ADESA, Inc. (NYSE:KAR) shares moved up $0.76, or 2.69%, to $29.00 today after Royce Associates LLC voiced their concerns about the company's current merger plans in a Schedule 13D filing with the SEC. The company recently agreed to be acquired for $27.85 per share in a multi-sided deal worth approximately $3 billion. Royce Associates, however, believes that the company's shares are worth more than the buyout price and questioned the company's accountability to shareholders. This notion was then supported today by Gabelli & Company, Inc., who said in a press release that they agreed with Royce Associates' analysis of the company. With shares currently trading around $29.00, investors are betting that this opposition will be enough for the company to reconsider its plans.

Just how much are KAR shares worth? Well, Royce Associates provided us with an excellent analysis in their Schedule 13D filing with the SEC:

On a valuation basis (Enterprise Value/TTM EBIT), the company is being acquired at a 24% discount to a "peer group" of publicly-traded comparables (including Copart [CPRT] and Ritchie Brothers [RBA]), and a 37.5% discount to the private equity purchase multiple of Insurance Auto Auction, Inc (IAAI) which was announced in February 2005. Using another valuation methodology (EV/TTM EBITDA), a similar disparity results, with the company being acquired at a 26% discount to the same group of comparables, and a 13.7% discount to the IAAI deal. More distressing is the fact that IAAI's EBIT margins and returns were well below KAR's, yet IAAI still commanded a higher take-out valuation from private equity investors.

On a Sum-of-the-Parts basis, if you apply the public company comparable multiple average (15.8x TTM EBIT) to KAR's Auction Services TTM EBIT (of $164.7m = $2,602m) and 8x TTM EBIT to the Dealer Services segment EBIT (of $86.1m = $689m), subtract SG&A ($23.4m), add back Cash ($211m) and subtract Long Term Debt ($330m), divided by shares outstanding (90.2m), we arrive at a target price of $35.00.

Royce Associates also brought up some other major problems with the transaction. Why, for example, didn't an auction process begin with strategic buyers, as opposed to financial buyers? Furthermore, why was the one strategic buyer, which had expressed an interest earlier, not included in the bidding process? These concerns are supplemented by a host of other issues brought up by the hedge fund, including:

1. Adesa, Inc has agreed to indemnify officers and directors against "any personal liability that may result from this transaction "
2. Adesa, Inc entered into Change of Control agreements with members of senior management as recently as 12/21/06, to pay lump sums in cash of up to 3x the base pay and annual bonus, if these employees are terminated after this deal. We already know (press release dated 1/16/07) that several members of existing management are likely to be terminated. Are these recent Change of Control agreements a meaningful incentive to enter into this sub-par transaction?
3. One of the acquiring private equity investors also happens to be one of the largest public shareholders at 9/06. Common sense suggests that one would only go to the trouble of "taking private" an existing holding, if he believed it was meaningfully undervalued.

Adesa shares have significantly underperformed its peers since going public, rising only 7.1% annualized. Now, management wants to hand over the business to financial buyers at a mere 16% premium to its IPO price, instead of extracting maximum value by either breaking up the company into its three components or making the investment decisions that should have been made years ago to help the stock's price reach that of its peers. Royce Associates' said it best: "We urge the board, as part of its fiduciary duty, to revisit the price as well as the process by which Adesa will be acquired, in order to obtain a more equitable price for all current shareholders. Based on our calculations outlined above, using a sum-of-the-parts methodology, a price of $35.00 per share would be more in line with industry comparables, excluding any strategic acquisition premium." If the company decides to listen to this advice, it could mean significant share appreciation for savvy investors - this is definitely a stock worth watching!

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Copart, Inc. (CPRT)
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Cost-U-Less, Inc. (NDAQ:CULS) responded to requests made by two activist hedge funds yesterday in an 8-K filing with the SEC. The two hedge funds had pointed out the many problems with Cost-U-Less operations and suggested that the company consider putting itself up for sale in order to unlock shareholder value. They suggested that shares of CULS could be worth in excess of $12 per share in the event of a buyout. After not receiving any communication from the company, they threatened a proxy contest in order to more actively generate a response or action.

This worked today as the company finally issued a press release explaining its position. The company explained that its board of directors had contacted investment banks and other advisers in several instances in order to help them evaluate strategic alternatives and increase shareholder value/liquidity. Clearly, most of these evaluations did not result in anything material; however, their most recent financial adviser proves to be quite interesting. The company revealed that in November 2006, it engaged its current financial adviser, Cascadia Capital, LLC, to assist the board in exploring a range of strategic alternatives.

This could prove to be interesting because Cascadia Capital is a Seattle-based investment bank is a nationally recognized M&A advisory practice, which suggests that they may be exploring an M&A transaction. This could include a possible sale of the company or perhaps an acquisition or merger of their own. Unfortunately, the company has a policy in place that prevents it from commenting publicly on the nature or content of their ongoing deliberations, so it's impossible to tell which options they are exploring. However, given Delafield's offer to purchase the company and other interest, we can hope that a sale of the company is at least being considered. This makes CULS a stock that is worth following over the next few months!

