KVH Industries Inc. (NYSE:KVHI) shares moved up $0.24, or 2.82%, to $8.76 today after Roumell Asset Management disclosed an 8.31% stake in the company and urged the company to explore a share buyback. The activist hedge fund insists that the company remains extremely undervalued and that the company (along with other investors) should consider investment.

Roumell Asset Management encouraged the company to weigh any acquisition opportunities against the compelling investment opportunity present in buying their own shares at its current levels. After all, a staggering 40% of the company's market cap is in cash while the enterprise value to sales ratio is less than 1x. Meanwhile, they are generating plenty of cash flow on strong business and defense programs only provide more reason for optimism.

Overall, the company is clearly undervalued and that is ample reason for the company to explore buying its own shares as opposed to an overpriced acquisition. Meanwhile, the company is definitely one to watch for other investors looking for undervalued opportunities. Combined, these factors make KVHI a stock worth watching!

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Fair Isaac Corporation (NYSE:FIC) shares rose $2.58, or 6.9%, to $39.96 today after Sandell Asset Management disclosed a 5% stake in the company and expressed concerns over the company's restructuring plans. The activist hedge fund insisted that the company may be better off exploring a possible sale or conducting a leveraged recapitalization.

Sandell Asset Management said they were encouraged by management's plan to improve operating and financial results but questioned the board's decision to opt for a turnaround instead of trying to sell the company to a strategic or financial buyer. The hedge fund noted that such extensive turnarounds tended to be fraught with risk and they feel strongly that such actions may be best undertaken as part of a larger organization or in a private ownership context.

As a result, Sandell Asset Management made several recommendations to Fair Isaac going forward in order to help them more quickly and safely unlock shareholder value. The hedge fund first recommended that the company attempt to sell itself as a whole, but if it was unsuccessful it could separate its three divisions and attempt selling them separately. And if those efforts are unsuccessful, the hedge fund recommended a leveraged recapitalization as a public company. Finally, Sandell requested that the company to be aggressive with its existing share repurchase program and extend the program when appropriate.

Overall, these efforts would unlock significant value if the company agrees to follow through with them. Unfortunately, the board seems bent on attempting to turn the company around, which can be a very risky procedure. While some turnarounds are successful, we know that almost every sale of a company comes at a premium! This makes FIC a stock worth watching!

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Griffon Corporation (NYSE:GFF) rejected a proposal by the Clinton Group earlier this month to lead a public recapitalization of the company and now the activist hedge fund is fighting back. Shareholders are hoping that the hedge fund will be able to successfully convince management to institute at least some of their measures in order to unlock shareholder value.

The Clinton Group's initial May 31st proposal called for a $25/share public recapitalization in which half of the company's outstanding shares would be repurchased through a tender offer. The activist hedge fund noted that the debt financing to accomplish this would be "easily obtainable" in today's market. Clinton Group also suggested that the company make several governance changes, declassify the board and address excessive executive compensation issues.

Griffon Corporation responded several days letter by calling the Clinton Group's proposals "completely without merit" and noting that it has made no decision to pursue a recapitalization or any other specific course of action. The company insisted that the hedge fund was trying to takeover the company while focusing on the short-term at the expense of long-term shareholders.

The Clinton Group responded yesterday to the unfavorable response saying they were "extremely disappointed" with the company's response, which it said mischaracterized their proposals and painted them in a bad light. The hedge fund countered that they were not trying to takeover the company with a mere $65 million investment but rather trying to return control to shareholders. Moreover, they insisted that they are long-term shareholders aimed at helping shareholders realize intrinsic value through their recapitalization.

The Clinton Group was also quick to note that even if the company disagreed with their recapitalization proposal, they should still work to correct several other problems facing the company. In particular, they believe the company should eliminate their classified board structure and work to reign in excessive executive compensation by instituting performance-based compensation plans.

Finally, the hedge fund threatened to take matters into their own hands if the company failed to take action. Unfortunately, a proxy battle may be difficult with a classified board but it is still possible to win shareholder support. Combined, these factors make GFF a stock worth watching!

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Build-A-Bear Workshop Inc. (NYSE:BBW) shares rose $3.39, or 15.06%, to $25.90 today after the company announced that it hired Lehman Brothers to explore strategic alternatives after a relatively bad quarter for the retailer. Chairman and CEO Maxine Clark, however, said that the company remains highly profitable in a unique retail-entertainment niche that will continue to grow.

Build-A-Bear warned last week that its earnings and revenues for the quarter would fall short of projections while its same-store sales were projected to drop from 9% to 7%. The company blamed higher advertising costs, high performanced-based executive compensation and language translation costs from new store openings abroad.

A company spokesperson said that it has an obligation to shareholders to explore a range of strategic alternatives that could help unlock value in their investments. Meanwhile, shareholders are betting that the company will either decide to sell off some of its extraneous investments such as that in Retail Entertainment Concepts. Others are hoping that the company will decide to put itself up for sale in an environment that is extremely conductive to high-priced buyouts. Either way, BBW is definitely a stock to watch over the next few months!

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HealthSpring Inc. (NYSE:HS) shares moved up marginally today after the Clinton Group disclosed a 5.05% stake in the company, expressed their concerns over the company's valuation and recommended ways in which the company could better structure their balance sheet to unlock value for shareholders.

The activist hedge fund sent a letter to the company's Chairman and CEO on June 15th expressing its support of the management team and view of the company as an attractive long-term investment. The letter also noted that HS' stock price has retreated to levels below that of its February 2006 IPO and is currently undervalued.

Consequently, the Clinton Group suggested that the company institute a leveraged recapitalization and a Dutch tender offer in the $22 to $23 per share range for 30% of the company's outstanding shares in order to better optimize their balance sheet and take advantage of the appealing debt financing markets in an accretive transaction. The hedge fund estimates that this accretion would amount to 13.8% and translate to a post-leveraging share price of $23.42.

The Clinton Group also offered to help the company explore strategic alternatives, which could include a potential privatization in which he would participate. The investment group has a private equity wing that it indicated would be interested in such a transaction. One would assume that any such transaction would take place not only at value ($23), but also at a premium to this value that could reach as high as $28 per share or higher.

So, what is the stock worth? Well, based on peer multiples (TEV-EBITDA and PE), the company is trading at a substantial discount. The company is currently trading at 14.9x 2007 earnings while its peers are trading at 16x and its IPO was priced at 19.5x. A similar disconnect is seen when looking at projected 2008 earnings. Clearly there is an issue here with the company's valuation, which should stand between $22 and $23 at the very least.

Combined, these factors make HealthSpring a stock worth watching!

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1-800-FLOWERS.COM Inc. (NDAQ:FLWS) has been a strong performer recently with shares nearly doubling since the middle of last year. The gift retailer announced strong earnings in April and shareholders are starting to take notice. RLR Capital disclosed a 5.1% stake and praised the company's acquisition of Fanny May's candy business last May.

The activist hedge fund believes that the company's acquisition of Fanny May's candy business was truly a transformative deal and they are excited by the strength of the brand, management team and the manufacturing footprint that come with it. Further, they see Fanny May as a strong compliment to the company's existing Gourmet Food and Gift Basket brands as the company looks to build an online strategy for these segments that will mimic their success in the flowers segment. RLR Capital also expressed their satisfaction with the company's broad cost-cutting measures and prospects for growth in margins as a result. And finally, the activist hedge fund supported the company's plans to re-examine the Home and Children's Group segment given its lower growth and margins.

Overall, it appears as if this company is on the right track with its business and plans for the future. All of their business segments are performing very well with the exception of its Home and Children's Group segments - and the company is looking into ways of solving this problem. It's hard to ignore a company posting 18% quarterly earnings growth and such strong performance across the board! This makes FLWS a stock worth following!

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Sonesta International Hotels (NDAQ:SNSTA) received some advice from Mercury Partners today in a letter to the company's board. The advice comes after the company decided to hire Goldman Sachs to explore strategic alternatives, which could include a potential sale of the company.

Mercury Partners announced their support of this decision to explore strategic alternatives, arguing that a company with only $115 million in equity is simply too small to be a public company due to the costs of Sarbanes-Oxley compliance. The hedge fund went on to say that the modest net debt associated with the well-located 400 room Royal Sonesta Hotel Boston and the significant value embedded in the unique Key Biscayne property (with land conservatively valued at $160mm) equate to a significantly higher value than reflected in the company's shares. Mix that with a strong M&A market for hotel real estate (see recent WSJ article "Hotel Buying Frenzy Intensifies") and it's easy to see why a sale right now makes sense.

