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 on