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Feldman Mall Properties, Inc. (NYSE:FMP) shares moved down $0.14, or 1.18%, to $11.69 in today's trading after Mercury Real Estate Advisors LLC again demanded that the company immediately hire an investment banker and put itself up for sale in a Schedule 13D/A filing with the SEC. In December, the hedge fund filed their initial Schedule 13D with the SEC requesting inclusion in the company's next proxy statement and recommending that the company's consider putting itself up for sale. They supported this request with the following:

1. The corporation has failed to match returns reflected by certain industry benchmarks. Since going public on December 15, 2004, the corporation has posted a total return of negative 4.79%. The MSCI US REIT Index has achieved a total return of positive 55.77% over this same period. This reflects substantial underperformance of 60.53%.
2. The corporation lacks the sufficient size required to operate as a public company. In our view, shareholders’ equity is being wasted on general and administrative expenses that are not commensurate with the size of the company. General and administrative expenses at the corporation totaled 13.6% of revenues during fiscal 2005 while the ratio of G&A to revenues in the Corporation’s Peer Group average 4.3%.
3. The corporation has suffered a series of earnings misses and downward revisions to guidance. The first downward revision of guidance came in November 2005 with regards to third quarter 2005 results. The corporation lowered FFO/share guidance 17% from a range of $0.28-$0.30 to $0.23-$0.25. Fourth quarter 2005 FFO/share guidance was also lowered from a range of $0.25-$0.27 to $0.17-$0.18. This is a 32% decrease from the guidance that was offered just a few months prior. In our view, management has lost credibility with investors as a result of being overly optimistic and not realistic on a number of occasions.
4. The corporation is an attractive acquisition candidate for a national or regional mall owner/operator. While we believe that the corporation is too small to generate economies of scale with its widely dispersed portfolio, several of the national or regional owner/operators could achieve operating synergies through an acquisition of the corporation. Further, we believe the corporation is trading at a significant discount to its intrinsic or liquidation value.
   

Since then, the hedge fund said that it had received numerous inquiries from well known and established, national and regional mall owners and operations interested in exploring a purchase of the company and its assets. Given that the company trades at a significant discount to its liquidation value, Mercury Real Estate Advisors continues to insist that a sale of company is the best course of action to maximize shareholder value. Moreover, Mercury Real Estate Advisors' willingness to put itself on the next proxy statement illustrates their motivation to make this happen. Combined, these factors make this a great stock to watch for opportunistic investors!

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Pogo Producting Company (NYSE:PPP) shares moved up $1.77, or 3.37%, to $49.55 today after Third Avenue Management LLC voiced their concerns about the company in a Schedule 13D filing with the SEC. This news follows previous concerns about the company's underperformance and valuation voiced by Daniel Loeb's Third Point. Combined, the two activist investors now control roughly 14% of the company's outstanding shares and have both pledged to take further action if necessary to unlock shareholder value. The significant stake in the company along with the threat of a proxy battle may finally warrant a meaningful response from the company's management and board of directors.

What issues do these hedge funds have with the company? Well, Daniel Loeb pointed out in December that the company's stock has appreciated less than half the rate of its peers for every time period in the past decade (on a cumulative basis)! Moreover, he questioned the company's Northrock Resources acquisition in Canada in which spent over $350 million (approximately 20% of the purchase price) in capital trying to improve; however, production in this segment has actually declined 10% from 30,000 barrels of oil equivalents per day to 27,000! Given these failures by management, Third Point recommended that the company immediately put itself up for sale or they would pursue a proxy battle to do it themselves.

Third Avenue Management expressed similar concerns today over the company's mismanagement and poor valuation. The hedge fund pointed out that the company's 2003 net debt has increased by more than six times and net debt per MCFE of proved reserves has increased by more than five times. While this amount of debt may be manageable, TAM pointed out that levering up during a period of historically high commodity prices could cause some major problems in the future. Next, TAM noted that company's production per share has dropped by more than 20% while, on a unit of production basis, lease operating expense has increased by 178% and G&A has tripled. The hedge fund insisted that this combination of higher debt, lower production, higher operating costs, and the underwhelming results from the company's recent acquisition of Northrock Resources were the main factors behind the poor relative performance of Pogo's stock over the last three years. And to top it all off, despite Pogo's poor performance over the past several years, the TAM noted that the company's compensation has been rising! In fact, company executives received an 11.8% increase in their base salary with a bonus that grew by 25% in 2005! The company also issued a restricted stock award valued at approximately $2 million to executives, up a staggering 55% compared to 2004! As a result of all of this, Third Avenue Management said that they would begin talks with other shareholders or take actions on their own in order to solve these problems and unlock shareholder value.

Clearly, if Third Avenue Management and/or Third Point are able to take convince the company to put itself up for sale, it could mean significant share appreciation for investors in a relatively short period of time. While we were not able to get a response yet from either of the two hedge funds, we will keep SECInvestor updated on any new information we receive. Overall, this is definitely a stock worth watching!

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Brooks Automation Inc. (NDAQ:BRKS) shares moved up $0.17, or 1.22%, to $14.08 today after Nierenberg Investment Management said that they strongly disagree with the decision made by Institutional Shareholder Services and Glass Lewis to withhold their votes from several incumbent BRKS directors. Details regarding this proxy vote were disclosed in the company's recent Schedule 14A proxy filing with the SEC. While the company's shares have stalled somewhat during recent years, the stock is trading 32% higher than its 2006 lows.

In their Schedule 13D filing with the SEC, Nierenberg noted:

"We believe that the Board of Directors of BRKS has improved dramatically the quality of its corporate governance in the past year. First, the Board announced that former Chairman and CEO Robert Therrien would not be re-nominated for another term on the Board.  Second, when the Wall Street Journal broke the story last March about the appearance of  back-dated stock option grants made to Mr. Therrien, the Board immediately appointed a special committee  of  newer, independent  directors to examine the matter and empowered the special committee to engage independent legal and accounting counsel. Later, after several months of intensive examination of the Therrien and other suspect stock option grants, the two board  members who had been the Board's compensation committee  at the time the Therrien grants were made resigned from the Board of Directors. Now BRKS' Board has a capable new Chair; the former Lead Director is no longer on the Board; and BRKS' compensation committee and its nominating and governance committee also have new Chairs. The company is publicly committed to cooperating fully with federal examinations of past option practices and to never repeating the unfortunate practices of the past. Fundamentally, we believe that BRKS has a strong balance sheet, a sensible corporate strategy, and excellent management to execute the strategy ... We believe that the formulaic approach taken by ISS and GL would, if followed in this case, cause shareholders  to withhold votes from directors who have been doing difficult work exceptionally well. We believe that doing the right thing should be rewarded, not punished."