A sale does not necessarily mean a good value for shareholders, especially in a company that is controlled by one family. Knowing this, Sonesta issued three recommendations to the company to help ensure a fair sale process with a healthy premium for shareholders. First, they asked the controlling family to consider taking the company private. Secondly, they asked any proposals received to be put past non-family shareholders to evaluate. And finally, they asked for the company to resist any breakup fees or other measures that may inhibit future bidding. Combined, these efforts would lead to a fair sale of the company with a potentially very healthy premium. This makes SNSTA a stock worth watching!

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BioFuel Energy (NDAQ:BIOF) is a development-stage company formed to build and operate a series of ethanol production facilities in the Midwest United States. The company went public on June 20th of this year and has drew the attention of investors today after Daniel Loeb's Third Point hedge fund disclosed a massive 30 percent stake in the company.

The billion dollar hedge fund manager has built up an impressive trackrecord through not only his activist investments but also his passive ones. In fact, his annual return since his fund's inception in 1995 stands at around 28 percent. Therefore, any investment made by this man is one that is definitely worth watching - particularly when it is a big bet in an emerging industry!

So, what other clues do we have from Daniel Loeb with regards to this investment? Well, all of their shares were obtained in a private placement that closed in conjunction with the initial public offering on June 19th. Notably, this placement included a $1.2 million investment from Loeb's personal funds. We also know that Loeb has sat on the company's board since May 2006, meaning this shouldn't be a fly-by-night investment. Combined, these factors make BIOF a stock worth keeping an eye on over the next few months!

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Vonage (NYSE:VG) shares rose $0.12, or 3.88%, to $3.21 after a federal appeals judge suggested a reprieve that might allow the VOIP provider to avoid its patent problems with Verizon. This is a critical legal battle for Vonage that could drive it into bankruptcy if the lower court decision is upheld. The company's shares have reflected this risk, dropping over 50% this year alone. Meanwhile, if the company's patent issues go away there could be significant share appreciation from these depressed levels.

So, what was this reprieve? Well, the federal appeals judge suggested that instead of blocking Vonage from using Verizon's patented technology, perhaps the startup company could be given a time period to develop an alternative method of developing its online telephone service that doesn't violate Verizon's patents. If other judges agree, the courts would then pass the case back down to lower courts with instructions to consider that possibility. However, the lower courts could decide to not even reconsider. So, there is a lot of possibilities with only one leading to a positive outcome for Vonage.

Meanwhile, Vonage indicated it was working on such a technology in May, but said it could take months to get operational. The problem the company is facing is the downtime between the development and implementation of this new technology where it would be forbidden from making any income. If a judge were to give the company time, it could save the company from bankruptcy and give it a second chance at life. This makes VG a stock worth watching!

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Lancaster Colony (NDAQ:LANC) faced criticism on Friday over its governance policies from a group of investors led by Barington Capital. The investors asked the consumer products maker to substantive changes to its governance policies as well as remove several takeover defenses that violate shareholder rights. Changes to these policies could enable shareholders like Barington to push for changes aimed at unlocking shareholder value.

In a letter to the board of directors on Friday, Barington Capital criticized Chairman and CEO John Gerlach and the company's founding family for consolidating their control of the company, saying, "We believe that the numerous defenses the company has in place are excessive and demonstrate disregard for the interest of Lancaster's public shareholders by facilitating the entrenchment of the company's directors and executive officers and minimizing the influence that shareholders have on the board."

Removal of these provisions could pave the way for shareholders like Barington Capital to unlock value. What might these actions include? Well, Lancaster said in April 2006 that it was exploring strategic alternatives, including a possible sale of its glassware and candles businesses. Meanwhile, Barington also pressured the company to take on $300 million in debt to finance and self-tender offer or similar transaction to create value for shareholders. If either of these transactions materialized, it could mean significant returns for shareholders. Combined, these factors make LANC a stock worth watching!

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Lehman Brothers (NYSE:LEH) has been a strong performer this year, moving up over 28 percent off of its lows, but the company is still struggling to join the likes of Morgan Stanley and Goldman Sachs as an elite investment bank. While most investors still think of Lehman Brothers as a bond house with potentially damaging exposure to mortgages, some are now beginning to see the firm in a new light.

What makes Lehman Brothers an attractive stock? Well, the firm's efforts to restructure itself have produced tangible results while its stock price has moved up relatively little. Specifically, the firm has made great progress in its move to diversify from fixed income into stocks and bonds both in the U.S. and broad. And the stock remains extremely undervalued - in fact, LEH trades at one of the lowest price-to-earnings multiples of any brokerage. And management knows the firm is undervalued. Mr. Fuld said, "Whether the world catches on today or tomorrow, I've got plenty of time for that. I like that we're not fully appreciated."

Lehman Brothers also has far less risk than other brokers who have used cheap credit to force otherwise unprofitable deals through their pipeline. While the firm is working on restructuring their balance sheet to take on more trading and deal risk, they still intend on making much safer bets than the competition. The firm also makes more money overseas than every other investment bank besides Goldman Sachs. These factors make LEH a safe bet in the event of a downturn in the economy that would materially hurt other firms' earnings.

In the end, Lehman Brothers is a company that is working to convert itself from a fixed-income firm to an elite investment bank like Goldman Sachs or Morgan Stanley. If it is successful, it could mean significant share appreciation from these levels. And the reduced amount of risk they are taking on makes them a safer bet than other investment banks in the event of a downturn in the economy. This makes LEH a stock worth watching!

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Kraft Foods (NYSE:KFT) shares moved up yesterday on news that billionaire investor Nelson Peltz took a 3 percent stake in the company. Shareholders and analysts had long been speculating that an activist investor could get involved with the company and force it to institute a massive share buyback, revive its first tier brands and sell or spin-off its second tier brands.

Nelson Peltz is well known for his past work with companies like Wendy's, whose shareholders experienced a more than 50% rise in value since his first involvement. Most of his larger prior deals have been in the restaurant and food business as well, adding to the probability that his Kraft involvement isn't simply putting money away for the kids!

So, what are his plans? Well, many analysts and investors expect the activist investor to first leverage up since it has debt amounting to less than two times EBITDA. Secondly, Peltz will likely demand that the company sell off its second tier brands in order to focus on reviving its best in class. These brands could include Post cereals and Maxwell House. And finally, he will likely boost spending in frozen foods and cheese in order to strengthen the company's two best product lines.

Combined, this is all good news for investors - but the timing couldn't have been worse for Peltz. The activist investor was not required to disclose his stake until it reached more than 5 percent of the company - this leak reportedly angered him. Now that investors know what he's likely up to, it may become much more expensive for him to purchase shares. Regardless, this is definitely a stock worth watching!

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Vertrue Inc. (NDAQ:VTRU) share rose today after Brencourt Advisors disclosed a 28% stake in the company and expressed their concerns over the company's proposed buyout. The hedge fund believes that the marketing company's current $48.50/share buyout price is insufficient and demanded that the board immediately reject the proposed offer. Shareholders are hoping that this effort will lead to a higher buyout offer.

Vertrue appears to be banking on a growing trend in the investment community - under-priced buyouts build to transfer wealth from shareholders to management and private equity interests. Addicted to quick gains from buyouts, many investors fail to take into account the long-term value of the company when considering buyout offers. Brencourt is hoping to bring the facts to light in order to convince investors that they can hold out for much more.

So, what's wrong with the $48.50/share buyout proposal? Well, Brencourt pointed out four different flaws in the bid:

1. Use of a size opinion in the WACC calculation - Broadview applied a "size premium" in order to boost the company's cost of equity and thereby lower the valuation. Investors were baffled by this as it is not accepted financial theory to include such a premium.
   
2. Incorrect cost of debt- Broadview used 9.25% as its cost of debt which is the coupon to the senior notes due 2014. The problem is that the cost of debt is actually the companies yield on its fixed securities, not its coupon!
   
3. Incorrect market premium - Broadview used a market premium of 7.8% to calculate the cost of equity. If anyone else used this market premium, there would be no leveraged buyout today that could be justified on a DFC basis. It simply doesn't make sense.
   
