Vonage Holdings Corporation (NYSE:VG) shares rose more than ten percent today after the company announced that it has settled its patent dispute with Nortel Networks without paying any money out of pocket. Investors have been concerned for some time that the VOIP provider may be forced into bankruptcy if it was ordered to pay hefty fines to old-telecom companies that it walked over. Shareholders applauded the move as it marks one of the final lawsuits hovering over the company.

The new settlement involves a limited cross license to three Nortel and three Vonage patents and dismisses claims relating to past damages and remaining patents. Vonage was initially dragged into this lawsuit after it acquired Digital Packet Licensing, which was suing Nortel at the time for the violation of three patents. Vonage continued the lawsuit before it was countersued by Nortel, who claimed that Vonage was violating 13 of its own patents and asked that the VOIP provider be shut down and kept from using the technology.

This settlement is a great deal compared to Vonage’s settlements in four other patent lawsuits where it was forced to pay the other side money for prior use of its product. These lawsuits sent Vonage shares tumbling amid worries that they would be forced to shut down their service because they were in violation of basic patents on the technology itself. However, these were all resolved in exchange for cash, where AT&T received $39 million while Sprint and Verizon received a total of $200 million.

In the end, this is good news for Vonage who now appears to be cleared of outstanding lawsuits that threatened to send them into bankruptcy. Shareholders are hoping that the company can now turn itself around and focus on building revenues and profitability. Combined, these factors make VG a stock worth watching closely!

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Sybase Inc. (NYSE:SY) directors may have to fight for their job after an activist hedge fund nominated its own slate of directors to the company’s board, according to a Schedule 13D/A filing with the SEC. Sandell Asset Management Corporation announced that it has notified Sybase Inc. of its intention to nominate three highly qualified independent candidates for election to the board of directors in 2008. Shareholders are hoping that this move could help unlock value in the company’s shares, which have remained somewhat stagnant.

Sandell’s move towards a proxy contest follows a letter and presentation delivered to the company on October 12, 2007 outlining specific actions the hedge fund believed the company should take to improve value for all shareholders. Specifically, the Sandell requested that the company immediately:

1. IPO and spin-off 100% of the Mobility segment.
2. Aggressively use the balance sheet to repurchase shares.
3. Sell the company as a whole or in parts.

Since that time, the company has taken no discernable action on any of these issues, nor has it taken any of its own actions to improve value. Sandell continues to believe that the actions detailed in its letter and presentation would materially improve the company’s valuation to the benefit of all shareholders, and it intends to conduct a proxy contest in order to realize those gains.

“We have attempted to encourage the company, both publicly and privately, to take action to improve its current discounted share price, but have been very frustrated by the apparent complacency of the board and management towards creating value,” said Thomas Sandell, founder of Sandell Asset Management. “We feel that shareholder representation on the board is warranted to ensure that all alternatives are being considered and a course of action is taken to bridge the gap between the current share price and its inherent value.”

Overall, any of the actions suggested by Sandell could go a long way in unlocking shareholder value. Proxy contests can be difficult and expensive, however, and it is uncertain as to whether they will be able to obtain the board seats that they need to enforce change. Regardless, this is definitely a stock worth watching into the next annual meeting!

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Delta Petroleum Corporation (NDAQ:DPTR) shares rose more than 20 percent today after Tracinda Corporation agreed to take a 35 percent in the energy company at a 23 percent premium to Friday’s close in a deal valued at around $684 million. Kirk Kerkorian’s Tracinda Corporation is well known activist hedge fund that specializes in restructuring companies and unlocking shareholder value. Shareholders are clearly confident that the activist will work to unlock value.

“Under Roger’s leadership, Delta Petroleum has become a very important company in the industry, with valuable resource plays, a strong asset base and well-positioned exploration projects that we believe hold significant growth potential,” said Tracinda Corporation in a statement. “Our investment will provide the company with the capital to accelerate its exploration activities, while giving Tracinda and Delta Petroleum shareholders the ability to realize value from its growth going forward.”

Delta Petroleum announced that the transaction would enable them to accelerate development drilling activities in its core areas, including the Piceance and Paradox Basins. Furthermore, the company noted that the investment will give it much more financial flexibility to fund its long-term drilling programs and allow for additional acquisitions.

“We are very pleased to have Tracinda Corporation as an investor and strategic partner in Delta,” said Chairman and CEO Roger Parker. “This transaction will provide the means to significantly increase the present value of our vast resource potential. The additional capacity provides Delta the financial flexibility and wherewithal to grow the company to new levels. We are very enthusiastic about the future for Delta.”

Notably, Tracinda Corporation withdrew their offer for a 20 percent stake in Tesoro Corporation – another energy company – last month due to a perceived lack of energy experience combined with a steep decline in refining profit margins. It appears that this investment may be a replacement designed to fill an energy spot in Mr. Kerkorian’s portfolio. Regardless, this is definitely a stock worth watching closely over the next few months!

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Many U.S. and European banks are reportedly considering divesting certain units in order to recapitalize for the tough times ahead, according to the Wall Street Journal. Banks considering such drastic moves are Citigroup (NYSE:C) and HSBC Holdings (NYSE:HBC) among others. Shareholders are hoping that these moves could help recapitalize the firms enough to avoid any further share dilution or worse.

Citigroup may shed or shut down several of its mid-sized units valued at around $12 billion while HSBC could exit all or parts of its $13 billion U.S. automotivd financing division, the Journal reported today. Citigroup units that may be shed include Student Loan Corp, its North American auto lending business, Redecard SA (its Brazilian credit card company stake), and its Japanese customer finance business. Meanwhile, HSBC is considered well capitalized but has experienced many issues with its automotive business that has been lagging behind.

One of the larger rumors circulating is that Citigroup may be considering a sale of Smith Barney, which could approach $10+ billion in value alone. Citigroup has a business that is fairly independent of its retail banking, commercial banking, and investment banking operations. And Smith Barney has about 9.3 million client accounts with around $1.6 trillion in total assets. Whether or not parting with Smith Barney would cause any real harm is uncertain, but it is a huge business that certainly could be sold in order to preserve liquidity.

Many are anticipating any units put up on the block to be acquired by Asian banks or sovereign wealth funds looking to build their portfolio of cheap dollar assets. Meanwhile, if Citigroup decides to sell its stake in Smith Barney, it is likely that a well-capitalized bank like Wachovia may consider acquiring it. Regardless, this is a situation that is definitely worth watching closely!

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Hedge funds are starting to feel the effects of the credit crunch as getting credit from lenders becomes increasingly difficult. Many investment banks are cutting back on loans to hedge funds by eliminating some clients and raising borrowing fees for others after heavy losses forced them to slim down their balance sheets. This could put pressure on both banks and hedge funds that rely on each other to boost their profits and returns.

Many hedge funds, known as quants, use computerized models designed to spot and take advantage of small pricing inefficiencies in the marketplace. These funds rely on a massive amount of leverage to drive their returns, and trouble borrowing could soak up their profits. Meanwhile, activist hedge funds and private equity funds rely on large amounts of debt and credit in order to finance M&A deals that they have used to bolster their returns during the past few years.

Hedge funds often borrow through a “repo” operation whereby the hedge fund sells securities to banks in exchange for cash, while entering into an agreement to buy them back at a later date when they pay the money back. These rates are skyrocketing, however, as banks are increasingly worried that hedge funds won’t be able to repay the loans. Morgan Stanley, for example, has been asking for one percentage point over LIBOR to enter into a repo agreement using junk bonds as collateral, according to the Wall Street Journal.

Problems in the hedge fund industry could cause problems in the larger markets too. Many public institutions, high net worth individuals and retirement funds have large investments in hedge funds that have traditionally returned healthy profits. Any limits in lending could adversely impact the returns for these hedge funds. Meanwhile, hedge funds that are forced to abandon deals or liquidate large positions may also prove to be a drag on the market. In the end, this is a significant event worth watching!

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Warren Buffett plans to carve out his own niche to profit from the nation’s credit market turmoil. The billionaire’s Berkshire Hathaway (NYSE:BRK) announced his intentions to start up a bond insurer that aims to make it cheap for local governments to borrow and may prove to be a tough competitor for the trouble existing insurers. Shareholders are bullish on the developments that promise to put more of the firm’s massive cash reserves to work.

Berkshire Hathaway Assurance Corporation is set to open for business today in New York and will focus on guaranteeing bonds for cities, counties, and states to finance sewer systems, schools, hospitals and other public projects. Berkshire’s solid AAA rating, which is held by very few companies, is likely to go a long way in a market that has many people unsure of who they can trust. After all, firms like Ambac Financial and MBIA are now seen as at risk of losing their AAA ratings due to the increased risk of mortgage-related bonds that they insure.