Overall, this shareholders meeting will be one to watch closely as many large shareholders are beginning to question the company's leadership. Meanwhile, the company's stock continues to perform well into 2007 and is definitely one to keep an eye on over the next few months.

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Motorola Inc. (NYSE:MOT) shares moved up $0.16, or 6.39%, to $19.47 in early trading today after the company confirmed that it had received notice of Carl Icahn's intent to nominate himself to the board of directors at the next annual meeting. The Schedule 14A filing with the SEC offered no additional information regarding his intentions; however, we know that Carl Icahn is an activist investor that is not afraid to take action to unlock shareholder value. He currently holds a 1.39% stake in the company, which is below the reporting threshold (so no Schedule 13Ds have been filed). We believe, however, that Icahn may intend to take advantage of the company's large cash position (currently standing at around $6 per share). It is not uncommon for activist shareholders to request special dividends, share buybacks, or other measures designed to utilize extra cash to increase the stock's price. Motorola told us that all they are unaware of Mr. Icahn's intentions as stated in the filing, and would not comment on any past communications between the two. However, this is definitely a stock worth keeping an eye on!

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News and Events

Motorola, Inc. (NYSE:MOT) shares moved up today after Carl Icahn disclosed a small stake in the company and said that he wanted a seat on the company's board of directors. Mr. Icahn is well known for his shareholder activism in company's as large as Time Warner. Many expect him to institute a share buyback or special dividend if he attains a seat.

NYSE Group, Inc. (NYSE:NYX) is set to announce a strategic alliance with the Tokyo Stock Exchange tomorrow morning. NYSE Group Chief Executive John Thain and Tokyo Stock Exchange Chief Executive Taizo Nishimuro will attend a briefing to discuss the alliance; however, the company offered no additional comments on any specifics.

Altria Group, Inc. (NYSE:MO) is expected to report higher fourth-quarter results, but news of its plans to spin off its majority stake in Kraft Foods, Inc. (NYSE:KFT) is expected to overshadow these announcements. Some are concerned that Kraft's shares could experience some downside pressure as uninterested MO shareholders immediately sell off their stakes. Meanwhile, even though investors are widely expecting the Kraft news, it is likely to provide a further boost to Altria's share price.

Man Group plc (LON:EMG) said that it would be spinning off its brokerage arm through an initial public offering that could be one of the largest in Wall Street history. According to CNBC, the company has been interviewing investment banking firms to serve as underwriter for an IPO that could take place by the middle of this year, possibly as early as late spring.

US Airways Group Inc. (NYSE:LCC) said that it would stand by its Delta Airlines (OTC:DARLQ) deadline for its $9.87 billion takeover bid. Meanwhile, an unofficial group of Delta Air Lines creditors wants to postpone a February 7th bankruptcy hearing so that creditors can take a closer look at the offer.

Earnings Announcements
69 Positive, 0 Neutral, 40 Negative Expected

Axcelis Technologies, Inc. (NDAQ:ACLS) is expected to report earnings of $0.12 up 1,100% from last quarter's $0.01. The company's stock is up over 2% after-hours today prior to the announcement.

The Allstate Corporation (NYSE:ALL) said that its fourth quarter earnings rose 16.5%, but missed analyst estimates. The insurance company reported earnings of $1.78 per share, slightly less than the analyst consensus of $1.84 per share. The stock fell 2% after-hours.

SanDisk Corporation (NYSE:SNDK) reported higher than expected earnings of 87 cents per share, beating analyst estimates of 72 cents per share. The stock closed up 1.4% on the news today.

Novelis Inc. (NYSE:NVL) shares are up over 24% since last week on reports that Aditya Birla Group could make an offer for the company. The reports cited a $5 to $6 billion offer that would include the assumption of $2.4 billion in debt, which would would put a potential offer at $35 to $49 share. Analysts at Davenport also suggested that there could be other bidders for the company and maintain their belief that NVL shares could be worth around $68 per share on a takeover basis, based on the NPV of free cash flows through 2010. Officially, the company said it was "in discussions with various parties that could lead to a potential sale of the company". Meanwhile, the company's shares moved down today on reports that the company was interested in acquiring Hindalco. While the company has yet to comment, the acquisition would not make much sense for NVL on the surface, as the two would have very few synergies. Overall, this is definitely a stock to keep an eye on as the company continues its discussions with interested parties!

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PYR Energy Corp. (AMEX:PYR) shares moved up $0.13, or 14%, to $1.06 in mid-day trading today after Samson Investment Company made a $1.23 per share offer for the company. The Schedule 13D filing noted that the fund had attempted to contact the company's board several times without receiving a response and therefore decided to make their offer public. Samson said they would acquire 100% of the outstanding common shares at a cash price of $1.23 per share, which represents a 30% premium over Friday's $0.94 share price. Moreover, the investment company said that the buyout would be funded with cash on hand, so no financing would be required. Consequently, Samson said that it could quickly finalize an acquisition agreement and proceed without delay. Finally, they requested a response to the proposal no later than 4:00PM CST on February 1, 2007. Overall, this would be a smooth transaction for both the company and its shareholders. Given the substantial premium of the stock's current market price, the company will likely be forced to at least respond to the offer or risk alienating many of their shareholders. We could not reach the company for comment yet, but we will update this page if and when we hear back from them. Until then PYR is definitely a stock worth keeping an eye on as this situation unfolds!

