 30% premium for the company. While there are no guarantees, many people are speculating that this deal could take place sooner than later. Barclays is definitely a stock worth keeping a close eye on.

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Wachovia Corporation (WB)
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Cass Information Systems (CASS)

Lone Star Steakhouse & Saloon, Inc. (NDAQ:STAR) revealed today in a schedule 13D/A filing with the SEC that they were able to obtain the confidentiality agreement they had been seeking in the past. They had been seeking this information in connection with their efforts to solicit additional bids for the company. The hedge fund, along with several other shareholders, have opposed the transaction ever since it was announced.

According to the filing:

"On December 5, 2006, Barington Capital Group, L.P. ("BCG") and the Company entered into a confidentiality agreement (the "Confidentiality Agreement") which will permit BCG and its financial advisor to obtain certain confidential or non-public information concerning the Company in order to evaluate its position with respect to the $27.35 per share consideration being offered to stockholders of the Company by affiliates of Lone Star Funds. The execution and delivery of the Confidentiality Agreement has been consented to by the affiliates of Lone Star Funds that are party to the merger agreement entered into with the Company." (Read More)

Barington noted in the past that they knew of at least five other potential buyers for the company who were interested in purchasing the company for more than the standing $27.10 offer. However, due to the company's reluctance to release financial information, they were unable to complete their due diligence. With this new confidentiality agreement in place, Barington may be able to provide this information to other potential bidders and perhaps solicit higher bids for the company. This makes STAR a stock worth watching closely as this situation unfolds.

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Finish Line, Inc. (NDAQ:FINL) is quickly finding itself under increasing pressure from shareholders who are questioning the board's longterm strategies to unlock shareholder value. Standing at the head of this group is the Clinton Group, a 4.4% holder of the company who is actively pushing for changes. The hedge fund filed a schedule 13D/A with the SEC today containing yet another letter to management:

"We are disappointed that you have not responded to us formally since our letter dated September 7, 2006 ("September 7th Letter"). However, we are appreciative of the constructive  dialogue that we have had with your management  team regarding the business and the progress of turning around performance. Since our letter was filed, we have received  numerous inbound telephone calls from both investment bankers, other institutional investors and private equity firms who share our views on The Finish Line, Inc. ("Finish Line" or the "Company").

We would like to reiterate  that we are  supportive  of you and your  management team as operators of the Company who are capable of guiding  Finish Line through the temporarily difficult environment. We note the commencement of a turnaround as illustrated in your press release of last week. However, we are beginning to question you and your board's  intentions  for  building long-term  shareholder value. We believe that being "very, very open minded" in  consideration  of the "long-term  best  interest of all the  shareholders,"(1)  should  entail an open dialogue with one of your largest shareholders and greater consideration of the proposals that we have detailed." (Read More)

Then the hedge fund goes on to outline some suggestions they have for improving the company's situation:

"We continue to believe that Finish Line's stock price is negatively affected by the dual class voting structure  (Class  A/Class B) for the  Company's common shares. We note that merely "having always had such a structure" is no longer meaningful in today's more shareholder friendly environment.

When we met in your offices in Indianapolis, we discussed capital allocation for the business. Given the strong balance sheet position of the Company, we think that the board  should  consider returning cash to the shareholders by significantly increasing the dividend.

In our September 7th Letter, we described the reasonableness of a modest senior debt financing to commence a Dutch tender offer to optimize the capital structure. We would be willing to discuss with you terms and conditions of a new credit facility which includes a $75 million undrawn revolving credit facility and a $100 million term loan B syndicated through the efforts of Clinton Group, Inc. (Clinton Group).

We believe this course of action is accretive to continuing  shareholders while (i) still allowing for a prudent capital structure; (ii) not limiting the growth plans of the management team and (iii) not detrimentally affecting the level of float." (Read More)

If the Clinton Group is able to solicit a response from management and get these changes implemented, it could mean significant share price appreciation over the long run along with an increased dividend. With many other shareholders and investment bankers expressing their support for the hedge fund, this becomes a strong possibility. This makes FINL a stock worth watching over the next few months.