Warren Buffett said in an interview that there appears to be a high interest in a new company to seek permission in other states that account for a large chunk of municipal-debt issuance. After New York, the firm will likely seek to do business in California, Puerto Rico, Texas, Illinois and Florida. The billionaire said they would move prudently but would commit quite a bit of capital if they like the business. And in the end, focusing on municipal debt is a relatively safe bet when compared to asset backed securities!

In the end, this is more great news for Berkshire Hathaway shareholders who are seeing Buffett partake in a buying spree into the market decline. Recently acquisitions combined with this new business should help the firm put some of its massive capital reserves to use. Combined, these factors make BRK a stock worth watching!

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MRV Communications Inc. (NDAQ:MRVC) shares rose more than 20 percent earlier this week after the company finally made good on its promise to spin-off Source Photonics via an initial public offering. The number of shares to be offered and the price range of the proposed offering have not yet been determined, but the IPO is planned to net up to $130 million for the optical communication products maker. Shareholders are hoping that the move will unlock value through the separation.

Source Photonics makes optical subsystems used to transmit high-bandwidth video, voice and data. Its customers include Alcatel-Lucent, Motorola, and Tellabs. The division posted a loss of around $1.4 million for the nine months ended September 30th compared to a $311,000 loss for the same period a year earlier. Revenue during that period increased 40 percent to $93 million. Meanwhile, the company expanded its employee base to 1,486 employees and full-time contractors worldwide.

Spin-offs in general often prove to be great investments for a variety of reasons; however, this spin-off is slightly different for a number of reasons. First, MRV is only selling the company’s Class A shares while retaining all Class B shares for itself (although they may be spun-off later). Secondly, Source Photonics is a company that is losing money operating at a loss. And finally, this offering is more of an IPO than a spin-off in that new shares are being issued.

In the end, this spin-off may not be worth investing in immediately, but any divesture of Class B shares by MRV would definitely be worth watching. Also, MRV itself will be able to save money and realize IPO proceeds and profits as a result of this spin-off. Therefore, it may be worth watching the parent company itself.

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Bear Stearns (NYSE:BSC) shares rose marginally after a British billionaire disclosed a 9.57 percent stake in the firm even as shares continue to fall. Joseph Lewis, the 486th richest person in the world, has acquired almost two million more shares of the investment bank as a part of an option strategy that appears to be backfiring. Shareholders are hoping that the billionaire investor will hold on to the stock and take some action to unlock value in the company’s shares.

Lewis became the Bear Stearn’s largest shareholder in September after the firm’s two hedge fund collapsed due to bad bets on mortgage-backed securities. The billionaire spent nearly $860 million to buy 7% of the company when the stock was trading at more than $100 a share, which means he was already sitting on a paper-loss of more than $100 million. Now, Lewis appears to have been forced to acquire $1.19 billion in additional shares at an average price of $107.31 a piece, which will likely further extend his losses.

Bear Stearns has been hit particularly hard by the mortgage downturn with a fourth quarter net loss of $854 million on write-downs of $1.9 billion on its portfolio of residential mortgages and related assets. Meanwhile, many analysts are not even sure that the pain is over in the mortgage markets. Many prime mortgages are due to reset to higher rates and default rates among those borrowers are also expected to rise. The economy is also on uncertain ground, and any general slowdown could affect investment banking business.

In the end, shareholders are hoping that the billionaire will do something to help the company turn itself around. Bear Stearns is in a world of hurt now and it appears that this billionaire is too. Combined, these factors make BSC a stock worth watching closely!

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There’s a lot of talk about a recession these days from both politicians and economists, making many investors very nervous about the future. Recession is defined as two consecutive quarters of negative gross domestic product (GDP) growth. Currently, there is no consensus on whether we are in a recession, going into a recession, or simply in a bad market, but it never hurts to learn how to protect your stock portfolio.

Most people sell stocks from their portfolio going into a recession, but they should be buying. After all, “buy low, sell high” is the fundamental definition of how to make a profit. Those who have a long time until they plan on withdrawing money from their portfolio should look at increasing contributions to their 401(k) and IRA accounts. Meanwhile, those who are retiring soon should consider staying the course and riding out the downturn.

The most important thing you can do to protect your portfolio is to diversify your investments. This means not only buying different stocks within the United States, but also buying ETFs or mutual funds that track indexes in foreign countries. After all, countries like China and Brazil are soaring while U.S. markets are faltering. Meanwhile, diversification itself is statistical proven to not only increase returns but reduce volatility, which means you will realize more profits from your portfolio!

Recessions also produce many opportunities to profit substantially. Stock pickers who are able to sort through fundamentals will be able to find many bargains during a recession. Particularly, companies that export the majority of their products may be in a great position with a weak dollar and weak domestic economy. Meanwhile, companies providing products that people need everyday – such as energy – may also be companies that are unnecessarily beaten down.

On a related note, it is important to keep a healthy savings account since unemployment tends to rise as economic growth slows. Typically, it is important to keep three to six months worth of living expenses in an emergency fund. This money should be kept in a liquid account like a money-market account that makes more than a standard savings account but does not carry the risk of an investment account.

In the end, be sure to keep purchasing stock during the downturn and maintain a diversified portfolio that fits your risk profile. Also be sure to keep money on the side in case you are affected in other ways by a recession. Combined, these things can help you recession-proof your portfolio!

Warren Buffett’s Berkshire Hathaway (NYSE:BRK) announced that it had completed its acquisition of Marmon Holdings after just two weeks of negotiation. The billionaire investor had been searching for ways to spend its $43 billion in cash on its balance sheet, but many were surprised by the move. The deal will not only be Buffet’s largest acquisition outside of the insurance industry but it also comes at a time when many are expecting a recession in the U.S. economy.

“Our transaction was done just the way Jay would have liked it to be done — no consultants or studies,” Mr. Buffett said in a statement, referring to Jay A. Pritzker, one of the founders who died in 1999. Mr. Buffett met Jay Pritzker in the 1950s and for many years served on the board of Grinnell College in Iowa with Marian Pritzker, who was married to Jay and is Thomas’s mother.

Marmon Holdings is a Chicago-based conglomerate that owns more than 125 businesses that operate more than 300 production facilities in 40 countries. These companies operate within a variety of business sectors including construction services, distribution services, highway technologies, industrial products and services, information management, metal products, retail services, transportation services, water treatment and wire and cable products. Interestingly, much of its large electrical components, water treatment and retailer services businesses are very dependent on the U.S. economy.

In the end, it is interesting that Buffett was so willing to make such a large acquisition outside of the insurance sector and during a time when the U.S.is expected to enter a recession. Perhaps Buffett believes that the U.S. is not quite as likely to enter a recession as first thought…

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Amazon.com Inc. (NDAQ:AMZN) shares rose today after the company announced record sales during this holiday season. Online shoppers purchased 5.4 million items – or 62.5 items per second – from the online retailer with the busiest day being December 10th. Meanwhile, brick-and-mortar retailers like Wal-Mart and Target may have missed their best estimates. The move suggests that an increasing share of shopping is being done online from the convenience of home.

Amazon announced some interesting holiday facts:

• Amazon.com sold Nintendo Wii systems at approximately 17 per second when they were in stock.
• Amazon.com sold enough high-def DVD players to cover seven football fields.
• If you lined up all of the GPS units Amazon.com sold this holiday, they would make a trail from New York to Philadelphia; however, a new trail wouldn’t be necessary with the use of a GPS.
• Amazon.com sold enough auto wrenches to stretch all the way around the Daytona 500 track.
• Amazon.com sold enough Hannah Montana wigs to outfit the entire audience at her December 20th show in Providence, RI.
• Amazon.com’s One-Day Shipping was extended an extra day through Sunday, December 23rd for Prime members this holiday season.
• The last Prime order placed on December 23 in time for Christmas delivery contained “Futurama, Vol. 1″ DVD, “Lost in Translation” DVD, “A Charlie Brown Christmas” CD, “The Fountainhead” by Ayn Rand paperback, “Bridge Over Troubled Water” CD, and “Pulp Fiction” (Two-Disc Collector’s Edition) DVD delivered to Herndon, VA on December 24th.

The statistics suggest that investors should also be watching Garmin (NDAQ:GRMN) and Nintendo (OTC:NTDOY) stocks as they appear to have experienced strong sales. Meanwhile, Target (NYSE:TGT) shares declined after the company cut its expectations for same-store sales. Wal-Mart (NYSE:WMT) shares also fell amid expectations that their sales also suffered at the hands of online shopping. In the end, this is a trend that will only continue…

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Target Corporation (NYSE:TGT) found itself in talks with Pershing Square’s William Ackman after the activist boosted his stake in the company from 9.6 to 10 percent and owns derivative contracts that amounting to an economic interest of around 12.6 percent. The activist investor acknowledged that Target is “probably the best retailer in the world” and announced that it was in talks with management to boost the share price. Shareholders are hoping that the activist will take action to unlock value.