UPDATE: The company's IR informed us that the they are currently reviewing the offer and offered no further comment.

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Bristol-Myers Squibb Co. (NYSE:BMY) shares moved up $1.72, or 6.56%, to $27.93 in early trading today after rumors surfaced that the company could be acquired by Sanofi-Aventis (NYSE:SNY). La Lettre de l'Expansion - a French newspaper - reported that a pre-merger memorandum has even been signed last week. Meanwhile, both Sanofi-Aventis and Bristol-Myers declined to comment on the speculation.

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News and Events

NYSE Group, Inc. (NYSE:NYX) and the Tokyo Stock Exchange are expected to announce an alliance as early as Tuesday, according to media reports. The alliance would represent a preliminary step to creating the first stock exchange spanning North America, Asia, and Europe.

Prudential Financial, Inc. (NYSE:PRU) finally decided to unload its internet bank, Egg, to Citigroup for £575m. The sale marks an end to a long saga dating back to 2004 when the company attempted to sell the ailing division to both Royal Bank of Scotland and Citigroup.

Merrill Lynch & Co. Inc. (NYSE:MER) said that it had agreed to purchase First Republic Bank (NYSE:FRC) yesterday in a deal worth $1.8 billion - a 44% premium to stock's the prior close. Merrill Lynch said the move was intended to add wealthy clients to its member base. First Republic operates 43 branches and specializes in mortgages for luxury homes.

Verizon Communications, Inc. (NYSE:VZ) announced lower profits, saying that it would continue its aggressive strategy to sign-up more customers to its fiber-television service despite its high costs. Capital expenditures are expected to be approximately $1 billion more than expected as a result of the new strategy; however, the company is already seeing strong penetration into the video markets as a result.

Tesoro Petroleum Corporation (NYSE:TSO) announced a $1.63 billion acquisition of Royal Dutch Shell PLC's Los Angeles refinery in a deal that clearly pleased investors today. Analysts suggest that this acquisition will help boost its flagship presence in Los Angeles and add raise the quality of its asset base. The refinery is also expected to immediately and significantly increase its earnings.

Earnings Highlights
68 Companies Reporting: 28 Negative, 3 Neutral, 37 Positive

Stratex Networks, Inc. (NDAQ:STXN) is expected to report a 500% growth in earnings tomorrow with a consensus at $0.06 up from $0.01 last quarter.

O'Charley's Inc. (NDAQ:CHUX) is expcted to report a 271% growth in earnings tomorrow with a consensus at $0.26 up from $0.07 last quarter.

Con-way Inc. (NYSE:CNW) announced higher profits, supported by the sale of one of its business units. Earnings were down 23% from last quarter, however, as the company said its results are "not up to the standards our shareholders and employees have come to expect".

Sterling Bank Corp. (NYSE:STL) is expected to report a 22% decline in earnings growth with a consensus at $0.24 down from $0.31 last quarter.

Phelps Dodge Corporation (NYSE:PD) reported strong earnings growth of 173% but failed to surprise investors as their stock moved down 2.27% today. The copper producer noted that it was continuing to benefit from strong prices for copper and molybdenum, each of which reflects solid market fundamentals

Eagle Hospitality Properties Trust, Inc. (NYSE:EHP) shares moved up $0.20, or 2.17%, to $9.40 today after the company said that it may put the company up for sale in an 8-K filing with the SEC. According to the associated press release, the Board of Directors has established a Special Committee of independent directors to explore strategic alternatives to enhance shareholder value, which could include a possible sale of the company. The company also said that it has retained Morgan Stanley as its financial adviser.

Eagle Hospitality itself is an REIT focused on acquiring, developing and managing full-service and all-suites hotels. The company's property portfolio consists of nine hotels including Embassy Suites Hotels, Marriott, Hyatt and Hilton. And as of September 2005, the company owned 100% interest in nine hotels and 49% interest in one other hotel within the United States. Financially, the company currently trades below book value (which stands at $10.02) with a debt-to-equity ratio of just 1.4x (below the industry average). And while the company is somewhat inefficiently run (with low ROA and ROIC), it did show vast improvements in several key hotel metrics including its occupancy rates, average daily rates (ADRs), and RevPAR (revenues per room available).

What could be expected in the event of a sale? Well, REITs typically grow through acquisitions of undervalued and mismanaged properties which they utilize their economies of scale to improve. Clearly this makes EHP a great target as it is both undervalued and somewhat inefficiently run but yet improving. Moreover, the company's low market cap, low debt, and decent cash on hand would make it a relatively easy transaction. Valuations themselves come in two flavors: intrinsic valuation and peer valuation. Intrinsically, the company is trading well below its enterprise value with low debt and decent fundamentals. Eagle Hospitality also has a lower valuation compared to its peers, in an industry where buyout premiums typically come between 20% and 30% of the 90 day moving average. Combined, this puts a conservative buyout number somewhere in the area of $11.50 - of course, this is assuming that the Board decides to even put the company up for sale. Overall, EHP is a stock that is definitely worth watching as the Board decides how to best unlock shareholder value.

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Applebees, Inc. (NDAQ:APPB) shares moved down $0.08, or 0.32%, to $24.74 today after Breeden Partners criticized the company's performance and governance and made several recommendations to the company's board of directors in a Schedule 13D/A filing with the SEC. This is not the first time that Breeden has become involved with Applebees either; back in December, the 5% holder pointed out similar problems with the company and threatened to nominate its own candidates to the company's board of directors.