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Bakers Footwear Group, Inc. (BKRS)
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DSW, Inc. (DSW)

HEELYS, Inc. (NDAQ:HLYS)
S-1 Filing by the Company
Reports from Reuters indicated that the IPO for HEELYS would be priced at $21, above the expected range of $16-$18 per share. The stock is expected to open tomorrow on the Nasdaq under the symbol "HLYS."  HEELYS is a brand designer, marketer and distributor of innovative, action sports-inspired products, targeted to the youth market. The company's primary product is wheeled footwear.  In 2005, the company's net sales increased over 106% from 2004. By the end of September of this year, net sales increased 303% to $117 million.

Oxigene Inc. (NDAQ:OXGN)
Form 4 Filing by the Company
In a Form 4 filing with the SEC, Per-Olof Soderberg bought 100,000 shares on December 5th at $5.02, bringing his stake to 636,330. OXiGENE is an emerging pharmaceutical company developing small-molecule therapeutics to treat cancer and eye diseases.

Yahoo (NDAQ:YHOO)
SEC Filings Watchlist
Rumors suggest that Yahoo might be the potential buyer of the Metacafe website, to be sold for an estimated $200-$300 million. Metacafe is a video-sharing website that competes with Google Inc.'s (NDAQ:GOOG) recently purchased YouTube service.

Gap Inc. (NYSE:GPS) moved over 3% higher in today's trading session on news that the company's CEO may be replaced and renewed talks of a possible leveraged buyout of the company. The Gap's recent financial woes have caused unrest amongst shareholders and kept the stock relatively cheap throughout 2006. The company reduced its FY2006 profit forecast in November, citing momentum at Old Navy as the catalyst behind the Gap's slower-than-expected turnaround. It was around this time that the company's credit rating was moved to below investment grade after its fifth straight quarter of lackluster performance. Meanwhile, Pressler - the company's CEO - received a 100% year-over-year raise, bringing his salary to almost $17 million this year alone. However, the Gap noted that he was not awarded any bonuses due to his failure to reach financial objectives. It is not difficult to see why investors would applaud a new CEO, and combined with the possibility of a leveraged buyout, GPS is definitely a stock worth keeping an eye on.

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PACCAR Inc. (NDAQ:PCAR)
Announced a $300 million buyback program

Peoples Bancorp of North Carolina, Inc. (NDAQ:PEBK)
Announced a $2 million share buyback program

Rockwell Automation, Inc. (NYSE:ROK)
Raised buyback from 9 million to 12 million shares

Verizon Communications Inc. (NYSE:VZ)
Raised buyback from $1.5 billion to $1.7 billion

Friendly Ice Cream Corp. (AMEX:FRN) may soon find itself embroiled in a proxy battle as The Lion Fund vowed to solicit proxies at the company's next annual meeting in 2007 to institute two of its nominees onto the company's board of directors. The 14.92% holder has been engulfed in this battle with the board since August. Sardar Biglari, Managing Partner of The Lion Fund, also addressed shareholders in a letter attached to his 13D/A filing with the SEC yesterday. In this letter, he outlined the fund's frustrations with the company's performance and his intent to nominate new board members at the company's next annual meeting:

"The optimal avenue to achieve good corporate governance and to envision wise means to enhance long-term value is to place very significant shareholders on the board to ensure a proper alignment of interests between the board and the shareholders.

Our concerns over Friendly’s arise from its poor corporate governance, poor operational performance, poor stock performance, and its weak balance sheet. To illustrate, the company’s escalating legal costs directly result from poor judgment on corporate governance issues, which has led to extensive litigation. Good corporate governance contributes to good corporate health. If you are a long-term stockholder, you care about the health of the corporation, which cares about all of its constituencies — franchisees, employees, creditors, customers, and shareholders. Good corporate health will support long-term shareholder value creation, the ultimate objective of a company. Friendly’s must make better capital allocation decisions and improve its capital structure if it is going to survive and then thrive.