4. Absurdly low terminal value - Broadview used a terminal value of 6-7x EBITDA, which is an absurdly lower range.
   

Overall, the buyout process was flawed and led to a bid that is substantially below the true value of the company. Investors are hoping that Brencourt can force the company to seek a higher bid or maybe even hire another investment banking company to conduct a whole new sale process. If successful, it could mean significant upside for shareholders!

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ITC Deltacom Inc. (OTC:ITCD) has performed extremely well during the past year after shedding many of its unprofitable businesses while expanding the profitable ones. The telecommunication company's stock is up from a 52-week low of $0.70 to a high of $7.09. ITC hit a nerve with investors last week, however, when it proposed a recapitalization that would provide a massive payday for management while short-changing small non-controlling shareholders.

H Partners Capital disclosed a 6.4% stake in the company and detailed their concerns over the recapitalization in a letter to the company's board of directors. According to the company's 8-K filing with the SEC, the purpose of the recapitalization was to make the balance sheet more transparent by eliminating the confusing overhang of convertible preferred shares and warrants. H Partners insists, however, that this is completely unwarranted and the resulting dilution would hurt common stock shareholders.

So, why would the company do it? Well, the recapitalization would enable the company's controlling shareholder and other interested parties to convert their preferred shares and warrants to common stock at a more than 50% discount! According to H Partners, "The recapitalization is nothing more than the controlling shareholder and those acting in concert with it, reapprotioning equity to itself at the expense of non-controlling shareholders to the detriment of the company."

In the end, ITCD serves as a great example of how powerful shareholders and the board of directors can work in conjunction to enrich themselves at the cost of non-controlling shareholders. Rights offerings, recapitalizations and other financing techniques are often filed deep within SEC documents in ambiguous terms - rarely are we so lucky to have an investment firm outline the problems in plain English in a public complaint. This is something all investors in speculative companies should watch for on a regular basis as it could have severe negative implications for the companies involved.

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Bristol-Myers Squibb (NYSE:BMY) set a new 52-week high this week after a federal judge upheld a patent on Plavix - the company's best selling drug with over $938 million in first quarter sales. Many traders positioned themselves for further upside with more than 244,000 call options (mostly out of the money) trading hands yesterday on a base stock move of over four percent. The move indicates the increasing number of BMY bulls in the short term.

The drug company was also lifted by speculation that it could become the subject of a takeover by larger drug companies like Sanofi-Aventis. Now that the legal issues surrounding Bristol-Myers' #1 selling drug is cleared up, many investors believe the likelihood of such a deal has increased. Analysts peg the value of any deal in the mid to high 30s per share; however, wide-reaching partnerships with many companies in the industry may cause complications.

So, is this a stock worth buying? Well, clearly many investors and analysts are very bullish on the company while a giant legal cloud over its best drug has been lifted. Moreover, there is speculation that the company could receive buyout bids in the future. The company also has strong earnings and cash flows that have led to a strong bull trend in the stock price for more than a year. Combined, these factors have led to many trend followers along with opportunistic investors to jump onboard. Whether or not there is significant upside from here remains to be seen; however, we know that the options activity and past trends are all pointing up!

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ESS Technology (NDAQ:ESST) announced yesterday that it hired Neeham & Co. to help it evaluate strategic alternatives, which could include a total liquidation of the company. The move follows demands made by investment firm B. Riley & Co. that the company sell off its remaining businesses, sell its investment and real estate assets and return the proceeds to shareholders.

ESS Technology has struggled amid rising competition from chip designers in Taiwan and China along with increased pressure from larger rivals who have the ability to package technology similar to ESS' with complementary components. The semiconductor company has experienced eleven straight quarters of losses and is expected to lose money for the rest of 2007. This poor operating history combined with the company's small size caused concern among investors.

Last year, the company addressed these issuing in a broad restructuring effort aimed at curbing its operating expenses. These efforts resulted in the sale of its high-definition Blu-Ray DVD chip business and the closing of its camera phone business along with a 67% cut in their workforce. In the end, they were able to half their operating expenses and improve their bottom line; however, there is still a lot of concern as to the viability of any turnaround effort.

ESS Technology is currently undervalued on an asset basis; however, increased spending with no profitability in sight has kept most investors rather skeptical. Consequently, the new effort to explore strategic alternatives may be the only way the company can unlock significant value in the near-term. This makes ESST one worth watching!

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PHH Corporation (NYSE:PHH) may face increased criticism from shareholders concerned over its decision to pursue a sale of the company despite a poor valuation. Pennant Capital Management disclosed a 7.8% stake in the company and issued a letter to the board outlining their belief that the company's shares could be worth as much as $51/share - significantly higher than the current buyout premium of $31.50/share.

The outsource provider of mortgage and fleet management services issued their proxy statement on June 18th that paint a picture of a seller in panic mode as bidders were dropping out and even Blackstone blinked at the eleventh hour. Interestingly, the issues that caused the panic were all irrelevant or self-inflicted and temporary; the two main concerns were of the sub-prime meltdown and the inability to file financial statements on time. These factors led to a proposed buyout of just $31.50/share.

Pennant believes that the real value of the company can be pegged closer to $51/share within two years. The New Jersey based hedge fund proposed that the company separate its mortgage and fleet management segments via a tax-free spin-off, which could alone bring the stock price close to $36/share. Using deferred tax liability related to mortgage servicing rights, the company could also prevent around $10/share in tax leakage that they would experience in the event of a sale of the company.

PHH also reported better than expected results for full year 2006 and the first quarter of 2007. Using a 15x to 17x multiple of free cash flows, Pennant estimated that the fleet segment alone is worth between $17 to $20 per share. Incredibly, this valuation implies a sale of the mortgage segment at approximately 0.7x tangible book value! Meanwhile, the hedge fund values the company's mortgage business at $26 to $34 per share, which is an 8x to 10x multiple of the combined servicing and production after-tax earnings. Combining these two numbers, Pennant believes the company is worth $51 to $68 per share and could realize that value over the next two to three years.

In the end, Pennant believes that the proposed sale of the company is being conducted at a price far below the true value of PHH. Additionally, the company's preliminary proxy statement fails to address many critical issues including the benefits of rejecting the proposed sale of the company. Consequently, the hedge fund demanded that the company immediately amend its preliminary proxy statement to reflect these sentiments and give shareholders a fair view of the transaction. Combined, these factors make PHH a stock worth watching!

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Expedia (NDAQ:EXPE) shares rose $3.65, or 14.31%, to $29.15 today after the company announced that it will repurchase about 42% of its own shares. The company will conduct the $3.5 billion offer via a modified Dutch tender auction later this month. Shareholders will be eligible to tender their shares at that time for between $27.50 and $30.00 a piece.

Expedia still has a wrecked balance sheet, but with 42% less shares available it will improve modestly. The trick is being able to successful tender the shares; after all, the stock rose to nearly $30 per share in today's trading. Few shareholders are likely to want to tender their shares for the lower end of the range, making it hard for the company to go through with all $3.5 billion in buyout cash. In fact, the same problem faced Brinker last year.

So, what does this all mean for shareholders? Well, trading at the upper end of the Dutch tender price range with a PE of more than 25x forward earnings in a difficult industry certainly should be reason enough to think twice about picking up shares of Expedia. While their intentions may have been goodhearted, we have yet to see how the execution will play out.

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Nabi Biopharmaceuticals (NDAQ:NABI) may be in for a fight after nearly 40% of its ownership base filed Schedule 13Ds with virtually identical activist platforms - the conversion of the company into a royalty trust following a special dividend financed by divisional asset sales. Chapman Capital noted today that while the company has outlined plans to this end, they have yet to actually execute their plans and unlock shareholder value.

Just how much would this deal be worth for shareholders? Well, Chapman Capital estimated in their letter to the board that the divisional asset sale of Nabi Biologics alone should be able to return around $5/share - conveniently, around the price they averaged in at. The subsequent focus on developing the company's new drugs should provide a welcome boost for its shareholders. And finally, the change in structure to a royalty trust will greatly improve its financial ratios and subsequently their valuation.

In the end, activist hedge funds are circling this stock for a reason - there is substantial value that can be unlocked through a combination of divisional asset sales and a change in the company's overall structure. Many shareholders are banking on the stock at least doubling in the long-term following these efforts while simultaneously cashing out a hefty dividend from asset sales. Shareholders also have the comfort of knowing that they are supported by Chapman Capital, who has essentially threatened a proxy fight if the company doesn't follow through. All in all, this is definitely a stock worth watching!