The hedge fund began its letter by pointing out APPB's chronic under-performance compared to other company's in its peer group. They noted Applebee’s performance was 113.3% worse than Darden, 51.7% worse than the S&P 500, and 47.4% worse than the 75th percentile of the casual dining peer group. Next, Breeden pointed out the company's deteriorating fundamentals by showing declining same-store sales (5.2% to -1.0%), declining operating margins (16% to 12.4%), and declining return on capital invested (16% to 10%). The hedge fund noted that many of these problems stemmed from:

1. A fundamentally flawed growth strategy
2. Ineffective leadership during several years prior to Dave Goebel becoming CEO
3. Serious ongoing internal weaknesses in marketing and finance
4. Poor capital allocation policies
5. Excessive overhead costs
6. An ineffective board
7. Poor governance practices of various types
   
8. Inability to make timely decisions of consequence

The letter then moved into an area that is generating an increasing amount of press coverage - executive compensation. Breeden noted that even while the company has lost million in value over the past few years, executives were still granted over $30 million in bonuses! They also uncovered some other highly questionable executive perks, including personal use of corporate aircraft and even the use of shareholder funds to pay executives' personal income taxes. Perhaps the hedge fund said it best:

"We do not believe that shareholder interests are served by turning corporate aircraft into flying limousines for senior executives’ personal vacations. Just as importantly, this practice is inconsistent with the wholesome “neighborhood values” that Applebee’s claims to embody as a company. I am quite certain that most Applebee’s customers would be shocked to find out that a portion of the cost of their meal goes to fly the former CEO back and forth to his beach house aboard a corporate plane ... In addition to not requiring executives to pay any of the costs for their personal travel, the Committee has taken the extraordinary step of requiring shareholders to pay the income taxes owed by the CEO and other senior executives for their aerial vacation tours."

Clearly, there is a disconnect here between management and shareholders that the board is failing to correct. To address these issues, Breeden made several recommendations to the company's board of directors:

1. There should be a moratorium on any incentive compensation for any tier one executives so long as TSR remains negative. Similarly, incentive compensation should be zero if the company remains in the fourth quartile of relative performance in generating TSR.
2. A large proportion of incentive compensation (such as 50-75%) should be based on relative measures of performance compared to the company’s publicly traded casual dining competitors shown on page two of this letter.
3. Growth in average per restaurant royalty fees from franchise operations should be included as an incentive target for relevant executives (including the CEO and CFO), since franchisees represent 73% of the company’s system.
4. The level of free cash flow would be a healthy measure for some portion of incentive opportunities, especially for the CEO and CFO.
5. Minimum relative performance in generating TSR or EVA (such as being in the top 20%) should be a significant part of every executive’s target incentive eligibility. All executives should have a vital stake in the company outperforming its peers.
6. Personal use of corporate aircraft should be banned. Tax gross-up payments made during the last three years should be repaid to the company.
   

In a past filing, the hedge fund also made several recommendations on how to improve the company's performance:

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

Combined, hopefully these changes will be implemented by the company's board of directors and management in order to protect the company's integrity and restore shareholder confidence in the company. The changes could also help the Applebees boost their performance and better motivate management to deliver shareholder value. This makes APPB a stock worth watching closely over the next few months.

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Nasdaq Stock Market Inc. (NDAQ:NDAQ) shares moved down $0.13, or 0.38%, to $33.94 today after the company said that they have not been contacted by the London Stock Exchange and do not have enough time to revise its $5.3 billion offer, which is due to expire on Saturday. Even after the Nasdaq threatened to sell off its nearly 30% stake in the exchange, the LSE still maintained that it was worth more than $5.3 billion even on a standalone basis. Meanwhile, LSE shareholders remain unconcerned as the stock trades at roughly even, retaining the buyout premium.

While the exchange has the ability to extend the offer until February 11th, it is more likely that they will simply attempt to gain control of the LSE by continuing to purchase shares. The Nasdaq currently owns approximately 30% of the company, while several hedge funds have also upped their stake. These hedge funds are hoping to accumulate a stake that they could later sell to the Nasdaq at a premium to help them quickly obtain a controlling stake. Among them is U.S. corporate raider Samuel Heyman who recently announced a 10.44% stake in the LSE.

If the Nasdaq is able to successfully acquire the LSE, it would create a trans-Atlantic exchange comprising over 6,400 companies with a total market capitalization of $11.8 trillion. Meanwhile, NYSE Group, Inc. (NYSE:NYX) has already agreed to a merger with Euronext and said it was working towards and agreement with the Tokyo Stock Exchange. Given the NYSE's successful transition abroad, it is becoming increasingly critical for the Nasdaq to establish itself. This situation is definitely one worth watching...

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Chicago Merchantile Exchange Holdings (CME)

Cost-U-Less Inc. (NDAQ:CULS) shares continued their rise today after Delafield Hambrecht demanded that the company immediately put itself up for sale in a letter attached to their Schedule 13D filing with the SEC. These demands come after Monarch Activist Partners - a 5.4% holder in the company - made similar demands for the company to put itself up for sale in order to deliver value back to shareholders.  They both argue that the company would be better off being private as it is incurring heavy costs associated with being a public company while failing to realize the benefits with an illiquid, under-performing stock.

Just how much is Cost-U-Less actually worth in their eyes? Well, Delafield Hambretch reasons that given the company's current enterprise value of $30 million, and using EBITDA estimates of $7 million for 2006 and $7.5 million for 2007, pro-forma EBITDA for a prospective buyer should be $8.5 million (after adding back public company expenses). If this assumption is correct, then the company currently trades at only 3.5x EBITDA. What does all of this mean? Well, Monarch Activist Partners noted that Pricesmart (the company's self-acknowledged closest competitor) trades at a multiple of almost 16x. This means that even after taking an extremely conservative approach and valuing the company with a 40% discount from the industry mean, CULS is worth in excess of $12 per share. This translates into a 40% or greater premium to today's stock price!