We seek alteration in the composition of the Board of Directors to provide greater presence of directors who are autonomous and who therefore are able to represent the best interests of all stockholders. As directors, Phil and I would be technically and psychologically independent.

Over the coming months we will be communicating with you regarding our ideas for Friendly’s. Our Web site, www.enhancefriendlys.com, will be the prime source of information that we will communicate to you on important matters. Our guideline is to tell you the facts that we would want to know if our roles were reversed. We are applying this principle in our communications with you now and will apply no lower standard when we serve as stewards of your capital in our role as board members. Shareholders are entitled to no lesser standards and consideration; all shareholders of Friendly’s should be treated equally. We encourage shareholders to visit our Web site regularly and to share their thoughts with us about Friendly’s." (Read More)

Although Friendly's stock has increased significantly so far this year, it can be partially attributed to the strong buying by The Lion Fund and other shareholders seeking changes in the company's direction. The company's relatively small float makes the share price vulnerable to this amount of buying or selling. If The Lion Fund is successful in obtaining board seats and implementing their solutions for the company, it could mean a justification for these prices and an even larger return in the long run. This makes FRN a great stock to keep an eye on into the 2007 shareholders meeting.

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Barners and Noble, Inc. (NYSE:BKS) moved higher by over 4% today after Credit Suisse upgraded the company from Underperform to Outperform citing valuation and possibility of a LBO. The stock has also seen accumulation lately from a number of notable investors, including Perishing Square Capital who disclosed an 8% stake in a 13G filing on November 13th. Billionaire investor George Soros also initiated a small 0.14% stake in the company a couple of months ago while Charles de Vaulx added to his position, which currently stands at 0.47%. The stock has been on an uptrend since August, rising from $32 to over $40 - a 25% increase. This is definitely a stock to keep an eye on as the LBO possibility and interest by Soros and others continue to propel the company to new highs; however, an upcoming internal review of the company's stock option practices along with mediocre quarterly results are some possible roadblocks.

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Deere & Co (NYSE:DE)
SEC Filings Watch
Citigroup analyst, David Raso, met with the company's management in which they held a discussion focused on potential areas for acquisitions/business build outs. Shares of Deere & Co., which is the world's largest agricultural equipment manufacturer, rose more than three percent today after the reports that the company had received and rejected a private buyout bid.

Ultra Clean Holdings (NDAQ:UCTT)
8K Filing by the Company
Leonard Mezhvinsky, President, and Deborah Hayward, Vice President, of the company entered into a Rule 10b5-1 trading plan to sell ordinary shares of the company that are owned or will be acquired on the exercise of stock options. Between the two, they plan on selling up to 725k in shares.

Veritas DGC Inc. (NYSE:VTS)
10Q Filing by the Company
Veritas reported Q1 EPS of $0.68, above the consensus of $0.47. Revenues came in at nearly $231 million versus the consensus of $193.5 million. At the end of October of this year, the company's backlog was up to a record $550 million compared to $456 million at the end of July. Investors applauded the numbers as VTS stock rose on today's trading session.

Wilshire Enterprises (AMEX:WOC) may find itself in trouble soon as Bulldog Investors is more actively attempting to remove the company's poison pill. Poison pills - now more commonly referred to as "Shareholder Rights Plans" - are tools used by management to avoid hostile takeovers. They come in the form of provisions written into a company's charter that allow the company to dilute ownership, increase debt, grant options, or take a variety of other actions to make takeovers targets less attractive to potential acquirers. While these are useful in some cases, they are often seen as a tool to help managment and the board protect their jobs at shareholder expense. Bulldog Investors alleges that this is the case; they believe the company's current poison pill is too restrictive and should be removed in order to best serve shareholders.

In a letter attached to a recent 13D/A filing, they stated:

"As you know, Full Value Partners L.P. is a member of a group that owns almost 15% of the outstanding common stock of Wilshire Enterprises, Inc. (WOC) and is its largest outside shareholder.