Target shares have fell 21 percent since Ackman first disclosed his holdings, but the activist maintains that the company is in good shape. Many investors believe that Ackman is focused on the company’s possible sale of its $7 billion credit portfolio, which was delayed due to evaluations taking longer than expected as a result of the current credit market conditions. Shares have continued to slide recently on news of delays in this decision that could prove to be a windfall for shareholders if approved.

William Ackman is an activist investor that previously took stakes in Wendy’s, McDonalds, and Ceridian and unlocked value by pushing management to improve profits and cut costs by selling or spinning off divisions. Investors are hoping that the activist will be able to unlock value in Target. Combined, these factors make TGT a stock worth watching!

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Merrill Lynch (NYSE:MER) shares led the financials higher today after the company announced that it had sold its commercial finance unit and raised $6.2 billion through a private placement to Temasek and Davis. The move comes after the firm announced record writedowns amid a credit crunch and subprime crisis that wrecked havoc on its asset backed securities. The firm is widely expected to face more writedowns, but these events give investors new hope that a bottom may be near.

General Electric purchased Merrill’s commercial finance unit, which will enable the firm to redeploy approximately $1.3 billion in capital. The sale includes the firm’s corporate finance, equipment finance, franchise, energy and healthcare finance units, but not the commercial real estate finance unit. The deal will add more than $10 billion in assets and $5 billion in other commitments to GE Capital Commercial Finance’s businesses, which currently stands at around $260 billion.

Meanwhile, Temasek Holdings purchased $5 billion of newly issued Merrill stock at a price of $48 per share through a private placement of newly issued common stock. Davis Selected Advisors also purchased another $1.2 billion at an unknown price per share. Some investors are upset that the company was willing to dilute their stake at a price of just $48 per share, but it is likely that the two investors had a chance to take a look at the company’s books and felt that that was a fair price given future writedowns. Regardless, the firm now has increased liquidity and more investors.

In the end, both of these are great news for Merrill Lynch shareholders as it provides the company with greater liquidity while also showing at least some confidence in the company’s stocks. Combined, these factors make MER a stock worth watching!

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BEA Systems Inc. (NDAQ:BEAS) announced that it would postpone its annual shareholders’ meeting in a move that would sidestep a lawsuit by Carl Icahn and give the business software-maker more time to drum up bids closer to its $21/share target. The company now has more time to get itself out of this mess, but it is uncertain as to whether or not Icahn will attempt to install his own directors regardless. Shareholders are watching the situation closely as it could mean significant value being unlocked.

Carl Icahn launched his campaign to put the company up for sale a few months ago when he sued BEA’s board of directors and threatened to replace them with his own candidates. The activist investor hasn’t filed any of the necessary paperwork to nominate his own directors, but this delay may give him enough time to do so. This assumption has gained traction in light of the fact that Icahn supported this delay while criticizing past delays.

Carl Icahn has been critical of BEAS ever since it rejected a bid from Oracle at $17 per share, or $6.7 billion. The company insisted that it was worth more and suggested that future negotiations should start at $21 per share, which it is just now attempting to realize. So far, no other bidders have emerged and Oracle’s Larry Elison even suggested that the company wasn’t even worth the original $17 per share offer. Whether or not the company can drum up some bids remains to be seen, but with Carl Icahn’s support, this is a situation that is definitely worth watching!

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Transmeta Corporation (NDAQ:TMTA) received a letter from its largest shareholder today expressing concern over yesterday’s staggering option grants and other recent developments that have bought serious questions to light regarding the company’s strategic direction. Riley Investment Management (RIM), which owns 6.4% of Transmeta, demanded several changes to protect shareholders.

The board of directors is tasked with prudently placing the interests of shareholders above their own and those of insiders. However, last night’s option grant totaling 725,000 shares to the company’s top four executives diluted shareholders by over 5% and almost doubled the company’s historical grants on a split-adjusted basis. The timing of the grant is also very disconcerting and ironic in that it was made at historically depressed levels – essentially giving executives $5 million of value at a great cost to shareholders. Obviously, RIM viewed this as a major issue and questioned the integrity of the board.

RIM also reiterated its belief that shareholders will be best rewarded through a distribution of cash and a monetization of the company’s intellectual property as opposed to management’s plan to fund business development and evaluating potential acquisitions. RIM believes that this strategy would result in proceeds in excess of $20 per share while management’s strategy would likely result in operating expenses that eat through the guaranteed $20 million per year revenue stream from Intel by lining the pockets of management and executives.

“In light of the failures of the management team and the Board, the company’s proposed strategy is especially disturbing,” said RIM in their letter. “Transmeta shareholders should ask a simple question –- would the current management team and board be able to raise $250 million from the public market to pursue a risky strategy with operating expenses of $25 million per year and no clear path to profitability? We believe the answer is unequivocally no.”

In the end, it will be interesting to see how the board responds to this letter as it makes several points that even average investors can identify with – most notably yesterday’s option grant. Combined, these factors make TMTA a stock worth watching!

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ETrade (NDAQ:ETFC) announced an aggressive campaign today to win back customers as one component of its comprehensive turnaround plan following its dramatic fall. The turnaround plan was reportedly developed in conjunction with a thorough evaluation of ETrade’s core strategy along with an assessment of its organizational structure, operating expense base, and balance sheet. Shareholders are hoping that this plan can help revive the stock that has dropped substantially over the past few months.

The backbone of the turnaround plan is an effort to start attracting customers after the company saw a mass defection following liquidity rumors. The campaign began earlier this month and involves targeted engagement incentives and outreach initiatives to current and prospective customers. But just how effective has this been? Well, the brokerage said on Friday that its retail customer cash and deposit balances were up 14% from the end of October, reaching $33 billion.

ETrade also said that it would detail its formal turnaround plan after its fourth quarter and fiscal statements are released on January 24th. So, investors may have to wait a little longer to see how viable the company’s turnaround plan really is for the future. However, ETFC is definitely a stock worth watching in the meantime!

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Comforce Corporation (AMEX:CFS) may face some pressure in the near future after an activist hedge fund expressed frustration with the company’s board and management and urged its directors to explore strategic alternatives, including a possible sale of the company. Bruce Galloway’s Strategic Turnaround Equity Partners, which owns a 5 percent stake in the company, also threatened to take their suggestions to shareholders if the company didn’t respond.

“While we have been supportive of your efforts and progress in growing the sales of the company, reducing debt and improving earnings, this has not resulted in an improved stock price. Based on our internal research, and as I am sure you are aware, Comforce is trading at a significant discount to its larger market cap peers,” said Galloway. “More importantly, we don’t believe management has clearly defined to the shareholders how to achieve its targets to increase shareholder value.”

The news comes after Comforce recently reported strong third quarter results. The latest quarter represented its 17th consecutive quarter of improved year-over-year revenues on net income that rose 91% compared to the same quarter last year. The company also reported that its interest expenses continued to decline. However, no insiders have purchased any shares while the stock has remained stagnant.

“We are most pleased with our increase in revenues and net income for both the third quarter and nine months. The third quarter represented our 17th consecutive quarter of year-over-year increased revenue growth,” said CEO John Fanning. “We were also happy to have posted increases in revenues of $1.9 million in Staff Augmentation primarily as a result of increased sales to our Technical and Information Technology customers.”

In the end, it will be interesting to see if the company sees eye-to-eye with the activist hedge fund. Since management does not have a significant stake in the company, the hedge fund may find it difficult to push for a change of control transaction. However, this stock is definitely one worth watching in the meantime!

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CSX Corporation (NYSE:CSX) directors may be in for a battle after two long-standing foes nominated their own slate of candidates to the company’s board. The Children’s Investment Fund teamed up with 3G Capital Management to strengthen the railroad operator’s board by adding strong independent directors with a shareholder orientation, a broad range of railroad and other relevant experience, and a firm commitment to improving operating performance and corporate governance.

The hostile move comes after two months of feuding between the company and its dissident shareholders. Children’s Investment Fund sent a public letter to CSX two months ago raising concerns over the fact that they have been unable to hold substantive discussions about the company’s spending. The hedge fund also requested that the chairman and chief executive roles be split up, more independent directors with experience be added, and operating expenses be trimmed.

Last month, CSX’s board responded by stating that it maintained confidence in its chairman and chief executive. After all, the stock price has tripled over the last three years and shareholders have seen better returns than the rest of the railroad industry and 89 percent of all S&P companies. Obviously, any changes may be a hard sell to average shareholders who do not understand the additional value that can be unlocked through independence.