Delafield Hambrecht also indicated that while a strategic buyer would likely pay more for the company, financial buyers would still pay a significant premium to the current market rates. On that note, the hedge fund said that it would likely participate as such a bidder if the company were put up for sale. Many investors also insist that there could be other strategic buyers, given the company's low market cap and deep discount to its peers.

But will any of this materialize? Well, given the nearly 15% combined stake in company by these two hedge funds, management may decide to respond to shareholders rather than risk a confrontation with the two hedge funds. Indeed, both hedge funds said that if they did not hear back from management, they may seek to replace members of the board in a proxy contest, which should set off some alarms at company headquarters. Unfortunately, the company's Investor Relations personnel were unavailable for comment today when we called; however, we will follow-up and post any developments here at SECInvestor.com. Meanwhile, this is definitely a stock to keep a close eye on as this situation unfolds, especially given the deep discount in the company's share price.

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Equity Office Properties Trust (NYSE:EOP) shares moved up $1.67, or 3.16%, to $54.36 today after the Blackstone Group raised their bid by 11%, from $48.50 per share to $54 per share. This new bid is now that highest on the table after a consortium of investors led by REIT Vornado Realty Trust (NYSE:VNO) had the previous high bid of $52 per share. The board of trustees continues to recommend the Blackstone deal and will hold a special shareholder meeting scheduled for February 5th to vote on the merger agreement. The company said it can close the Blackstone deal on or about Feb. 8.

Equity Office also noted that Blackstone's termination fee has been raised to $500 million from $200 million; however, the company said it would continue to provide diligence information to the Vornado group so that it can submit a definitive counteroffer, if it desires, by January 31st for consideration. The company was also quick to point out that the $500 million termination fee represented just 2.1% of the offer, and therefore would not significantly discourage any future bids for the company. Meanwhile, shareholders remain cautiously optimistic as shares of EOP current trade at $54.36 - above the $54 high offer. The final price of this highly irregular bidding war remains to be seen; however, this is definitely a stock to keep an eye on over the next couple of weeks.

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eBay Inc. (NDAQ:EBAY) share rose $3.20, or 10.67%, to $33.12 today after the company surprised investors with a strong finish to a mixed year. The company's 8-K filing with the SEC revealed record net revenues of $1.7 billion with a net income of $346 million, or $0.24 per share. eBay also announced that it had repurchased $1 billion worth of stock and planned to expand its program to an additional $2 billion.

Meg Whitman, President and CEO of eBay, commented, "Q4 was an excellent quarter for eBay, bringing 2006 to a very good close. All three of the company’s business units delivered impressive results this quarter, including record net revenues from our Marketplaces business, strong total payment volume on PayPal, and a triple-digit increase in the number of Skype users." Specifically, eBay saw a 24% growth in net revenues from its Marketplaces business, a 57% increase in total payment volume for its PayPal segment, and a 129% increase in the number of Skype users.

Meanwhile, Bob Swam, Chief Financial Officer, stated, "Overall, Q4 was a great quarter, with strong results across all of our businesses. The $1 billion share repurchase we executed this quarter, in addition to expanding the program for another $2 billion, further underscores our confidence in the long-term outlook of the business." These share repurchases will continue to increase the company's earnings per share, as it now expects to make between $0.28 to $0.30 for Q1 2007 and $1.25 to $1.29 for FY2007. Combined, these aspects make eBay a stock worth taking a look at over the next few months.

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Bristol-Myers Squibb Co. (NYSE:BMY) reported Q4 EPS of $0.19, three cents better than estimate. The company foresees a FY07 EPS of $1.20-$1.30, versus the consensus of $1.22.

Baxter International Inc. (NYSE:BAX) reported a Q4 EPS of $0.66, five cents better than estimates. Revenues were $2.8 billion versus the $2.72 billion consensus. For the first quarter 2007, the company expects organic sales to grow five to six percent, and earnings of $0.54 to $0.56 per diluted share. The current consensus is $0.53. The company expects earnings for full-year 2007 to be $2.47 to $2.53 per diluted share versus the consensus of $2.48.

Lockheed Martin (NYSE:LMT) reported Q4 earnings of $1.64 per share, eighteen cents better than the consensus. Revenues came in at $10.84 billion versus the consensus of $10.77 billion. The company predicts a FY07 EPS of $5.80-$6.00, versus prior guidance of $5.60-$5.80, with the consensus at $5.87.

AT&T Inc. (NYSE:T) reported a Q4 EPS of $0.61, two cents better than estimates. Revenues came in at $15.9 billion. The outlook was reaffirmed for continued double-digit adjusted earnings per share growth with growing free cash flow after dividends in 2007 and 2008; expected BellSouth merger synergies revised upward, estimated net present value increased from approximately $18 billion to approximately $22 billion.

Quest Diagnostics (NYSE:DGX) reported a Q4 EPS of $0.77, three cents better than estimates. Revenues were $1.5 billion versus the $1.57 billion consensus. For the full year 2007, the company expects results from continuing operations as follows: earnings per diluted share of between $2.70 and $3.00; and revenues of $6 billion to $6.2 billion. The current FY07 EPS consensus is $3.21 and the revenue consensus is $6.41 billion.

Lear (NYSE:LEA) reported a Q4 loss of $8.90 per share, which does not compare to the consensus of a $0.19 loss. Revenues came in at $4.28 billion versus the consensus of $4.14 billion. The company foresees FY07 revenues to be $15 billion versus the consensus of $16.3 billion.