When we met on September 26, 2006 I requested that the board either eliminate or raise the threshold of WOC's poison pill.  In general, we believe that poison pills act to insulate and entrench incumbent boards and managements thereby making them less accountable to shareholders.  The situation at WOC is particularly disturbing in that your father's estate owns over 21% of WOC stock, well in excess of the 15% threshold at which the poison pill would be triggered by any other shareholder.

During a subsequent telephone call we again asked you to recommend that the board eliminate or raise the threshold of the poison pill.  We have yet to get a response.

Our patience is not boundless.  Therefore, we have decided that unless the board acts by December 5, 2006 to eliminate or lift the threshold for WOC's poison pill to 21%, we intend to (1) present a proposal at the next shareholder meeting to eliminate the poison pill and to elect directors that will support that proposal; and (2) commence litigation to eliminate the poison pill.

It is unfortunate that one result of these actions will be that WOC will incur costs it can ill afford given its tiny size.  But what choice do we have given your failure to respond to our previous requests to address our concerns?" (Read More)

If the poison pill provisions are removed or lowered, it could mean potential bids for the company. This makes WOC a stock worth watching in the following months.

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Medtronic Inc. (NYSE:MDT) announced that it authorized the spin-off of its defibrillator unit to create a new publicly traded company, to operate under the name of Physio-Control, Inc. While the company's press release contains the only details we know to date, the company will eventually have to file a 10-12B with the SEC that will shed much more light on this new entity (watch for it). Let's take a look at what this deal entails...

According to their press release:

"Physio-Control will be the world’s leader in the $1 billion market for external defibrillation products, including automated external defibrillators (AEDs) and manual defibrillators used by hospitals and emergency response personnel. The new company will offer the current portfolio of external defibrillation and emergency response systems, data management solutions and support services, including the popular LIFEPAK® family of external defibrillators. The company will have approximately 1,200 employees and will operate in more than 100 countries around the world. The new company will continue to be headquartered in Redmond, Washington.

The spin-off is intended to take the form of a tax-free distribution to Medtronic shareholders of all the shares of Physio-Control, which will then trade as a new public company in the United States. The intended transfer of employees and assets to Physio-Control will be structured globally according to all applicable logistical, tax and legal requirements. Medtronic plans to structure the transaction to meet all of the requirements for a tax-free distribution and list Physio-Control’s shares on the New York Stock Exchange. The expected stock distribution ratio, including the record date for determining shareholders of record entitled to receive the distribution dividend, will be determined at a later date. Medtronic has retained Goldman Sachs to advise it on the transaction, which is expected to be completed in the first half of Medtronic’s fiscal year 2008."

Now this transaction is interesting for several reasons. First of all, spin-offs generally represent great investment opportunities for value investors. Tax-free spin-offs like this involve shares being distributed to parent company shareholders as opposed to a more traditional IPO process (roadshow, investment bankers, etc). It is this process that creates the value often seen in spin-offs. Many parent company shareholders may not have any interest in holding Physio-control shares and will sell them as soon as possible. Moreover, many mutual funds may not be authorized to hold these shares, and again may be forced to sell them. This downside pressure combined with the lack of an "IPO craze" creates a great buying opportunity for value investors. This is especially true for companies like this one, which are born as market leaders with a strong cash flow.

The second interesting part of this transaction has more to do with Medtronics. The company said they were spinning off this division in order to focus more on treatments of chronic medial conditions. Now, awhile ago there was speculation that Medtronics may be interested in acquiring Cyberonics, Inc. (NDAQ:CYBX) - a company that not only operates in this area but also has an angry activist shareholder on its back. While CYBX has appreciated in price significantly since the last mention of this rumor, the market still believes there is potential as the stock moved up over 3% in today's trading. These are definitely two stocks to watch as this situation unfolds.