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It's not too often that shareholders argue against the likes of George Soros, but in this case Bioenvision (NDAQ:BIVN) investor Steven Rouhandeh believes the billionaire is way off the mark. The company continues to support (along with Soros' funds) a buyout offer from Genzyme valued at $345 million - or $5.60 per share - and it has many investors quite upset.

Rouhandeh maintains that the current offer of $5.60 per share is very inadequate, representing a value of less than one-times forward revenues. The activist shareholder also argued that the timing of the deal is highly unfavorable as it comes in advance of an anticipated approval of clofarabine in the adult AML indication.

Rather than selling the company now at such a low premium, Rouhandeh suggested five steps aimed at creating far more value for a potential sale at a much higher multiple in the twelve to eighteen months range. These steps include:

1. Let the tender offer terminate: The market clearly believes the current offer is inadequate with more than 30 million shares trading above the buyout price. The buyout price also comes at an insignificant premium of only 7% and is not comparable to other industry acquisition multiples.
2. Reduce the influence of Soros at the board level: George Soros and his affiliates have managed to control 67% of the company's voting power while only owning 12% of the company's shares. New independent board members could help reduce this unhealthy balance.
3. Augment management with the recent proceeds from financing: Add additional personnel and others to augment management and enhance the odds of success, particularly with its upcoming new drugs.
4. Strengthen business development efforts: Expand business development efforts through in-licensing or through the acquisition of complementary products and technologies. Also, expand partnering and out-licensing agreements to enhance global presence.
5. Enforce Bioenvision's rights: Genzyme appears to be monopolizing the agreement between the two parties when in fact it is Bioenvision that is licensing rights to Genzyme. Force Genzyme to share its data with Bioenvision to help enhance the drugs.

Clearly, the current offer on the table is not one that most investors are happy with; however, management and the company's largest shareholder seem to remain in favor of the deal. Unless Rouhandeh can convince enough shareholders otherwise, the deal could go through. However in the event that the deal falls through, this is definitely a stock to keep an eye on over the next year.

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The Finish Line (NDAQ:FINL) announced an agreement to acquire Genesco (NYSE:GCO) for $54.50 per share in cash. Some investors are questioning the $1.5 billion acquisition, especially given the fact that Finish Line itself is only worth $600 million. The move will diversify the company's pure athletic product lines into such areas as casual dress and even footwear.

Finish Line said it expects to finance the transaction through $11 million in cash on hand and up to $1.6 billion in financing provided by UBS consisting of a revolving credit facility, a senior secured term loan and a senior bridge facility. Some investors believe this may be overburdening; however, the company is quick to note that it expects Genesco to be accreditive to earnings within the full year, before considering the incremental ammortization of the transaction.

So, what does this ultimately mean for Finish Line? Well, the company is clearly going to grow to a much larger size, but with larger size comes larger problems. The $1.6 billion in possible loans presents one of the most substantial problems and the company may consider selling or spinning off some of its new parts in order to lower its exposure. Regardless, this is a bold move that is definitely worth following as if properly executed, it could mean great returns for patient shareholders.

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North Pittsburg Systems (NDAQ:NPSI) shares moved up $0.68, or 3.49%, to $20.14 late Friday after Bulldog Investors disclosed a 7% stake in the company and again urged the company to put itself up for sale. The activist hedge fund argued that given CT Communication's recent buyout price, the company could fetch between $28.50 and $31 per share in the event of a sale.

Bulldog Investors noted their increasing concern regarding the accelerating consolidation in the RLEC industry that the lack of participation by North Pittsburg Systems. They insist that continuing to delay an inevitable sale of the company puts shareholders at risk of permanent capital loss. And with the recent weakness in NPSI's stock, the hedge fund believes that there would be many shareholders interested in a sale of the company for a 46 to 59 percent premium.

So, what does this mean for shareholders? Well, as Bulldog noted, the company's share price has been stagnant while companies around it have been acquired at substantial premiums. This means that many shareholders are likely willing to sell the company at the right price. Moreover, the activist hedge fund noted that while they would like to avoid a costly proxy contest, they cannot sit idly by while NPSI's value deteriorates. Combined, these factors make NPSI a stock worth watching closely over the next few months!

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Vitesse Semiconductor (OTC:VTSS) is facing some shareholder pressure recently after Chapman Capital disclosed a 5.3% stake in the company and demanded that it immediately hold an annual meeting to elect directors to the its board. The activist hedge fund also demanded that Jim Cole, head of the company's chief governance committee, immediately resign amid a series of scandals.

Vitesse has faced some extreme difficulties after being delisted from the Nasdaq Stock Exchange last year. These included an options backdating scandal along with a failure to produce more than two years of audited financial results. In fact, the last time shareholders were even permitted to vote on a slate of directors was nearly 17 months ago on January 24, 2006! Chapman Capital contends that one man stands behind the paper trail that led to this diseaster: Jim Cole.

Robert L. Chapman, Jr. commented, "Having conducted its own investigation of the Compensation Committee that seems to have approved the issuance of backdated stock options to former senior executives of Vitesse, Chapman Capital has followed a trail of circumstantial evidence and now finds itself on the doorstep of 20-year Vitesse director and Compensation/Audit Committees member Jim Cole.  Clearly, we are not alone in forming our opinion, with the majority of callers who spoke on Vitesse’s fourth fiscal quarter conference call referencing Mr. Cole’s prospective resignation from the Board.  Moreover, should the Vitesse Special Committee headed by former Teradyne senior executive Edward Rogas, Jr. have accumulated evidence that exposes Mr. Cole as having committed or been illicitly complicit in any criminal act, Chapman Capital demands that such information be turned over to federal authorities so that Mr. Cole may serve any prison sentence that may be dictated by the laws regulating such professional deportment."

So, where can Vitesse go from here? Well, if Jim Cole is forced to resign, many investors are hoping that the company can put its lackluster history behind it and move forward. The involvement of an activist hedge fund like Chapman Capital also helps the situation by serving as a catalyst for fast change. Once the company is able to rid itself of Mr. Cole and release updated financial statements, it may be able to refile for listing on the Nasdaq. From there, it can begin to rebuild what it once had. It is also worth noting that Chapman Capital had pushed the company towards a sale awhile ago - a strategy that it could resume after these problems have been resolved given the deep value at which the stock is trading. Regardless, this is definitely a stock worth watching over the next couple of months!

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Sprint Nextel (NYSE:S) is exploring plans to finance its venture into wireless broadband. The $3 billion WiMax iniative would be a direct competitor to 3G services and has caused concerns among some investors, including Relational Investor's Ralph Whitworth. The activist investor questioned whether or not management's WiMax strategy was worth the extensive upfront costs.

Management's response to these concerns during a recent Bear Stearns conference came in the form of a proposed spin-off of the WiMax unit. Sprint executive suggested that they could spin-off the unit as part of a deal with Mr. McCaw's Clearwire Corporation - a company that is quickly growing in the same niche but not yet profitable. Many investors would favor this deal because it would both remove a potential WiMax competitor and rid Sprint of a potentially risky business.

Other plans to finance the WiMax unit include the involvement of outside financiers to fund the project, including cable companies. After all, Sprint is already involved in a wireless joint venture called Pivot with three other major cable operators. Moreover, Time Warner has reportedly already been in talks with the company regarding the future of WiMax. Other plans include a more standard deal with Clearwire where Sprint may lease technology in an effort to quickly expand its nationwide footprint at relatively low cost.

So, what does this all mean for investors? Well, Sprint executives are finding themselves in a difficult position. They are forced to increase capital spending significantly if they wish to keep WiMax in house, yet they are reluctant to competely separate the company because it could give Sprint an edge over competitors in the future. And with the company already facing criticism over its sluggish cell phone business, this edge could be just what it needs. Unfortunately, the closest comparison we have to estimate the unit's success is Clearwire, whose stock has dropped over 20% since its IPO. Whether or not the strategy pays off remains to be seen, but this is definitely a story to follow in the meantime!