SunPower Corporation (NDAQ:SPWR) reported a Q4 EPS of $0.18, one cent better than estimates. Revenues came in higher at $74.5 million versus the consensus of $71.85 million. The company predicts a Q1 EPS of $0.18-$0.20, and Q1 revenues to be $125 to $135 million.  The guidance for the FY07 EPS is $0.90-$1.00 and FY07 revenues to be $640 to $670 million.

Nucor Corporation (NYSE:NUE) reported a Q4 EPS of $1.35 versus the consensus of $1.13. Revenues were $3.47 billion versus the $3.34 billion consensus.

Midwest Air Group, Inc. (AMEX:MEH) reported a Q4 EPS of $0.16, five cents better than estimates. Revenues were $168.3 million versus the $168.35 million consensus. For the full year of 2007, Midwest is projecting non-GAAP net earnings per diluted share to be in excess of $1.70. The current consensus is $0.89. Midwest is also projecting that 2007 revenues will exceed $825 million, with the current consensus of $746.6 million.

Brunswick Corporation (NYSE:BC) reported a Q4 EPS of $0.47 versus the consensus of $0.38. Revenues were $1.37 billion versus the $1.35 billion consensus. For 2007, the company is estimating earnings to be lower, in the range of $1.65 to $2.00 per share, with the current consensus at $2.11.  

McKesson (NYSE:MCK) reported a Q3 EPS of $0.79, eleven cents better than estimates. The company foresees the FY07 EPS to be between $2.75-2.85 versus the $2.74 consensus.

MEMC Electronic (NYSE:WFR) reported a Q4 EPS of $0.68, nine cents better than estimates. Revenues were $420.5 million versus the $416.09 million consensus. The company predicts FY revenues of $1.9 billion and an EPS over $3.00 per share. The FY revenue consensus is $1.84 billion and the EPS consensus is $2.55.

Microsoft (NDAQ:MSFT) reported a Q2 EPS of $0.26, three cents better than estimates. Revenues were $12.54 billion versus the $12.08 billion consensus.

Callidus Software (NDAQ:CALD) reported a Q4 EPS of $0.00, five cents better than estimates. Revenues were $24.1 million versus the $20.4 million consensus. The company predicts Q1 revenues between $20.5 and $22 million, versus the $18.2 million consensus.

Synaptics (NDAQ:SYNA) reported a Q2 EPS of $0.32, three cents below the consensus of $0.35. Revenues were $76.1 million versus the $71.22 million consensus. The company foresees Q3 revenues between $58 and $61 million versus the $55 million consensus.

Columbia Sportswear (NDAQ:COLM) reported a Q4 EPS of $1.06, eight cents better than estimates. Revenues were $361.8 million versus the $357.20 million consensus.

New York Times Company (NYSE:NYT) shares fell $0.37, or 1.55%, to $23.47 today after Morgan Stanley indicated their disappointment with the company's decision to retain their dual-class voting structure. Morgan Stanley's Schedule 13D filing with the SEC noted that "by excluding the proposal from the proxy, the company has left the Class A shareholders with limited avenues for expressing their dissatisfaction with the poor performance of the managers of their business." Investor concerns about this dual-class voting structure are not new; in fact, during last year's annual meeting 30% of the company's Class A votes were withheld in protest.

Why is this such a major concern? Well, Morgan Stanley insisted in its letter that many independent analysts believe NYT is worth 50% more than the current stock price suggests; moreover, they contend that the difference between the company's intrinsic value and share price is due to mismanagement and poor governance. As a result, Morgan Stanley said that after patiently holding the stock for more than ten years, they don't think that they would be best serving their clients interests if they sold their stake at such a substantial discount to fair value. The fund said that if the company failed to act they may consider withholding their votes in future annual meets in protest. If shareholders succeed in eventually correcting the mismanagement, it could mean significant share appreciation for NYT investors. This makes NYT a company worth watching over the next few months.

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Electro Scientific Industries, Inc. (NDAQ:ESIO) shares rose $0.45, or 2.19%, to $21.02 today after 11.6% holder Nierenberg Investment Management filed a Schedule 13D/A with the SEC that commented on Third Avenue Management's recent proposals along with the company's current actions. The hedge fund said that it was pleased with management's willingness to act on the proposals and was impressed by TAM's suggestion of a combined share repurchase and dividend program. Nierenberg also noted the fact that United Microelectronics Corp. (UMC) recently said that it would use its excess cash to retire 30% of its outstanding shares and pay shareholders a one-time cash dividend - actions similar to those proposed by the two hedge funds.

Nierenberg also offered an extension to TAM's plans:

"As Mr. Jensen's letter points out so powerfully, there are other perfectly acceptable ways to use excess cash to build shareholder value. If, for example, ESIO's Board and advisors were to conclude that the best way to improve ROE were to repurchase shares, we could support that decision with just two conditions. First, we would want the size of the repurchase program to be large enough that it would meaningfully boost both ROE and earnings per share, like we believe UMC's program will. And, second, we would like ESIO to make a continuing commitment to use excess cash flow to repurchase a significant percentage of shares on an ongoing basis. To illustrate the size of programs which could be acceptable to us, we could support a one time repurchase of six million shares, which is over 20% of the outstanding share count, succeeded by a continuing program to repurchase at least one million more shares annually."

Clearly, there are many ways in which the company could utilize its excess cash to benefit shareholders. The most important thing to watch, as Nierenberg pointed out, is the scale on which repurchases or dividends are handled. Many times companies will try and silence concerned shareholders by initiating insignificant share buybacks or small cash dividends, which ultimately do very little to deliver shareholder value. A program like UMC's, however, would significantly reduce the number of outstanding shares and consequently boost the company's EPS significantly. Moreover, the cash dividend would rid the company of its idle cash, which can actually be dangerous to have in some cases. Overall, this is definitely a stock to watch as management works to craft a meaningful response to these proposals.