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Ampex Corporation (NDAQ:AMPX) may find itself in hot water soon after ValueVest disclosed an 8.9% stake in the company and encouraged the company to explore ways in which it could unlock shareholder value. The hedge fund first began acquiring shares in the company back in October of 2005 and continued accumulating shares for over a year before making a buyout offer for the company last month, which was immediately rejected by the board of directors. ValueVest now appears to be seeking other ways in which the company could commercialize its intellectual property rights that it has been sitting on for so long.

According to the most recent 13D/A filing:

"On November 28, 2006, Messrs. Bakar and Cariani of the Investment Manager and David Martin, the chief executive officer of MoCAM, met with Messrs. Bramson and McKibben, the Issuer's chief executive officer and chief financial officer, respectively, at the Issuer's offices in New York. At the meeting, the Investment Manager expressed its continuing belief that the market price of the Company's Shares does not fully reflect the underlying value of the Issuer's assets and businesses.

The Investment Manager indicated that it has identified specific actions and possible strategic relationships that could materially increase the Company's revenue stream from its intellectual property assets. Such plans could involve the consulting and advisory services of M.CAM and Dr. Martin. In addition, the Investment Manager indicated a need to consider the management team and possible changes to the composition of the Board of Directors. The Issuer agreed to discuss these matters with its Board of Directors and is prepared to work with the Investment Manager on exploring a new strategic plan for the Issuer along the lines outlined by the Investment Manager. The parties agreed to meet again in December to review possible nominees for the Board of Directors and to discuss in detail ways to further monetize the patent portfolio." (Read More)

The hedge fund has consulted with M.CAM and other IP professionals and determined that the value of the company's intellectual property assets are far greater than what is reflected in the current market price. These consultants produced the following report, which was attached to ValueVest's original 13D filing with the SEC:

"Licensing stream securitization: M.CAM to attempt to perfect the interests in the royalty streams that are current in Ampex and build a cash-backed securitization This has an opportunity to infuse NPV working capital into Ampex
for strategic use in IP enforcement and could be pooled with 3rd party licensing revenue for larger investment banking opportunity returns.

Immediate Notice: M.CAM to oversee and coordinate the sending of infringement notice letters on both the Ampex patents as well as the operating code to all existing licensees as well as the over 190 companies and entities identified as currently encroaching on the Ampex portfolio. The near and long term intents
are:

• Capture greater value from existing licensees by migrating from a patent-only model to a patent and copyright model;
• Build the basis for a transferable and poolable licensing consortia on digital image capture, transmission, storage, and reconstruction (for internal leverage or for partnership leverage with Kodak, Sony, Samsung, etc.);
• Begin capturing revenue for non-aligned sector deployment; and,
• Construct a template for more assertive licensing value expectations with licensees.
  

Company to pay a 10% commission on all renegotiated and re-priced licenses and a 25% commission on all new licenses from currently un-licensed principal patents.

Public Sector Realignment: An immediate review of all existing long-term government contracts to assess their viability for migration to data form a homogenization services in addition to, or in lieu of, existing technology
supply contracts. Insofar as this exercise is successful, M.CAM would propose taking an OS standard approach to building future value. Commissions would be negotiated as above.

Teaming: M.CAM has identified and qualified one third party with whom it may be able to create significant patent licensing pools. This third party has considerable financial interest in parties known to, but not doing business with Ampex. M.CAM proposes the immediate entrance into dialogue with this party to arrange a licensing pool structure (with pari pasu revenue sharing) between the parties. This licensing pool could roll into the securitization model above or simply add cash flow to Ampex." (Read More)

Clearly, there is additional shareholder value that could be realized here, it is simply a matter of convincing management to implement measures to take advantage of their IP assets. Moreover, ValueVest's initial offer to purchase the company outright illustrates a strong belief that these assets are indeed worth a significant amount of money. This stock is definitely one to watch closely as ValueVest works closely with management to unlock shareholder value.