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The Blackstone Group's initial public offering may face a significant devaluation after lawmakers introduced a bill this week that could drastically curb private equity income. Senators Max Baucus and Charles Grassley proposed a bill late Thursday that would tax as corporations all partnerships that derive the majority of their income from managing the assets of others. If the bill succeeds, it would bring their effective tax rate to approximately 45 percent. This could decrease the IPO's $40 billion valuation by as much as 15 to 20 percent.

Private equity groups experience great tax benefits that many see as unfair. Not only are they taxed as partnerships (lower on the tax bracket than corporations), but managers are also able to pay themself something known as "carried interest", which is taxed at the capital gains tax rate instead of the ordinary tax bracket. These factors lead to drastically lower taxes than one might expect from groups pulling in so much money, which caught the attention of many lawmakers.

Shortly after, all eyes were on Fortress Investment Group when they became the first private equity firm to go public. Now it appeared as if these partnerships could not only get away with paying lower taxes but also get away with using a partnership structure as a public company! This enabled private equity firms to offer liquidity and higher valuations to their managers and partners without paying any additional taxes. Apparently this was the final straw for lawmakers - the new bill clearly adds a price tag to being a public company.

Interestingly, Blackstone and Fortress will be grandfathered in by not being forced to pay the additional taxes for another five years. However, an imminent significant tax increase in five years still puts a question mark on just how much valuations will be affected. Regardless, it will be interesting to see how Blackstone reacts and whether the apparent trend towards going public will continue for private equity.

Adaptec Inc. (NDAQ:ADPT) is a struggling technology company that designs, manufactures and markets storage products and software. The company recently reported weak financials, including a 28% decline in year-over-year revenues and a bleak outlook for 2008. So, why is this company one worth a second look for investors?

The first thing worth noting about Adaptec is their cash stockpile. The company currently has approximately $572 million in cash, which amounts to $4.81 per share. Compare that to a stock price of $3.71 and it is easy to see why the cash is appealing! The problem is that the company has embarked on an acquisition-driven strategy that could burn through this cashpile. Luckily, there is an activist hedge fund that is hoping to prevent this from happening and unlock value for shareholders!

Late last month, Steel Partners disclosed a 12.7% stake in the company and demanded representation on the Board of Directors. The activist hedge fund conveyed its disappointment in the company's recent performance and insisted that the company's acquisition-driven strategy was illconceived. Steel Partners also threatened to nominate an entire slate of new directors at the 2007 annual meeting if they are not granted representation. Given Steel Partners' successful track record with activist investing, this is definitely good news for shareholders!

The final thing that Adaptec has going for it are it's restructuring efforts and net operating loss carryforwards. The company has been embarking on efforts to reduce its costs for the past several years. Recently, these efforts have resulted in the company's first net savings of $9 million beginning in the second quarter of 2007. These reductions in spending help preserve the cash stockpile that represent the real value in this investment. Also, thanks to the company's previous spending, they have built up significant net operating losses that can be carried forward to offset future tax on gains!

Overall, these factors make ADPT a stock worth watching closely over the next few months as Steel Partners works to unlock value!

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Sunrise Senior Living (NYSE:SRZ) management faced some harsh criticism from Millenium Partners today after the hedge fund disclosed a 2.5% stake in the company and a critical letter to the Board of Directors. The activist hedge fund demanded that the company either eliminate the current management team or immediately put the company up for sale.

Millenium Partners began their letter by stating that the current management does not belong as a participant in the public securities market. Accordingly, they petitioned the Board of Directors to take one of three actions: (1) sell or merge the company either in a public transaction or a going private transaction; (2) restructure the company in a transformative way so that its different elements - primarily real estate development and ownership on one hand and healthcare facility operation on the other - can be more readily appreciated and valued by the market or; (3) recruit new management that is more professionally compotent at successfully managing a public company.

The biggest problem facing these shareholders are the various defensive measures that the company has in place. These poison pills may have been useful in the past when the company was small, it now just impedes investors from forcing value-creating options for shareholders. But if Millenium Partners is successful, it could mean significant share appreciation for shareholders. So far the company has yet to respond, but this company is definitely one worth watching in the meantime.

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Ryerson (NYSE:RYI) may finally be forced to face the music today after 9.6% holder Harbinger Capital Management announced that they would be suing the company for failing to hold its annual meeting. The activist hedge fund had recently announced its own slate of directors when the company suddenly cancelled their annual meeting to "review strategic alternatives". Many shareholders are hoping that they can finally rid the company of poor management and unlock shareholder value.

This fight between Ryerson management and shareholders is nothing new. Harbinger and other investors have been unhappy with Ryerson's performance for some time and have been trying to change management or perhaps find a private equity buyer willing to pay a premium for the company. Ryerson management - realizing that they were in danger - have delayed their annual meeting as long as possible while searching for a buyer that would keep the current management in tact. This has proven to be quite the challenge, however, as the company has not yet found a buyer agreeing to such terms!

Now, Harbinger is trying to finally force a day of reckoning for management. Deleware law states that companies must hold their annual meeting no later than 13 months after their last. While there are few exceptions, Harbinger announced today that it is suing in hopes that they can force an annual meeting within the next 45 days. The company's Chief Financial Officer said that they are aware of the lawsuit and are consulting with their lawyers. Whether or not we will finally see an annual meeting remains to be seen, but this is definitely a situation to keep an eye on in the meantime!

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Midwest Airlines (AMEX:MEH) shares continue to trade near their 52-week highs despite an earnings warning as AirTran Holdings (NYSE:AAI) renewed its fight to force Midwest into merger talks. Shareholders are now beginning to seriously question whether or not the Wisconsin-based carrier can perform on its own or whether it would be better off merging with Airtrans.

Midwest executives have entrenched themselves with strong poison pill provisions that have prevented any possibility of a merger despite AirTran's 59% stake in the company. AirTran has already announced the nomination of three candidates to Midwest's Board of Directors and many industry analysts believe that they will successfully overtake the company.

The news also comes among many difficulties facing the airline industry. Midwest recently issued an earnings warning that hinted towards a decline in not only the company's quarterly earnings but also their yearly earnings amid weaker fares that "may continue for some time". Meanwhile, AirTran also faced an analyst downgrade after weaker company and industry financials.

So, what does this mean for shareholders? Well, clearly the airline industry is having issues that may not be resolved for some time. This makes the idea of a buyout sound rather favorable. The current deal would put AirTran's current offer of $389 million at around $15.89 per share - a 9.5% premium to today's stock price. The real value, however, would be seen if many shareholders rejected the offer and AirTran was forced to sweeten it. Unfortunately, given the negative earnings warning and AirTran's large holdings this may no longer be a likely situation. Regardless, this is definitely a stock worth watching!

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Ceridian Corporation's (NYSE:CEN) selling price may not be enough to satisfy one of Wall Street's best hedge funds. Bill Ackman's Pershing Square voiced its opposition to the bid today calling it low and suboptimal for Ceridian shareholders. The activist hedge fund also said it has hired financial and legal advisors as it intends to pursue one or more value-maximizing alternatives.

Ackman's hedge fund had been pushing for the company to either sell itself or divest its Comdata division for many months and recently went hostile a proxy contest. To avoid problems, the company quickly found a consortium of buyers willing to purchase the company for $36 per share. The activist hedge fund believes that this was an illsuited response to their proxy contest and that the price is simply too low.

Consequently, Pershing Square recommended a series of alternatives aimed at increasing shareholder value even if it does't equate to a direct sale of the company. First, Ackman suggested that the company continue to shop itself in an attempt to get a higher price. Secondly, he recommended that the company simply spin-off its Comdata unit. And if all else failed, he recommended that the company consider a recapitalization, dividend or self-tender transaction where significant value could be returned to shareholders.

So, what does this all mean for shareholders? Well, the worst case scenario is a sale of the company at $36 per share. Ceridian may have standstill orders on the table that it could consider at higher prices. Also, if the company took one of the other alternatives available to it, including a spin-off of Comdata or a recapitalization/dividend/buyback, significant long-term value could be unlocked for shareholders. A spin-off would also create great opportunities for investment in the new entity. Combined, these are all reasons why CEN is a stock worth following while this situation unfolds!

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Investment Technology Group (NYSE:ITG) shares moved up $2.86, or 7.25%, to $42.30 after D.E. Shaw disclosed a 6.2% stake in the company and urged the board to explore strategic alternatives for some or all of its operating segments. Shareholders are betting that any sale of the company would result in a substantial premium to the current market price.