Shareholders can expect to see a heated proxy battle at the CSX’s next annual meeting. Combined, these two hedge funds hold around 11 percent of the company’s outstanding shares which makes them a viable contender. Many common shareholders, however, will need to receive more information detailing exactly how they plan on improving a stock that has already seen such great success under current leadership. After all, the saying goes: “If it ain’t broke, don’t fix it!”

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Edge Petroleum Corporation (NDAQ:EPEX) announced yesterday that it has retained Merrill Lynch & Co. to explore strategic alternatives to enhance shareholder value, including a potential sale of the company. The move comes as many small cap energy companies, including Edge, trade at very low multiples despite strong earnings. Many shareholders are hoping that the company will be able to correct this value disconnect through a sale or merger.

“Merrill Lynch and Management will assist our Board in reviewing the strategic alternatives while the Company continues to execute its current business plan,” said CEO John Elias. “Although we have no specific time frame to complete the review, both Management and the Board of Directors have a sense of urgency about completing this process and increasing our shareholders’ value.”

So, how much might Edge fetch in a sale of the company? Edge currently has an enterprise value of $551 million, composed of $240 million in long-term debt, $143 million in preferred stock, and $168 million in market cap at $6 per share. The valuation of the company hinges largely on its reserves. Assuming that the company can retain current run rate, BOE/day, and reserve valuations, then shares could be worth between $10 and $12 or more per share based on low to mid range peer multiples.

It is likely that Edge already received several unsolicited offers for the company, which is why this process was put into motion. Clearly, the value disconnect is of great concern for all small cap energy companies in this arena. This is all good news for shareholders, but whether or not they will accept any of these offers remains to be seen. Regardless, this is definitely a stock worth watching!

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Enzon Pharmaceuticals (NDAQ:ENZN) shareholders may soon be rewarded after a large shareholder expressed concerns regarding a “troubling disconnect” in the stock. DellaCamera Capital, which owns 5.2% of the company, requested that the company hire an advisor to analyze various financial and structural options and implement a cohesive financial plan of action that would deliver increased value to shareholders.

“In our opinion, Enzon’s current stock price of $9.75 represents a significant discount to the intrinsic value of the Company and in no way reflects the tremendous embedded optionality associated with Enzon’s R&D pipeline and technology platform,” said portfolio manager Richard Mansouri. “It is our belief that the corporate structure and operational complexity of Enzon have made it difficult for the investment community to accurately assess the inherent value of the Company.”

The activist hedge fund pointed out that a share price of $9.75 implies a shocking negative valuation of -$263.5 million for the company’s R&D operations that, in reality, show promise. Enzon has four products on the market that will generate an estimated $100 million in revenue in 2007. A reasonable sales multiple of 3.5x yields a value of $350 million for the marketed products alone. Add in the revenues from royalties and contracted manufacturing and you get an additional $440 million in value.

So, why is there such a value disconnect? Well, DellaCamera insists that it can be traced to the company’s complex structure. Currently, Enzon operates in two businesses: (1) a commercial business comprised of marketed products, royalties, and contract manufacturing; and (2)an R&D organization and technology platform. The profitability of the commercial operations is being completely obscured by the expenses associated with advancing the company’s clinical and pre-clinical trials. This complexity has also led to operating inefficiencies that have resulted in runaway expenses.

In the end, DellaCamera insists that the company should work to simplify its message to investors by consolidating its operations or taking other measures to unlock value. To this end, they requested that the company hire an advisor in order to explore the best options. Combined, these factors make ENZN a stock worth watching!

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The Cheesecake Factory (NDAQ:CAKE) shares spiked over ten percent today after Nelson Peltz's Star Trust revealed a ten percent stake in the company. The activist investor also requested and received early termination notice from the FTC, which is required under the Hart-Scott-Rodino antitrust law for the acquisition of stocks or assets greater than $50 million.

Nelson Peltz is well known for his activist involvement in companies like Wendy's International and H.J. Heinz Co., in which he was able to unlock substantial value for shareholders. The activist investor may see the Cheesecake Factory as a strong play in today's troubled markets. The company has shown consistent EPS growth with extremely strong financials.

So, is the Cheesecake Factory a bargain at these prices? Well, before today's move the stock was trading at just $22, which is about 17x next years estimated EPS. This is an extremely low P/E ratio that should stand around 25x, which would equate to a stock price of around $33 per share - or about 50% higher than it trades now.

In the end, this is a solid stock that is being acquired by an activist that has clearly indicated that he wants more. Whether or not Peltz plans on taking any actions to unlock value remains to be seen, but this is definitely a stock to watch in the meantime!

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Total Systems Services, Inc. (NYSE:TSS) announced that its shareholders would receive $3.03 per share in connection with the company's nearly completed spin-off from parent Synovus Financial Corp. (NYSE:SNV). Shareholders applauded the spin-off and one-time dividend as effective methods for unlocking value in the company's hares.

Synovus shareholders will receive 0.484 shares of TSYS common stock for each share of Synovus stock in connection with the spin-off. Shareholders that hold fractional shares will receive cash for the fraction. TSYS shareholders on record as of December 17th will also receive a $3.03 all-cash one-time dividend on December 31st. Combined, these two actions will divest Synovus' 80.6% stake in TSYS and enable shareholders to realize value in both.

Spin-offs in general tend to outperform the overall market for several reasons. First, parent company shareholders are occasionally uninterested or unable to hold (mutual funds, for example) stock in the spin-off and therefore automatically sell. Secondly, the management team at a spin-off company are typically heavily incentivized to perform since it is a new company that is still well capitalized. And finally, pure-play assets are typically valued higher than conglomorate assets.

In the end, this is great news for Synovus shareholders and TSYS shareholders as they will likely see a significant appreciation in value over the next two years. Combined, these factors make TSS a stock worth watching closely!

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Copart Inc. (NDAQ:CPRT) executives and board members may be in for a shake up after Jana Partners disclosed a 5 percent stake in the company, according to a Schedule 13D filing with the SEC. Jana is well known in the hedge fund community as a constructive activist that works with management to improve operations and unlock shareholder value. Many investors are hoping that they can do the same at Copart.

Many analysts have been impressed with Copart's results recently as the company generated robust organic growth, gained market share and witnessed progress at its UK operations last quarter. The auto-seller hit a 52-week high last quarter after it announced results that beat Wall Street estimates by a wide margin. Now, estimates for next quarter are being raised even further.

Copart is a provider of vehicle remarketing services in the United States and United Kingdom. The company provides vehicle suppliers, like insurance companies, with a range of remarketing services aimed at helping them process and sell salvage vehicles primarily over the internet through the company's virtual bidding internet auction-style sales technology known as VB2.

So, how does the Copart look now? Well, the company is growing at a strong pace but is priced with a PEG ratio of 1.68, meaning that it may be slightly overvalued. However, the company also has no debt and $250 million in cash, meaning that there may be opportunities to leverage up and unlock value for shareholders. Additionally, insiders still hold over 30% of the company's stock, indicating a strong belief in the future. Combined, these factors make CPRT a stock worth watching!

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Sprint Nextel Corp (NYSE:S) announced that Dan Hesse would be the company's new chief executive after Gary Forsee agreed to step down amid shareholder pressure. The move comes as the telecommunication company is struggling to regain its foothold and win back market share that it has lost over the past year. Shareholders are hoping that this could be the change needed to finally turn around the company's stock.

Dan Hesse has been serving as chief executive at Embarq, which was spun off from Sprint not long ago. His performance there and at AT&T earlier drew applause from Wall Street. Now, many are hoping that the new chief executive will be able to help the company recover from its failed 2005 merger with Nextel and help the company more effectively compete with rivals Verizon Wireless and AT&T.

The culture problems at Sprint Nextel still run deep - the two do not even share a headquarters! Sprint employees insist that Nextel's poor network infrastructure was the cause of the recent turmoil while Nextel employees insist that Sprint is an overly bureaucratic and slow-moving company that is unable to keep up with the industry trends. It was a combination of these two combined with a divided workforce that are the root of the problems today.

One other key issue will by the so-called WiMax initiative, which has proven to be a cash drain on the company. The plan involves spending a further $5 billion to build out a new high-speed wireless network using WiMax technology. The company's attempt to split the job with Clearwire Corp recently fell through while the company also rejected a $5 billion injection. This has led many to believe that the company may be willing to cut back on the program.

Overall, it will be interesting to see whether ot not Dan Hesse can integrate these two cultures and turn Sprint Nextel into a competitor once again. It will also be interesting to see what becomes of the WiMax initiative that has so many people divided. Combined, these factors make S a stock worth watching!

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Loews Corporation (NYSE:LTR) announced yesterday that it would finally separate itself from the tobacco business via a spin off of its Lorillard Tobacco interests. The diversified conglomerate had been slowly divesting its stake for some time, but has enjoyed a good ride on the stock over the past few years. Shareholders are now eyeing the new spin off as an opportunity of its own.