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Station Casinos, Inc. (NYSE:STN) announced a management-led buyout offer in a 13D/A filing today at $82 per share, in a transaction valued at around $4.7 billion. Although the offers comes at a 20% premium over yesterday's close, investors are anticipating a future raised bid with shares currently trading at around $83.10. While the stock is still trading at a 48% discount to enterprise value, it is worth noting that the company trades at higher multiples than comparable companies within its industry. The company's PEG ratio stands at 2.09 versus an industry 1.75, while its PE ratio is 39x versus 30x. However given the recent M&A speculation within the casino industry (ever since Harrah's $15 billion buyout in October and Tracinda's recent MGM bid) it is difficult to rule out anything. Moreover, the board's special committee said it would entertain other offers.

Share of Boyd Gaming Corp. (NYSE:BYD) and Penn National Gaming (NYSE:PENN) also moved up in today's trading by 4% to 5% on renewed M&A speculation. The gaming industry is still one worth watching as private equity and hedge funds continue to scoop up the major players.

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Pogo Producing Company (NYSE:PPP) may find itself under increasing pressure after Daniel Loeb's activist hedge fund, Third Point, sent another letter to the company's president and CEO in a 13D filing with the SEC on Friday afternoon. In the letter, the 7.2% holder demands that the company put itself up for sale immediately and threatened a proxy war during the next shareholder meeting if the company didn't take action. In the letter, Third Point outlines the problems with the company:

"We appreciate your taking the time to meet with us following the Company's presentation at the Friedman Billings Ramsey investors conference on November 29th. We approached the meeting with an open mind and the sincere hope that you would answer our questions in a way that might help dispel your poor reputation among your peers, energy analysts and investors. While the meeting reinforced our positive view of the Company's underlying asset value, it also contributed to investor concerns that Pogo's management has failed to pursue cohesive exploration, development, acquisition and financial plans.

Over the past ten calendar years, the share prices of your peers comprising the S&P Midcap Oil & Gas Exploration & Production Index have appreciated at a compound rate of 11.7% while your stock price has appreciated only 5.8% annually, less than half the rate of your peers. Lest you think we chose an unfavorable time frame to evaluate your performance, the table below shows that Pogo has underperformed on a cumulative basis for every time period over the past decade!

Unsurprisingly, the underperformance has continued this year. Through November 20th, the stock had declined 4.1% year-to-date as compared to a 4.7% increase for your peers. In fact, the only recent time period during which the stock has outperformed the index has been in the period since we filed our initial Schedule 13D with the SEC on November 20th.

In the one and a half decades you have run Pogo, shareholders have suffered subpar returns. Your track record is long and meager, and it is time for change. Accordingly, we demand that the Board immediately initiate a process to sell the Company in whole or several parts to the highest bidder or bidders. To underscore our commitment to this process, we are advising you today that we intend to conduct a proxy contest at your 2007 annual meeting of shareholders that will allow us to elect new directors comprising a majority of the Company's board of directors." (Read More)

Third Point believes that the asset value of the company surpasses the value that management is able to extract for shareholders. Management's actions have stifled this value; transactions like the Northrock Resources acquisition. The hedge fund elaborates on this questionable acquisition in their letter:

"One particularly vexing transaction, the Northrock Resources acquisition in Canada, typifies the inopportune type of capital allocation decisions made by the Company. On July 11, 2005, you announced the acquisition of Northrock for $1.8 billion in cash, a significant transaction for Pogo, exceeding half of the then $3.2 billion market capitalization of the Company. At the time, you commented that "Pogo is a very particular and discriminating buyer of assets." Unfortunately, the results realized since the acquisition belie your contention.