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Altria Group, Inc. (NYSE:MO) shares rose $0.26, or 0.3%, to $88.02 in early morning trading after Merrill Lynch raised its price target from $92 to $98. This follows several other analyst recommendations, including Goldman Sachs who recommended buying the stock before the details of its Kraft spin-off are announced on January 31st. These analysts believe that Kraft spin-off combined with an improving international tobacco market will help propel the stock to new highs now that the company has cleared its legal plate.

But why is this such a great deal for shareholders? Well, the Kraft spin-off is expected to generate approximately $34 billion in cash, which the company could use to buyback a quarter of its outstanding shares, raise its dividends, or use to expand into international markets. Secondly, Altria shareholders will automatically receive shares in Kraft (NYSE:KFT), which have performed exceptionally well in 2006 moving up 22%. Finally, we know that Altria has always been a robust company; even in the face of several mega-lawsuits, the company has still managed to almost triple in value since 2000 while also paying a nice dividend. Combined, these factors make MO a stock worth keeping a close eye, especially on January 31st when the details of the spin-off are released.

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Air Products (NYSE:APD) reported Q4 EPS of $1.03, ten cents better than estimates. Revenues were $2.43 billion versus the consensus of $2.29 billion. The company currently anticipates fiscal Q2 EPS in the range of $.98 to $1.03 per share. The current consensus is $0.98.  

Corning Incorporated (NYSE:GLW) reported Q4 EPS of $0.31 Revenues were $1.37 billion versus $1.30 billion consensus. Corning said that it expects Q1 sales to be in the range of $1.26 billion to $1.31 billion and earnings per share in the range of $0.24 to $0.27. The current Q1 revenue consensus is $1.34 billion and EPS consensus is $0.28.  

AmerisourceBergen (NYSE:ABC) reported Q1 earnings of $0.65 per share, nine cents better than the estimates. Revenues came in at $15.7 billion. The company foresees FY07 EPS of $2.45-$2.60 versus prior guidance of $2.40-$2.55 and the consensus of $2.50.

Bank of America (NYSE:BAC) announced a 200 million share buyback.

Energen Corporation (NYSE:EGN) reported Q4 EPS of $1.31 versus the consensus of $0.72. Revenues were $380.8 million versus $326.68 million consensus. Energen reaffirmed its 2007 earnings guidance range of $3.80 to $4.20 per diluted share. The current FY07 EPS consensus is $3.94. 

Novellus (NDAQ:NVLS) reported Q4 EPS of $0.63, eight cents better than estimates. Revenues were $438.5 million versus $436.44 million consensus.

Symantec (NDAQ:SYMC) reported Q3 EPS of $0.26, one cent better than estimates. Revenues were $1.324 billion versus the $1.31 billion consensus. The company predicts Q4 Non-GAAP revenues of $1.25-$1.28 billion versus the consensus of $1.27 billion, with an EPS OF $0.18-$0.20 versus the consensus of $0.21. The company has also announced a $1 billion stock buyback plan.  

Ariba (NDAQ:ARBA) reported Q1 EPS of $0.13, four cents better than estimates. Revenues were $77.2 million versus the $75.92 million consensus.

eBay (NDAQ:EBAY) reported Q4 EPS of $0.31, three cents better than estimates. Revenues were $1.72 billion versus the $1.67 billion consensus. The company predicts a FY07 EPS of $1.25-$1.29 versus the consensus of $1.23.  

Textron (NYSE:TXT) reported Q4 EPS of $1.54, eight cents better than estimates. Revenues were $3.2 billion versus $3.10 billion consensus. The Q1 EPS  is below guidance with $1.15-$1.25 versus the consensus of $1.36 . The company foresees a FY07 EPS of $5.90-$6.10 versus the consensus of $6.28.

Intersil (NDAQ:ISIL) reported Q1 EPS of $0.34, two cents better than estimates. Revenues were $181.1 million versus the $185.02 million consensus. The company sees the guidance for Q1 EPS of $0.27-$0.29 versus the consensus of $0.30, with Q1 revenues of $162-$168 million versus the consensus of $183.2 million.

Varian Inc (NDAQ:VARI) reported Q1 EPS of $0.61, thirteen cents better than estimates. Revenues were $217.9 million versus $207.94 million consensus. Also, the company announced a $100 million buyback.

Polycom (NDAQ:PLCM) reported Q4 EPS of $0.36, six cents better than estimates. Revenues were $186.5 million versus $180.56 million consensus.

Bottomline Technologies (NDAQ:EPAY) reported Q1 EPS of $0.10, eight cents better than estimates. Revenues were $29.7 million versus the $27.16 million consensus.

Plexus (NDAQ:PLXS) reported Q4 EPS of $0.32, one cent worse than estimates. Revenues were $381 million versus $390.40 million consensus. The company foresees a Q2 EPS of $0.15-$0.19, versus the consensus of $0.35, with Q2 revenues of $345-$355 million versus the consensus of $403.14 million.

Semitool (NDAQ:SMTL) reported Q1 EPS of $0.18, six cents better than estimates.  Revenues were $68 million versus the $65.23 million consensus, while predicting a Q2 EPS of $0.02-$0.04 versus the consensus of $0.18. Q2 revs are to be $55-$57 million versus the consensus of $70.83 million.

AeroVironment, Inc. (NDAQ:AVAV) shares moved up $6.93, or 40.76%, to $23.93 on its first day of