Lorillard Tobacco is the maker of Kent, Newport, Maverick and True brand tobacco products. The value of the division is apparent via the tracking stock setup by Loews in 2002, known as the Carolina Group. Since its inception, Loews has sold shares in blocks several times to the group. Now, Loews is finally independent enough to fully separate itself from the tobacco business.

The tobacco industry has been shaken recently by a series of mergers and acquisitions and owning a small independent company with top-notch brand names may not be such a bad move. Interestingly, the company is divesting its stake in the tobacco segment by offering one share of the new stock in exchange for one share in the company. Effectively its a share buyback.

In the end, this is good news for shareholders since it is an opportunity for them to enter a new business. Unfortunately, since the shares are optionally acquired, we will likely not see the initial selling after the spin off. Regardless, this is definitely a stock worth watching!

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PDL BioPharma (NDAQ:PDLI) announced that it has successfully sold the rights to its transplant drug IV Busulfex to Japan's Otsuka Pharmaceuticals for $200 in cash in deal that will close in the first quarter. The move should lessen the pressure on the drug maker by activist shareholders who have been pushing the company to unlock shareholder value for the past few months.

Busulfex is one of three products that PDL purchased in 2005 for $500 million in an attempt to boost earnings while it developed its own antibody drug through clinical trials. That strategy ended when activist investor Daniel Loeb's Third Point LLC forced CEO Mark McDade from office and demanded an auction of the company instead.

Third Point cashed out recently, but Highland Capital Management has taken the reins and continued to push the company towards a sale. The activist recently commented that Merrill Lynch should be eliminated and replaced by a M&A advisor more suited to their industry. However, with this recent deal completed, perhaps no change will be necessary.

In the end, PDL BioPharma is likely to continue to sell off its assets in an attempt to liquidate and unlock value for shareholders. Whether or not they will find buyers and obtain fair value for the company remains to be seen, but at least one activist investor remains bullish and this recent sale is encouraging!

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Marshall & Ilsley Corporation (NYSE:MI) announced a series of unusual events that will impact its earnings for the most recent quarter and year end. The diversified financial services company revealed a very strong capital position from a spin off amid write downs from the mortgage crisis. So, what does all of this mean in the end?

M&I announced on November 1st that it completed its spin off of Metavante Technologies, which resulted in a one-time $526 million gain and $1.665 billion in cash from the separation. The company plans on using these funds to retire approximately $1 billion worth of bonds in order to lower its borrowing costs over the next three years.

M&I also announced a $195 million write off in its loan portfolios stemming from the bank's reassessment in light of the deteriorating real estate market. The firm's loan loss provision, covering bad loans, could grow to $235 million which is up from $18.3 million in the fourth quarter of last year. Luckily, the firm remains well capitalized after the sale of its technology arm.

"Despite these challenging market conditions, we are fortunate to have one of the strongest capital positions in the industry," said Mark Furlong, president and CEO, Marshall & Ilsley Corporation. "We believe we are well positioned to weather the downturn in the real estate market."

In the end, M&I remains in good shape despite some rather large mortgage-related losses. Whether or not the bank will fully recover remains to be seen, but this is definitely a stock that it worth watching over the next few months!

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Panera Break Co. (NDAQ:PNRA) may face a shakeup after Roy Disney's Shamrock Activist Value Fund set its targets on the restaurant chain. The activist hedge fund demanded that the company declassify its staggered board and separate the chairman and chief executive roles, according to a Schedule 13D filing made with the SEC on Friday.

Shamrock, which owns 5.46 percent of the Panera, also demanded the same voting rights for all of its common stock and suggested that the company add some new board members with "relevant operating experience". The hedge fund also proposed that the company work to increase its compensation plan to provide increased transparency and urged the company to leverage its strong balance sheet to institute a share repurchase.

These initiatives are collectively designed to help the company's stock recover after dropping more than 30 percent so far this year. Separated roles and increased transparency would help the market become more trusting of the company, while a share repurchase of Class A stock would help even out the field for all shareholders.

In the end, these suggestions may increase trust and transparency, but new board members and direction will be needed to turn the company around. However, this stock is definitely one worth watching!

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The mortgage meltdown may have taken a lot of casualties, but Goldman Sachs (NYSE:GS) wasn't among them thanks to a timely bet made by the firm's structured-products trading group. The move made Goldman the only major investment bank to side-step losses during the crisis, as competitors Lehman, Bear Stearns and Merrill Lynch continue to suffer.

The trader group's large bet that securities backed by risky home loans would fall in value generated nearly $4 billion in profits this year, according to the Wall Street Journal. Those gains erased the $1.5 to $2 billion of mortgage-related losses elsewhere in the firm and put the firm on track to record record net annual income of more than $11 billion.

There has been some concern, however, over the firm's trading practices. Goldman's proprietary traders are allowed to "find opportunities" for the firm's capital while making a market for client trading - even if the client's are trading the other end. Interestingly, the firm continued to push its CDO sales through even while its own traders were shorting the issues, planning to profit on their demise. Goldman says the two branches are separate divisions and unrelated.

Unfortunately, the credit markets may cause a whole new set of problems for the firm. Many analysts have been downgrading investment banks, including Goldman, even more amid concerns that tight credit markets will limit M&A activity income and put a damper on the credit securities market. How much this affects Goldman remains to be seen, but given the firm's success during the mortgage meltdown, who's to say?

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Motorola Inc. (NYSE:MOT) is likely to face more pressure from billionaire activist Carl Icahn to breakup the company after the announcement that chief executive Ed Zander would be replaced by Greg Brown. Icahn told the Wall Street Journal today that a breakup of Motorola would likely improve the company's long-suffering finances. Shareholders aren't so sure though, with shares declining over a point on the news.

Icahn's focus is on the spin off of Motorola's handset operations - the company's largest division with $39 billion in sales. The billionaire insists that this division is not contributing to Motorola's stock price and undervalued by the market. Moreover, the company's mobile phone market share has been sliding in recent years, which has dragged down Motorola's stock price along with it. The company tried to remedy the situation by selling off several major operations in recent years while making acquisitions, but it hasn't helped.

"The point is that if the handset business was spun off, with over $20 billion in revenue in a growing industry, it is obviously worth a great deal," said Icahn. However, Motorola has resisted such a move for some time and said it remains committed to its current strategy to improve its business and grow it over the long-term. Icahn is betting that a new CEO, however, may be more open to his ideas to unlock shareholder value.

In the end, Icahn is Motorola's third largest shareholder controlling 3.3% of the company's stock. Unfortunately, this is not large enough to force any change but the activist investor is very well known and has a lot of influence. Whether or not he will succeed in his current coup with management remains to be seen, but this stock is definitely one worth watching in the meantime!

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Washington Mutual (NYSE:WM) shares fell again today after the company announced new measures aimed at curbing subprime and credit losses while preserving liquidity. The measures include widespread job cuts, a dividend cut, and more preferred shares to raise capital. Many are now questioning whether the company will be able to pull itself out of the mess with Banc of America Securities cutting its rating to "sell" with a $13 target.

WaMu announced that it would be cutting 3,000 jobs to cut its costs and issue $2.9 billion in convertible preferred stock to boost its capital. Meanwhile, shareholders will only be receiving 15 cents instead of 56 cents per share in dividends as the company works to set aside an additional $1.6 billion to cover loan losses in the fourth quarter. And with no end to the subprime and credit mess in sight, there is no saying whether or not there will be additional writedowns.

Many analysts have suggested that WaMu could lose as much as $2.54 per share in the fourth quarter of this year and $1.01 per share in 2008. Meanwhile, options in the company continue to trade at record volatility as shares come close to hitting their eleven-year lows. The company is hoping that the lack of liquidity in the credit markets will resolve itself soon as there is limited funding to go around to the various banks looking to raise loss provisions.

So, when will this problem end? Well, subprime and credit market concerns are only growing after many are concerned that coordinated efforts by central banks in North America and Europe to relieve the gridlock in the credit markets will fail. This lack of confidence stemmed from record borrowing costs in euros, signaling that the plan by the Federal Reserve and European central banks to inject funds into the financial system wasn't lowering borrowing costs and boosting lending. This is a problem...

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Yum Brands (NYSE:YUM) announced that it would be following McDonald's lead by instituting a broad turnaround effort aimed at improving its margins and sending more money to its bottom line. Shareholders are hoping that the new measures can help keep up the company's historical growth rate, which has returned an impressive 30 percent since 2006. But will the strategy work?

Chief executive David Novak told a group of investors and analysts Wednesday that the restaurant chain would introduce new products, including beverages and breakfast meals, expand its value menus and offer healthier options at all three of its major US brands - KFC, Taco Bell and Pizza Hut. The initiative mirrors that of McDonald's, which experienced great success introducing healthier options, better food and more beverage choices.