The activist hedge fund believes that while the company´s management has done an exceptional job in building a market position, the stock price fails to reflect the intrinsic value of the company. This underperformance is apparent in that during the past year equity market volumes have increased 40% causing revenues to increase 34%, yet the stock´s price declined 17%. In fact, using the EBITDA multiples of its major competitors, ITG appears to be trading at a 30% to 40% discount.

Consequently, D.E. Shaw believes that the company should immediately put itself up for sale. The activist hedge fund maintains that the company could see significant interest from both strategic and financial buyers. Numerous large financial institutions may be interested due to the significant synergies they could realize from the integration of ITG´s trading products and services into their own platforms. These institutions could also realize significant cost savings by putting their current trading volume onto the ITG platform.

Meanwhile, D.E. Shaw could also see interest from financial buyers including private equity and hedge funds. There is not only a strong leveraged buyout market and a great track record of private equity investments in this sector but ITG would also have the ability to invest in long-term future expansion without being penalized in today´s markets. This is great news for many financial buyers who tend to take a company private, only to leverage it up an re-IPO it several months later at much higher prices.

Finally, D.E. Shaw recommended that the company institute a large scale share buyback program if they are unable to find a buyer. They insist that one of the major reasons for the discount in market value is the company´s large cash position amounting to nearly 10% of their market cap. After all, this large cash position depresses the company´s ROE. The activist hedge fund beliveves that the company should not only put all of this cash towards a buyout, but also leverage up and take on additional debt in order to improve its financial ratios.

Overall, D.E. Shaw is just interested in unlocking value and taking this stock to the level of its major competitors. If they are successful, this could mean a 40% appreciation in share price over the short term plus any buyout premium on top of that. This makes ITG a stock worth watching!

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Ford Motor Company (NYSE:F) shares moved up marginally today after the company announced that it would explore the possible sale of two of its luxury brands today. The company reportedly hired Goldman Sachs, HSBC Holdings and Morgan Stanley to explore strategic options for its LandRover and Jaguar segments. Many investors are hoping that the continued divestures will shake up the company's stagnant stock.

The number two auto retailer in the United States has been struggling for some time with its restructuring process aimed at turning around its North America operations. Ford has openly stated that they do not expect to be profitable until at least 2009 with the restructuring process costing the company more than $10 billion. These efforts include recently announced plans to close 16 manufacturing facilities and buyout over38,000 employees.

So, why should investors be looking at Ford? Well, the truth is that most of the bad news is already priced into the stock. The company has openly told investors that it doesn't expect to be profitable for some time and the future beyond that is very uncertain. More importantly, investors are only expecting more bad news from the automaker after its long history of disappointments - this further compounds the discount at which the stock is trading.

The new variable added to the equation is the proposed sale of the company's Jaguar and LandRover segments. We know that Ford already divested its Aston Martin division early this year in a sale to private equity that shocked many analysts - nobody expected the segment to attract so much interest. Therefore, it is not unreasonable to assume that the company's sale of Jaguar and LandRover may attract similar interest.

Some investors are also looking at Ford as a whole. The move to divest many of its assets provides the company with a significant amount of cash while making it substantially cheaper. This trend has fueled speculation that private equity may get involved if shares get too cheap - that is, if they don't rise upon the sale of these assets. This is all potentially good news for shareholders who stand to benefit significantly from these moves!

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Sprint Nextel (NYSE:S) may finally be ready to take the advice of activist investor Ralph Whitworth after a company webcast at a Bear Stearns conference in New York today hinted towards drastic changes in the future. Many investors are hoping that such changes could help turnaround the struggling telecom company.

Whitworth accumulated a $500 million stake in Sprint earlier this year through his hedge fund Relational Investors. Soon after he began pushing for the company to unlock value through a series of strategic transactions, including the sale of its long distance unit. Hints towards such transactions were given when CEO Gary Forsee noted its Embarq spin-off while saying, "It's something very important to continue to look at that structure ... if you look at our company as a sum-of-parts, we have to unlock value".

Buyout rumors have also surrounded the company ever since Alltel's successful auction earlier this year. There has been speculation since the telecoms' decline that the sector may be targeted for leveraged buyouts by private equity funds. Sprint's vast networks and market-leading position would make it an ideal candidate if properly priced. However, with Whitworth's talk of restructuring and the company's now-apparent support, the stock price may remain high enough to thwart any attempts in the near future.

All of this has some shareholders angered, however, as lackluster earnings have cut the stock's value by more than 20%. While some investors may understand the long-term value creation derived from a restructuring, many would likely opt for a quick sale if the opportunity presented itself. Regardless, Sprint is definitely a stock worth keeping an eye on while the company works to unlock value for shareholders.

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Tyco International (NYSE:TYC) gained necessary government approvals yesterday for the spin-off of its healthcare and electronics segments to shareholders. Shares in the manufacturing and service company rose to set a new 52-week high on the news as shareholders look forward to the divesture. Shareholders on record June 18th will be eligble to receive shares in the new companies that are expected to begin trading as early as July 2nd under the symbols COV and TEL.

Many shareholders have been looking forward this spin-off as the two business segments have long been considered undervalued. The spin-off will unlock this value by freeing the segments of an overburdening corporate structure. Many analysts estimate Tyco stock as trading at less than half of its eventual value that will be realized once the three businesses are operated independently. Others peg the value just shy of $40 per share. Regardless, most analysts agree that this spin-off is a long overdue effort to unlock value in Tyco's diversified businesses.

So, what does this mean for investors today? Well, many analysts peg the intrinsic value of Tyco post-breakup at a collective $40 per share. This represents a premium of more than 15% over today's close. We also know that spin-offs in general tend to outperform the overall market due to factors related to the structure of the deals. Often times, existing shareholders that receive shares in the new company will immediately sell them since they never intended on holding them. This causes unjustified selling pressure on the new spin-off companies, which can translate to opportunity for enterprising investors. Combined, these factors make TYC a stock worth watching!

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Northwest Airlines (NYSE:NWA) emerged from bankruptcy in late May after more than 20 months under protection. The domestic carrier is the last of the major airlines to emerge from bankruptcy protection and many analysts believe it is now in a strong competitive position relative to other carriers.

Northwest managed to reduce its cost structure by $2.4 billion annually, solve its pension problems, properly size its fleet and reduce its debt load by over $4 billion during its many months of bankruptcy protection. The carrier's operating statistics reported to the Department of Transportation are also promising: The company reduced its operating costs by nearly 11%, increased its yield (fare per mile) by 7% and increased its revenue per available seat mile by nearly 10%.

The turnaround isn't the only reason that investors should be looking at Northwest either. There also exists the potential for more deal-making in the industry. Just today Airtrans extended its takeover offer for Midwest Air while there are still rumors floating around that Northwest could become an eventual target. While Northwest certainly isn't the smallest airline anymore, it could still be considered the smallest of the larger airlines. And with less debt, improved operating margins and eventually a larger footprint, it could easily become a takeover target.

There is no free lunch, however, and many analysts are quick to point out that Northwest continues to face many challenges - the biggest being labor relations. The carrier has had widely publicized labor disputes in the past and just last week it had payment with its attendents. Also of concern is the carrier's plan to spend more than $6 billion to increase its fleet size and expand its footprint. While this is a plan to ultimately increase revenues, there is an inherent execution risk that could hurt shareholders.

So, should investors be looking to take a slice of Northwest for their portfolio? Well, post-bankrupt companies are often undervalued as investors are quick to remember the not-too-distant past. Other major domestic carriers that emerged from bankruptcy have also performed fairly well relative to the market as a whole. Overall, Northwest certainly makes for an interesting investment for investors looking to add a riskier stock to their portfolio.

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Meadow Valley Corporation (NDAQ:MVCO) may face increased shareholder scrutiny over its recent shareholder proposal. CD Capital Management LLC disclosed a 5.7% stake in the company and demanded in a letter to the Board of Directors that the company rethink the terms of the proposal, sell it's Ready Mix subsidiary, and explore a possible sale of the company as a whole.

CD Capital Management said that although the company's shareholder proposal would unlock value, it is flawed in its requirement to return the cash upon sale to shareholders without considering whether the cash could be more effectively reinvested in the business. Moreover, Meadow Valley's small market capitalization and "two asset" existance only complicates the situation.

