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.