Yum Brands also wants to increase its franchise locations by reducing its ownership of restaurants to below 10 percent by 2010. That would represent a substantial drop from the approximately 20 percent that it owns today. The company, like many others, has found that franchise locations have higher margins that owned operations. Combined, the company believes that all of these efforts could generate EPS growth of at least 10 percent in 2008.

"We know this works," said Novak during a meeting with a group of investors. "We're going to build a business we're proud of. We can do a lot better. Frankly, we're mad as hell that we haven't done better."

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The Blackstone Group (NYSE:BX) announced this morning that it has closed the Blackstone Credit Liquidity Partners to new investments after securing more than $1.3 billion in capital. The vulture fund was created to capitalize on the recent dislocations in the credit markets by investing in a broad range of debt and debt-related securities. The move comes amid the mortgage and credit crisis that has crippled the economy of the past few months.

Blackstone said it was considering the purchase of various distressed securities, including bank debt, publicly traded debt securities, bridge financings, securities issued by CDOs and other debt instruments on a global basis. Blackstone has announced plans to do this before and they aren't the only ones - Chimera Investment (NYSE:CIM) also announced its vulture REIT last month, which aims to take advantage of the same opportunities.

Many hedge funds and private equity firms that are well capitalized can take advantage of the situation because they don't have to worry about illiquidity in the short-term. Many of the securities they are purchasing for pennies on the dollar are worth close to face value; however, the firms holding them are losing value so quickly that they cannot afford to own them. As a result, there is a fire sale and many opportunities.

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PDL BioPharma (NDAQ:PDLI) just can't seem to distance itself from the activist crowd. The pharmaceutical company already bent to shareholder pressures earlier this year when it forced its chief executive out of office and agreed to pursue a sale of the company. Now, activists are complaining that the company's financial advisor isn't suited for the job.

Highland Capital Management disclosed a 7 percent stake in the company today and disclosed a letter to the board recommending that the company engage a new financial advisor with substantial experience and competence to maximize the value of the company's pharmaceutical royalties.

"The recent sell down by your most vocal shareholder should not invite the Board of Directors to ignore its fiduciary duty to the company's owners," said Highland, referring to Daniel Loeb's Third Point, which recently sold its entire stake in the company.

Highland believes that Merrill Lynch - the company's current advisor - is not well qualified for the job. The firm said the investment banking firm appears incapable or unwilling to market the royalty stream to all appropriate buyers, which they believe will impair the value of the asset. Highland also provided a list of other firms that should be contacted - including themselves, of course.

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MBIA Inc. (NYSE:MBI) is one of the most popular short sales during the current mortgage crisis, but that may be changing after the company received a $1 billion capital injection from buyout firm Warburg Pincus. The bond insurer is expected to take losses of between $1.97 billion and $3.2 billion from its exposure to home equity lines of credit and second lien loans, while losses from all mortgage-related securities could approach $2.3 billion to $4.2 billion.

Bullish investors were encouraged that an outside party had the chance to comb through the company's books and was willing to make a large common equity investment. However, bearish investors argue that the deal was sweetened with warrants and may not be all that it seems. Moreover, the current numbers may make sense in today's market, but further losses could easily develop as an increasing number of ARM resets hit the market.

The late January reporting period is expected to be an especially rough time period for the company as the sheer size of likely write-downs may surprise the market yet again. This will likely result in spreads widening again a little before any progress is made reining in losses. The company is also likely to pursue additional capital in order to ensure liquidity, which may end up diluting shares at some point.

In the end, the capital injection that took place this week definitely helped MBIA, it is not an end-all solution. The company still faces an uphill battle as an increasing number of ARM resets take place and the credit spreads continue to widen ahead of these steeper losses. Regardless, MBI is definitely a stock worth watching!

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Wachovia Corporation (NYSE:WB) announced today that it would be doubling its expected loan loss provision for the fourth quarter to $1 billion in additional write downs, up from previous estimates of $500 million to $600 million. Difficulties in the California and Florida mortgage markets have caused widespread devaluation in mortgage-backed securities over the past two months.

Bank of America Corporation (NYSE:BAC) also announced an increase in their loan loss provisions, which are now expected to exceed the $3 billion it previously projected. The bank stated that one third of the increase is due to growth and seasoning in their consumer lending portfolios with the remaining two thirds due to deterioration principally in consumer real estate and in some small business.

The mortgage market itself continues to face sharp losses ahead of million of ARM mortgage resets. A fraction of these resets were eliminated due to new government regulations that enable consumers to keep the same introductory interest rates. However, near-prime and prime loans facing similar resets are also likely to have borrowers that will have trouble repaying their loans.

Both banks refused to forecast quarterly earnings, but it is easy to assume that results will again by quite disappointing for both banks. Meanwhile, the final write downs remain uncertain for both banks, but at least Bank of America plans to remain profitable in the fourth quarter. Combined, these factors make BAC and WB stocks worth watching!

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Sharper Image Corporation (NDAQ:SHRP) shares dropped after the company posted wider losses for the third quarter, hurt by a 35 percent drop in sales. The specialty retailer reported a net loss of $1.50 per share compared to analyst estimates of a $1.31 per share loss on sales that actually beat Wall Street expectations of $67.4 million. Shareholders are hoping that one new development, however, will change the trend.

The Clinton Group caught shareholder attention when they disclosed an increased stake, from 157,000 shares to 1.09 million shares, and now controls approximately 7.2% of Sharper Image. The activist hedge fund did not make any specific comments regarding their intentions, but many shareholders are anticipating some kind of action in the near future given the hedge fund's reputation on Wall Street.

Sharper Image still faces an uphill battle, however, with the stock being down 64% so far this year and 82% during the last five years. Moreover, with 31% of its shares shorted, there is a lot of interest in keeping the stock down. However, any significant changes could also force a short squeeze and jump shares of the company in the short-term. Combined, these factors make SHRP a stock worth watching!

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Cadbury Schweppes (NYSE:CSG) shares moved up this week after activist investor Nelson Peltz reported raised his stake in the company from 3.47% to 4.5%, according to a report put out by the company. No official confirmation could be made because Peltz owns less than 5% of the company and is not required to report to the SEC. The move comes amid a split-up that is just now showing signs of success with the company raising its full-year guidance.

Cadbury announced that it would be beating its growth goal of four to six percent; however, analysts were quick to point out that the gains come against a relatively weak quarter last year. Moreover, there are concerns that the company's revenues will be hurt by the currency exchange rate. Remember, the dollar continues to extremely low compared to the euro, which is hurting exports in many European firms.

Cadbury's Americas Beverages unit, which is being spun off, also reported modest year-over-year progress in underlying operating proft. The future of this unit was recently sealed after the firm came under pressure from billionaire investor Nelson Peltz to separate the candy and beverages arms. This split up should unlock substantial value for investors who have dealt with a stagnant share price for some time now.

In the end, this will likely be a great move for the troubled Cadbury, but many feel that it is already reflected in the share price. Investors were encouraged with Peltz increased his holdings, but the stock has since returned to previous levels. Regardless, this is definitely a stock worth watching!

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Royal Philips Electronics (NYSE:PHG) shares jumped today after two activist hedge funds teamed up to confront the company over its results and capital structure. Jana Partners and D.E. Shaw Group announced today that they plan to act together to jointly communicate their views regarding the electronic-maker’s operating performance and capital structure. Shareholders applauded the move as shares rose over four percent on the day.

The move comes after CEO Gerard Kleisterlee sold most of the company’s semiconductor assets and reduced the company’s stake in a flat-panel display venture to focus on medical scanners, appliances and lighting. These actions have provided Philips with around $30 billion in spare cash for purchases, buybacks and dividends over the next three years. Obviously, this has led to speculation that the activists are intent on unlocking this value and distributing the cash to shareholders. However, they may face some problems as Philips has been rather intent on what it plans to do with its cash pile.

The two hedge funds do have a strong track record of success, however, with successes in breaking up or selling ABN Amro – which became the largest bank sale in history after 183 years of independence. In the end, the hedge funds are targeting the cash position while the company likely wants more time to build out its plan. However, given the stagnant shares recently, a success on the part of the hedge funds may be in the cards. Combined, these factors make PHG a stock worth watching!

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Pershing Square Capital Management, the $6 billion activist hedge fund, is reportedly considering a public offering for one of its funds during the next couple of years. Bill Ackman, the famous man behind the fund, said that tapping public markets for funds would give it capacity to make larger investments and have more influence in its activist shareholder campaigns.