The hedge fund also noted that it was pleased with the recovery in the company's stock price and management's progress towards improving operating margins while growing revenues. However, they noted, there is also a very strong market right now for construction and material assets. Consequently, the hedge fund said that they would support a sale of the company for a price higher than $18 per share when the Board of Directors is ready to explore that option.

So, what does all of this mean for shareholders? Well, the company has already announced a proposal to unlock shareholder value through a series of strategic transactions, including the sale of Ready Mix. Given that the Board of Directors is already supportive of such initiatives, it would not be far fetched to assume that they would be open to a potential sale of the company - which CD Capital's prior analysis pegs at about $18 per share or more. Combined, these factors make MVCO a stock worth watching!

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Infinera Corp (NYSE:INFN) shares soared more than 50% on their first day of trading as many early stage investors enjoyed a quick flashback to the dotcom days. The company's IPO raised more than $182 million for the company, giving it an initial valuation of $108 billion. However, whether or not the company deserves such a high valuation remains a subject of great debate.

Investors are watching the company carefully as it aims to disrupt an established market: optical networks. Specifically, the company said that it could produce chips containing optics technology to greatly simplify the translation of analog optical signals that travel over fiber optic networks into digital signals. This would eliminate the need for all-optical networks.

Infinera was founded in December of 2000 and began shipping its products in November of 2004. The company posted a loss of $66.5 million in 2004, $64.8 million in 2005 and $89.9 million in 2006. However, the company has experienced a surge in revenues which have climbed from $4.1 million in 2005 to nearly $53 million in 2006. Interestingly, the company also has an accumulated deficit of $333.9 million.

So, is the company worth the price? Well, by comparing the revenue and costs trends we can expect the company to become profitable around 2009 with a high growth rate. However, in the dynamic telecommunications network, it is difficult to say whether or not they will be able to sustain their revenue growth rates. Moreover, any competing technology could greatly impair the company's growth. Combined, the stock may not be the best investment at this point, but it is certainly a stock worth watching over the next few years!

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Netflix (NDAQ:NFLX) shares added over 5% during yesterday's session after rumors surfaced that Amazon.com (NDAQ:AMZN) may be interested in acquiring the company. Traders active in the options market fueled speculation by purchasing Netflix call options and Amazon.com put options, hoping to gain from a leveraged spread.

Is there any merit to these rumors? Well, Several analysts immediately dispelled them while noting that similar rumors tend to surface ever six months or so. Analysts also question whether or not Amazon would even desire a presence in the online video rental business. After all, there is a growing trend towards the downloading of many videos which will eventually cut into Netflix's margins. Consequently, a merger between these two companies isn't too likely.

Meanwhile, many investors insist that Amazon's recent rise of more than 70% has provided it with increased buying power. In order to sustain this momentum, the online retailer may need to look into other markets. While some see Netflix as a competitor doomed to declining margins as Amazon's own downloading services increase, others maintain that the company could simply be purchasing the customer lists and temporary cash flows if nothing else.

Clearly Amazon is in need of an acquisition or other means to spend its new-found cash. Whether or not this will result in an acquisition of Netflix remains to be seen; however, given the substantial interest by active traders, it's definitely a stock worth watching!

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Vodafone Group plc (NYSE:VOD) is headed for turbulent waters with activist investors despite moving up over 40% off of its 52-week lows. ECS Assets is pushing the telecommunications company to unlock as much as $76 billion in a restructuring effort aimed at returning value to shareholders.

The activist hedge fund is the latest in a growing trend of investor activism aimed at unlocking value through the exploration of strategic alternatives. ECS argues that the company's inefficient structure has prevented the stock from trading at its intrinsic value. The battle is predominantly centered around Vodafone's 45% joint venture stake in Verizon Wireless, which is valued at around $50 billion.

ECS wants the Verizon Wireless stake to be spun off into its own publicly traded entity, which would become one of the ten largest stocks traded on the London Stock Exchange. If the process is successful, the hedge fund insists that the stock could rise nearly 50%. The idea may be an uphill battle for ECS, however, given the fact that the company has refused to sell the stake several times in the past. Regardless, this is definitely a stock worth watching!

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CSK Auto Corporation (NYSE:CAO) is a specialty retailer of automotive parts and accessories that has performed extremely well during the last year despite difficulties in the sector. The stock currently sits about 70% above its 52-week low and only cents away from making new highs. Some investors are convinced, however, that the stock is trading well below its intrinsic value...

Karsch Capital Management currently holds a 9.32% stake and is one of these investors. The activist hedge fund demanded this morning that the company's board of directors immediately conduct a review of strategic alternatives in which it would weigh the relative merits of selling the company versus giving a new management team time to turn around the company.

Karsch acknowledges that both options would be viable alternatives for the company. A sale of the company would be successful because (1) the company is highly attractive to other auto-parts retailers given its past success with mergers, strong potential synergies and unique real estate on the West Coast, and (2) the company is highly attractive to private equity firms because of the strong cash flows and recent strength of the auto M&A market. The hedge fund also noted that it had received several inquiries from private equity firms showing interest in the company and believes any sale would come at a substantial premium even to today's price.

Interestingly, Karsch is not only interested in a quick sale of the company. The hedge fund admitted that with the leadership and vision of an above-average CEO, they believe CSK Auto could execute an easily achievable operating margin of 9% in 2009 and retain its current 8x forward multiple on their EBITDA projections, which would result in a share price well above $30/share over the next 18 months. CSK Auto will also be able to eliminate a number of one-time expenses that hit the stock last year. And finally, the auto industry is one in which turnarounds have historically seen a higher rate of success.

These days hedge funds and private equity firms are pulling in billions of dollars each year, earnings enormous rates of return for their clients. These returns are not made by overpaying for companies; rather, many investors opt for a quick sale instead of a long-term turnaround that would yield far more value. Karsch has outlined both options today in its letter to the board. A sale of CSK Auto may still be the best options, but it would depend on the bids and various execution risk factors associated with a new management team.

In the end, CSK Auto is a great potential investment given the involvement of a hedge fund that understands how to unlock shareholder value. Unfortunately, the company's board of directors doesn't have the best track record after two accounting probes, a near bankruptcy and chronic underperformance relative to competition. Consequently, Karsch has demanded to be an active part of any turnaround process and threatened a proxy fight if they are cut out. Great news for investors.

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Though News Corp.´s (NYSE: NWS) Rupert Murdoch called his meeting with Bancroft family members, who through a dual-class share structure control Dow Jones & Co. (NYSE: DJ), ¨constructive,¨ critics of the deal within the company are looking harder for ways to keep editorial control of holdings such as the Wall Street Journal away from Murdoch.

The Independent Association of Publishers' Employees, which represents some 2,000 Dow Jones employees, has reached out to billionaires Warren Buffet, of Berkshire Hathaway fame, and Ron Burkle to get involved in buyout talks.

The Union President, Steven Yount, said "our union remains hopeful that the Bancroft family will conclude that a sale of Dow Jones is not necessary...but if the Bancroft family is to be persuaded that a sale must take place, we believe that there are alternatives to Mr. Murdoch."

Though Buffet nor Burkle have officially become involved in the discussions, the Union hopes that with their combined wealth and interest in the news has brought realistic contenders into the picture.

Retail brokerages are again finding themselves under intense pressure to consolidate. Yesterday, two hedge fund controlling 8.4% of TD Ameritrade (NDAQ:AMTD) urged the company to explore the possibility of a merger with E*Trade or Schwab, which jumped the price more than 6%.

The company revealed a regulatory filing that the two hedge funds had requested regulatory approval to acquire more shares. The hedge funds said they believe TD Ameritrade could drastically increase its long-term shareholder value through a business combination with E*Trade or Schwab.

Any transaction would give the company greater scale and potentially reduce expenses through the economies of scale effect; however, there are many barriers that stand in the way. The most notable is Toronto-Dominion Bank, which controls 40% of the company's shares and has already spoken out against any acquisition in favor of an oganic growth strategy. The company's CEO did note, however, that the company continues to evaluate its options. Combined, this is certainly a stock to watch!

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Anheuser-Busch (NYSE:BUD) shares moved up $0.70, or 1.32%, to $53.84 on speculation that the company could be a takeover target for Bill Ackman's Pershing Square hedge fund. The suggestion was first brought forth by the New York Post, which broke news from the fund's shareholder meeting.