In the year since the acquisition closed, you have spent over $350 million - approximately 20% of the purchase price - in capital to improve these assets, yet production has actually declined 10% from 30,000 barrels of oil equivalents per day ("boepd") to 27,000 boepd. Given the significant scope of the acquisition and poor performance of the assets to date, we were hoping your answers to our questions would help us understand the strategic thinking behind the acquisition and what return on capital the Company expected to achieve. Your answers were not satisfactory. When we asked you about the natural annual decline rate of the assets, you responded "7 to 8%," which seems unlikely given the 10% annual decline experienced during your first year of ownership while you invested significant capital attempting to increase production. This is especially troubling and gives credence to reports by industry participants that Pogo's management did only minimal due diligence before consummating the transaction last year." (Read More)

If Third Point is successful in forcing a sale of the company, there could be significant upside in any buyout. While proxy battles are a long and expensive process, they are one of the best ways to catch managements attention and get a hedge fund's agenda accomplished. This makes PPP a stock worth watching as this situation unfolds. The stock moved down almost 2% in today's trading on the news.

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Lone Star Steakhouse & Saloon, Inc. (NDAQ:STAR) said today that it received a higher buyout offer from Dallas-based private equity firm Lone Star Funds. The PE firm raised its bid from $27.10 to $27.35, which represents a 1% rise in the offer. The Company also said it pushed back the meeting of shareholders to vote on the proposed merger from November 30th to December 12th.

There are several large shareholders that plan to vote against the merger, including Barington Capital, Deutsche Bank and Millenco LP, all of whom believe the offer significantly undervalues the restaurant chain. Although these funds have yet to comment, it is unlikely that the 1% raise will affect their sentiment. In a previous article, we also noted that Barington Capital said it has identified several other parties that may be interested in purchasing the company at a price greater than $27.10 per share, contingent upon their ability to review non-public information. However, the company said it still plans to support the merger agreement with Lone Star Funds. If these funds succeed in preventing the sale at this price, it could mean an increased bid or opportunity for the company to receive other bids. This makes STAR a stock worth keeping an eye on over the next few months.

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Advanced Micro Devices Inc. (NYSE:AMD) revealed today in a form 4 filing with the SEC that James Fleck - a new director from AMD's acquisition of ATI - purchased 25,000 shares on the open market at $22.15. This is the first purchase he has made since he was appointed as a director on October 25, 2006. AMD's stock has fallen significantly this year from a high of $42 to its current levels in the mid-20's. This drop largely stems from a reduced outlook and increasing spending on acquisitions, including the ATI purchase for $5.4 billion. With company insiders beginning to purchase at these levels, it may be a sign that things are ready to improve, and this makes it a stock worth watching over the next few months.

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Triad Hospitals Inc. (NYSE:TRI) may see itself in more hot water today after Axon again increased its stake in the company, which is now at 7.4% according to their latest 13D/A filing with the SEC. The hedge fund also attached a previous letter it had sent in early November to this filing, which highlighted the changes it was seeking.

These changes included:

• Significantly amending the composition of the board, in order to improve the depth of financial sophistication, and also to include representation from shareholders. The current board is simply not credible as a guardian of our capital.
• The company should focus on improving and optimizing existing assets. It is critical that focus be placed on improving the company's analytical tools and controls. Margins must be improved, capital expenditures must be rationalized, and issues like bad debt must be analyzed carefully. Ultimately, until the current assets have been optimized and management control has been enhanced, it does not appear sensible to continually expand, and increase complexity.
• Capital usage strategy should be dramatically altered. Instead of aggressive spending on capital expenditures and acquisitions, the company should reduce expenditures to levels needed to optimize existing assets. Excess cash flow should be returned to shareholders, via dividends or share buyback.
• The company has the flexibility to increase leverage significantly without impairing operating flexibility, or increasing risk to imprudent levels. Rather than keeping this capacity as a 'war chest', the company should instead use it to optimize the capital structure, and generate return for shareholders. With these steps, the company could comfortably implement a capital reduction of $1.0 to $1.25 billion, and still have leverage ratios and coverage metrics that would be prudent and manageable.

Axon also said the company should amend the composition of the board, focus on improving and optimizing existing assets, return excess cash flow through dividends and they increase leverage significantly. In the end, the hedge fund believes the fair value of the stock is 25 to 50% higher than current levels. This makes TRI a stock to keep an eye on as the fund works to implement these changes. The stock is currently trading down 2% in morning trading.

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