The move would follow that of several other hedge funds and private equity firms that have recently gone public. Fortress Investment Group (FIG) and Och-Ziff Capital Management (OZM) are the two most recent such hedge funds that have listed on the New York Stock Exchange; however, shares in both firms have declined since their IPO casting doubt on the viability of public hedge funds.

"The natural evolution at some point is that I believe our fund will be publicly traded," said Ackman, speaking at a New York conference on Wednesday. "It would give us more staying power and credibility with management. If we had permanent capital I think it would be good for investors and good for us."

Many investors have been watching Ackman’s Pershing Square since its successes in McDonalds (MCD) and Ceridian Corp. (CEN) where it won activist campaigns to unlock shareholder value. The famed activist acquired shares in McDonalds at around $28 only to have them rise to their current level around $60 while it has already raked in healthy gains in Ceridian at the same time. Investors are currently watching his long position in Target Corp. (TGT) and his short positions in MBIA Inc. (MBI) and Ambac Financial Group (ABK).

In the end, Bill Ackman is a very successful investor that definitely knows what he is doing. It will be interesting to see if any of his funds end up going public as they could represent great opportunities for investors to latch on to his great success much more easily than following SEC filings. Combined, these factors make Pershing Square a hedge fund worth watching!

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Mac-Gray Corporation (NYSE:TUC) executives may have to fight for their jobs after an activist hedge fund expressed their concerns about the company in a letter to the board of directors. Fairview Capital Investment Management voiced its apprehension over the laundry company’s growth and capital allocation strategies and suggested that it either pursue a high-dividend payout model or a sale in order to unlock shareholder value.

“Ever since its ill-fated attempts to enter other lines of business through the MicroFridge and Copico acquisitions in the late 1990s, Mac-Gray has focused on its core laundry facilities management business,” said Clark & Mathieson of Fairview Capital. “Despite achieving the revenue and EBITDA growth targets needed to earn large bonuses for Management, these investments have not led to improvements in ROIC, ROE, or EPS.”

Fairview Capital encouraged the company to remedy this problem by instituting a high-dividend payout model or pursuing a sale. The first option would entail the company restricting its annual acquisition and capital spending to $25 million and returning excess annual free cash flow of $19 million (or $1.45 per share) to shareholders through a dividend. This would result in an implied valuation of approximately $20 per share. Meanwhile, the second option would generate more immediate value for shareholders that may exceed $20 per share.

“Mac-Gray's current share price of $11.79 is only 7% higher than its 1997 IPO price of $11.00,” said Fairview in its letter to the board. “How much longer must Mac-Gray shareholders endure low returns on their capital and a depressed share price?”

Clearly, Mac-Gray is facing several issues that it cannot solve without a serious change of strategy. A high-dividend payout model would increase its valuation by distributing some of its free cash flow to shareholders while a sale of the company would provide more immediate returns. Whether or not the company decides to take either action remains to be seen, but this is definitely a stock worth watching in the meantime!

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Smith & Wesson (NYSE:SWHC) shares fell 28% today hitting a new 52-week low after the company announced that its gun inventories were building up substantially as lower retail traffic caused a slow-down beginning in October. Many are attributing this slow-down to a drop in the U.S. crime rate, which fell as a percentage of the population from 2001 to 2006. Shareholders are clearly concerned that such trends may hurt the business in the future.

Smith & Wesson reported net product sales of $70.8 million for the quarter - an increase of 39.4% over the comparable quarter last year. Meanwhile, net income came in at $2.9 million, or $0.07 per share, which was $87,000 higher than the comparable quarter last year. The stock dropped on troubling comments that several manufacturers were forced to lower their prices on both long guns and hand guns in response as competition grows more fierce.

In the end, this is bad news for Smith & Wesson as well as other gun manufacturers that rely on a combination of hunting, protection and crime to drive their earnings growth. Combined, these factors make SWHC a stock worth watching!

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Axcan Pharma Inc. (NDAQ:AXCA) shares rose marginally today after 9.95% holder Pennant Capital Management said they were disappointed with the $23.35 per share buyout price by TPG Capital. Shareholders remain divided on the issue, however, given the fact that the M&A market has suffered a dramatic setback since the credit crunch, which has lowered valuations across the board.

"While we support selling the Company, we believe the valuation indicated is inadequate considering the strong cash flows of the business coupled with significant net cash on the balance sheet," said Alan Fournier, managing partner of Pennant. "We believe the company is worth at least $25 per share using a relatively conservative 8x EBITDA multiple which still results in a high single digit FCF yield."

Pennant also questioned the timing of the deal, pointing out that it was announced concurrently with very strong revenue and earnings report that, couple with guidance, likely would have driven a recovery in the stock price. The speculation is that the deal was announced so that the premium looked much more substantial than it would have reacted had they waited until after the earnings report.

In the end, Axcan is a great company that recently reported strong results. The buyout offer may be ill-timed and inadequate, but it does represent something that the company should carefully evaluate. The board should also work to disclose the details of the process and evaluation to allow shareholders to assess the fairness of the transaction. Combined, these factors make AXCA a stock worth watching!

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In a report today, the Mortgage Bankers Association said that delinquencies rose to over 5.5%, making them the highest they have been since 1986. Delinquencies, defined as being more than 30 days behind on mortgage payments, are seen as spelling future trouble for the housing market as many delinquencies turn into foreclosures, and an increase in foreclosures would further depress an already tough market for sellers.

Despite this news, the most prominent mortgage lender is up over 10% on the day. Countrywide Financial Corp. (NYSE: CFC), with a market capitalization of over $6 billion despite losing more than 80% of its value this year, is seen as being a major beneficiary of the recently announced federal plan to freeze the interest rates on some subprime mortgages as well as allow local governments to fund refinancing through tax-exempt bonds.

Both of these announcements are good news for Countrywide because it not only has significant mortgage portfolio holdings, which desperately need strengthening in the wake of rising foreclosures, but is also the major player in the mortgage origination industry and will greatly benefit from an increase in perceived housing market strength.

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United Rentals Inc. (NYSE:URI) shareholders may be in for a ride after SuttonBrook Capital Management disclosed a 5.83 percent stake in the company and announced that they may hold discussions with management, other shareholders or possible acquirers regarding a potential sale of the company. Many shareholders are still looking for an exit after the company's failed merger attempt with RAM Holdings (NDAQ:RAMR).

RAM Holdings and RAM Acquisition, subsidiaries of private equity giant Cerberus Capital Management, backed out of their planned $4 billion acquisition of United Rentals in November. United Rentals subsequently filed a lawsuit to force Cerberus to follow through with the buyout, since the firm gave no justifiable cause for terminating the deal. Cerberus contends, however, that they are only required to pay the $100 million breakup fee without reason.

SuttonBrook announced today that it would be in talks with interested parties regarding a possible merger, reorganization or liquidation of the company, sale of assets, material changes to the company's business structure, or changes in the board of directors, among other considerations. Many shareholders are hoping that other interested parties would be willing to make a bid or the company at or above the price that Cerberus was prepared to pay.

In the end, it is uncertain as to whether or not anything will become of this, but there are certainly many wildcards in play. Combined, these factors make URI a stock that is definitely worth watching over the next few months!

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It should come at no surprise that Fannie Mae (NYSE:FNM) has been loosing money, but just how much remains uncertain. The company's shares plummeted yesterday after it announced that it was cutting its quarterly dividend by 30 percent and raising $7 billion in new preferred securities after a strong reception to its previous offerings. Many investors are hunting for a bottom in this stock that has dropped nearly 50% during the past year.

Fannie Mae also announced today that it was expected to take credit losses of 8 to 10 basis points in 2008, compared to 4 to 6 basis points in 2007. The company said that 60% of its "seriously delinquent" loans have credit enhancement, based on the unpaid principal balance of the loans. The company also took the time to explain that the $7 billion offer yesterday will provide the company with a "capital cushion" over regulatory requirements in a "difficult market" and take advantage of select business growth opportunities.

The mortgage markets themselves remain in serious trouble as a significant number of subprime loans are expected to reset over the next 18 months. Many more near-prime loans are expected to do the same through 2010. It is important to note that all of these resets could cause further defaults, which could increase the number of homes on the market and lower prices. These lower prices then decrease the home equity the people rely on so much in the United States.

In the end, this problem is far from over and Fannie Mae may face further downside before it sees any significant upside. Regardless, this is definitely a stock to watch as once a bottom does it, there will be a great opportunity for profit!

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Websense Inc. (NDAQ:WBSN) shares moved up marginally after the Shamrock Activist Value Fund disclosed a 6.09 percent stake in the company - up from its previous stake of 5.03 percent. The activist hedge fund has made no indications that it would be seeking to unlock value, so many investors are assuming that this may simply be a value play worth watching.

Websense shares are more than 30 percent off of their highs as the company struggles in the tough environment. The web-security software company recently cut its third quarter revenue estimate amid concerns that it would see lower billings for the quarter. The company now expects third quarter revenues to be around $50.4 million compared with its prior view of $51.5 million.