The speculation stems from statements that Ackman made to shareholders when it raised $2 billion in additional equity. The activist investor told investors that the money would be used to purchase a controlling interest in an "iconic American company" worth between $30 and $40 billion. He also stated that the target company has three divisions. While Ackman declined to comment on these reports, Anheuser-Busch happens to fit this bill perfectly.

Many traders in this situation wait for an initial run-up and then utilize options strategies such as an options backspread to take advantage of the impending volatility. The logic is that once the stock has moved up on speculation, it will settle down if the rumor is false. Meanwhile, if the rumor is true then the stock will move much higher on a buyout.

Overall, this is nothing more than speculation; however, it is certainly a stock worth watching in the near future or a stock to trade for active day traders!

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Avaya Inc. (NYSE: AV) has accpeted a buyout offer of $8.2 billion from Silver Lake Partners and TPG Inc. The deal values Avaya at $17.50 a share, a 28% premium over the $13.67 a share the stock closed at before the buyout rumors began on May 29th.

Avaya is the world`s largest producer of corporate phone network equipment, and this all-cash leveraged buyout is the largest ever of a computer-network company.

Despite the rich price, Avaya is not without its problems. Increasingly, corporatations are moving away from tradition phone systems to internet-based systems. In 2006, Avaya reported only a 5% increase in sales to $5.15 billion, with $200 million in net income.

Avaya`s real appeal, especially compared to faster-growing corporate telephone rival Cisco Systems (NASDAQ: CSCO), is the vital patents it holds for Internet telephone technologies combined with being a cash cow - besides being debt free, Avaya generated more than $200 million in operating cash in the second quarter of this year.

Avaya, having had the premium mostly built into the stock price over the last week of speculation, is trading slightly higher at $17.07, up 2.09%.

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General Motors (NYSE:GM) shares rose marginally after a Wall Street Journal article dispelled any rumors that the automaker might go private in a booming automotive consolidation wave. CEO Wagoner resonded to the shareholder inquiring following the sale of DiamerChrysler to Cerberus Capital Management.

The move raises further questions, however, for the automaker that continues to struggle with soaring heathcare costs, lackluster sales and declining margins. GM also faces increasing competition from foreign companies like Toyota that continue to take marketshare. General Motors executives noted these problems and conveyed to shareholders that this summers' United Auto Workers Union negotiations should further their efforts.

Other things on the plate for GM include their efforts to take bankrupt autoparts maker Delphi back into the black; however, the two have yet to find suitable equity backers for their plans. Meanwhile, GM announced plans not long ago to introduct new Chevy Volt concept car, which runs on efficient battery power.

So, what does all of this mean for investors? Well, private equity's interest in the automaker sector sends a clear signal that some of Wall Street's best believe the sector is undervalued. Moreover, if GM is able to negotiate with its unions to lower costs (particlarly in healthcare) it could dramatially improve their bottom line. And combined with a successful new concept car, GM could be a great stock to own in the future...

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Palm Inc. (NDAQ:PALM) shares spiked $1.41, or 8.73%, to $17.50 in early trading today after the company announced that it would sell a 25% stake to a private equity partner that will bring former Apple Inc. (NDAQ:AAPL) executives onboard. Elevation Partners announced that it would purchase the stake in Palm for $325 million - a substantial premium to Palm's valuation - and bring in new leadership that may help Palm finally turn itself around.

The company began the process of exploring strategic alternatives earlier this year as many speculated that the company could become a buyout target for device makers interested in the company's technology. This new move, however, is welcome news for investors who jumped the stock price in support. Among the new executives being brought in is Jon Rubinstein - the company's co-founder and top product designer who helped pioneer the hit iPod.

Some investors remain skeptical, however, as to whether or not the company can compete with such a small market cap compared to others like Nokia. While the deal announced today does not specifically address that issue, the company does plan on introducing a number of new products and technologies to broaden their offerings. Meanwhile, the new talent will ideally help the company use these new offerings to take market share away from existing competitors.

Clearly, this private equity involvement is good news for all involved. Palm's plans to extend their product line and take on great new management personnel illustrate their commitment to improving shareholder value. This makes PALM a stock worth watching!

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LandAmerica Financial Group (NYSE:LFG) shares moved up last Friday and held their gains today after Viking Global disclosed a 7.9% stake in the company and expressed their belief that the company should be sold. LFG has been a solid performer during the past year, moving up over 70% since the end of 2006. The gains can be attributed to several new programs and initiatives designed to boost earnings during a tough market.

Viking Global said that while it is pleased with management's initiatives to improve the company, a large scale acquisition of the company could add $7 to $8 per share via synergies. This would double the company's earnings per share and create a substantial buyout premium. The activist hedge fund suggested that the probability of a deal would be high and that the board should carefully evaluate whether shareholder interests would best be served through a buyout or by remaining independent. Either way, this is definitely a stock to keep on the radar.

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After a quick double in price last week Cypress Biosciences (NDAQ:CYPB) is again in the news after Black Horse Capital Advisors disclosed a 1.2 million share stake and said it opposed the company's plan to sell 4.7 million shares of stock in a public offering and urged the company to consider adopting a share buyback plan instead.

The activist hedge fund said it was pleased with the company's very successful Phase III results Milnacipran in Fibromyalgia Syndrome and suggested that the drug should provide the company with substantial revenues in the future. However, the company now has too much cash - specifically, $100 million in cash with no debt and a low cash burn rate. Combine this with a successful late stage drug and it is difficult to see why the company would need to issue more shares to raise money!

What does this mean for investors? Well, a large scale share buyback combined with the avoidance of issuing any new shares would likely increase the company's share price and reward investors with cash that is simply being unused right now. And Black Horse also hinted that if these demands are not followed they may consider other options available to them as large shareholders - presumably a proxy fight. Combined, these factors make CYPB a stock worth watching!

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PDL Biopharma Inc. (NDAQ:PDLI) moved up marginally after activist investor Third Point disclosed a 9.8% stake in the company and asked the unconflicted directors of PDL BioPharma to conclude their investigation into CEO McDade's suspected ethical and business breaches as quickly as possible. The hedge fund also nominated BioMarin Pharmaceuticals CEO Jean-Jacques Bienaime to their proposed slate of directors.

The letter address to board members was a follow up to one sent out privately three weeks earlier. In the letter, Third Point suggested that shareholders could best be served through the termination of CEO McDade, the addition of three shareholder representatives to the company's board, and finally the hiring of an investment bank to explore strategic options for the company.

The adoption of these three recommendations would substantially increase the company's share price. Obviously, if the company formally announced that it was exploring a possible sale it would cause a quick jump while the firing of McDade and inclusion of shareholder representation on the board is definition bullish in the long-term.

The problem is simply the McDade has tight control over the board as well as management - a classic agency problem. The only way to effect change may be through a proxy fight, which is always a possibility with Third Point. Combined, these factors make PDLI a stock worth watching!

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The Bancroft family, who through a dual-class share structure control 64.2% of Dow Jones & Co. (NYSE: DJ) votes, agreed to meet with Rupert Murdoch's News Corp. (NYSE: NWS) about his unsolicited $5.6 billion bid for the company.

This will be music to shareholders' ears as the Bancrofts had initially rejected News Corp.'s offer exactly one month ago. It has been widely speculated that the bid for the company was too substantial to not seriously consider as it represented a 65% premium over the share price at the time.

Critics of the proposed buyout warn that the Wall Street Journal, the centerpiece of Dow Jones & Co.'s holdings and certainly Murdoch's most coveted prize in the deal, would suffer from a decline in the quality and neutrality of the writing. In fact, placing journalistic integrity before profits, if necessary, is part of the reason Dow Jones & Co. has a dual-class share structure that allows the Bancrofts to control its fate.

Michael B. Elefante, a director of Dow Jones & Co. and a representative of the Bancrofts, said in a statement that the meeting with News Corp. will explore if "it will be possible to ensure the level of commitment to editorial independence, integrity and journalistic that is the hallmark of Dow Jones."

Editorial independence aside, Dow Jones & Co. is suffering from the same problems ailing the entire newspaper industry as readership and thus advertising slows or declines. As Ed Atorino, an analyst at Benchmark Co., said, "I think [the Bancrofts] are facing the reality of the situation -- that this [bid] is a one-time-only event." See, money talks.

Dow Jones & Co. is soaring to nearly $61 a share on the news, while News Corp. is up a slight .72%.

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