Websense provides web filtering and web security software products that enable organizations to protect employees and confidential information from external web-based attacks, such as spyware and phishing, as well as analyze, report and manage how employees use computing resources and the Internet.

In the end, this continues to be a difficult business environment for Websense, which has been struggling with losses for several years. It will be interesting to see whether Shamrock takes action in its investment, or is simply confident that the company will eventually turn itself around organically. Combined, these factors make WBSN a stock worth watching!

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Atmel Corporation (NDAQ:ATML) shares rose marginally yesterday after Daniel Loeb’s Third Point LLC disclosed a reduced stake in the company. The activist investor disclosed in a regulatory filing that it had sold large blocks of shares between 10/11/07 and 11/30/07 at prices ranging from $5.80 and $4.39. The move will likely mean a loss for Loeb, who had been purchasing shares at around $5.45 a piece.

The integrated circuit manufacturer recently announced in-line earnings of $16.6 million or 4 cents per share, compared to a gain of 3 cents per share a year earlier (excluding a one-time gain of $120 million). This drop, combined with other news, has led to a drop in the company’s stock of around 30% since the beginning of the year. This may have been one issue that led to the activist liquidating its stake in the company – to cover the losses from the position or others in its portfolio.

So, how does the Atmel’s future look? Well, the company’s top and bottom line growth in recent years seems to be slowing considerably. The company currently trades at a negative PE ratio (since it has experienced losses during the past four quarters) but should stand at around 15x earnings based on its historical EPS growth rate. Meanwhile, the company’s market cap of over $2 billion is over 40x its latest quarterly net income, meaning it is extremely overvalued.

In the end, this stock is a poor investment that Daniel Loeb’s Third Point appears to have given up on. In the past, Loeb has taken action to repair his investments and return them to profitability in order to reap healthy profits for his hedge fund. However, in this case it appears that even he is losing faith. Combined, these factors make ATML a stock worth watching!

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Ford Motor Company (NYSE:F) shares moved up marginally after a fall Monday after the company announced the first positive sales trend after 12 straight months of decline. The automaker saw the greatest success from its redesigned Ford Escape, Ford Taurus X, and Mercury Mariner vehicles, which saw sales increase 199% compared with a year ago. Meanwhile, the new hybrid vehicles hit November sales records.

Ford also issued guidance in that was unchanged. In the first quarter of 2008, the company said it plans to produce 685,000 vehicles in North America compared to 740,000 during the first quarter of 2007. Sales for the fourth quarter of 2007, however, are expected to be unchanged from previous plans. This news surprised many industry analysts who had expected the company to announce results in line with other automakers who have been struggling with sales.

Ford also announced yesterday that a judge accepted the company’s deal to settle class action lawsuits on behalf of about 800,000 Ford Explorer owners whose vehicles low value because of their perceived rollover dangers. The settlement involves a payment of a $500 voucher to buy new Explorers or $300 vouchers to buy other Ford vehicles. This lawsuit has been in the works for several years and a settlement of the suit may remove a cloud that has been hovering over the company’s head for some time.

In the end, Ford appears to be on a turnaround track with sales starting to increase and a significant lawsuit under control. Combined, these factors make F a stock worth watching closely!

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Research in Motion (NDAQ:RIMM) may finally be feeling the effects of gravity after the company’s stock dropped another 8% yesterday on profit taking from many investors who are growing uncomfortable over the company’s earnings prospects. The stock made a huge run-up last year that took the stock up over 200%; however, shareholders are now taking some profits off the table as speculation circulates that the momentum may not be sustainable.

The mobile devices network has been in a state of flux since Apple launched its new iPhone and Verizon decided to open up its network to new devices and software. Such open systems may not help the Blackberry given the many new, competing products that have recently come to market. Verizon already markets the Motorola Q and Palm Treo – two of Blackberry’s largest competitors, and there is no way to predict how this may affect RIM.

Meanwhile, Google’s recent decision to provide open wireless device software through its service – codenamed Android – will likely allow competing device manufacturers to insert Blackberry-like features onto their own devices. Clearly, this is a reason for concern for the Blackberry as competition then becomes simply a matter of design instead of software. And finally, we already know that AT&T has been pushing the new Samsung Blackjack, which may end up taking a slice of the pie.

In the end, this new competition may prove to put a strain on Blackberry’s market dominance. Whether or not it will materially affect the company’s stock remains to be seen, but it is certainly a great reason to take some money off the table, which is what many people think is happening right now. Combined, these factors make RIMM a stock worth watching!

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Activist hedge funds have had a rough couple of months recently after several key deals have begun to fall through as the markets have plummeted. The hedge funds, which buy up cheap stock when they believe a catalyst could boost the share price, have seen double digit months for some time now. However, one of the key elements of their success is the ability to unlock value in their investments, often through exploring strategic alternatives. Unfortunately, these alternatives are becoming increasingly rare following the tough credit markets and stark drops in share prices.

The event-driven sector – as it’s known in the hedge fund world – has seen a drop of 4.3% so far this month with many prominent names seeing double digital declines. In fact, JP Morgan’s Highbridge Fund is down 12.7% in just the first two weeks of this month! However, others such as Atticus remain strong so far this year as they diversify their bets away from ailing industries. The prevailing favorite stocks amongst these players are value stocks – the same sector that is often hurt in markets like these.

Interestingly, many investment professionals are bullish on these same players as they begin to unwind their positions. The next big move will be towards the many distressed investment opportunities out there, and once the focus is placed on these sectors the portfolios will look very different than they do now. The current positions that are hurting are predominantly searches for private equity buyout targets – a strategy that has paid off handsomely during the past few months.

In the end, we are likely to see a different kind of return for these event-driven activist hedge funds. Rather than predicting and pushing for buyouts, these funds are more likely to begin seeking distressed investments that they can unlock value within and bring back to fair market price. These are still opportunities worth watching; however, they may now be more geared towards the long-term.

Newmont Mining Corporation (NYSE:NEM), the world’s second biggest gold producer, announced this weekend that it would be selling its royalty interests to Franco-Nevada Corp – one of its subsidiaries that it plans to spin off. The sale of the interests and other “non-core” investments is expected to net $950 million that it plans to use to fund the development of its mining business.

“We remain focused on our core gold operations and intend to reinvest the proceeds to increase gold price leverage for our shareholders,” said CEO Richard O’Brien. “We are extremely pleased with the outcome.” The proceeds should allow the company to expand its existing mines and make acquisitions to replace depleted reserves and boost production.

Newmont already has active mines in Nevada, Indonesia, Australia/New Zealand, Ghana and Peru. The company reported net income of $397 million, or 88 cents per share, during the last fiscal quarter. Meanwhile, the company’s consolidated gold sales slipped to 1.614 thousand ounces from 1.698 thousand ounces during the prior year’s quarter. Equity gold sales were also down as the average gold price quarter over quarter rose from $611 per ounce to $681 per ounce.

Many shareholders are looking at the new spin off, however, as the key investment opportunity. Spin offs tend to outperform the overall market during the first two years as a public entity. This is due to several reasons and is very well documented by researchers that have studied the phenomena. In fact, the research behind this is so solid that an ETF has been created to take advantage of this deal (CSD). In the end, both of these developments make NEM a stock worth watching!

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Wendy’s International (NYSE:WEN) shareholders are in for another surprise after Citigroup and Merrill Lynch have reportedly withdrawn their funding for Nelson Peltz’s bid for the company. Meanwhile, JP Morgan and Lehman Brothers have also supposedly declined to offer bidders staple financing on the transaction. The activist investor will still have funding from Deutsche Bank and Royal Bank; however, increased trouble among the banking sector may prompt those two banks to withdraw their support as well.

There has been a lot of speculation that the Wendy’s bid would end unsuccessfully anyway. The auction for the burger chain ran into trouble earlier this year after it failed to attract any meaningful bids. However, Nelson Peltz’s Triarc Cos made an unexpectedly low offer for the company at the bottom of its $37 to $41 per share range that it suggested the company is worth. Currently, Wendy’s shares are trading at just $28 each, however, making the offer somewhat attractive at this point.

So, what does this all mean for Wendy’s shareholders? Well, troubles among the large investment banks may have caused some problems, but there appears to be at least a few other banks that may be interested in offering additional financing if necessary. In fact, sources told Reuters that there are several other banks that are available to fill the gap. Overall, it appears that the bid may remain in tact as the auction process continues to wind down. This makes WEN a stock worth watching!

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The idea of $100 per barrel oil may not seem so crazy following actions this weekend by Venezuelan leader Hugo Chavez. The leader believes that the CIA or some other branch of the USA is attempting to influence elections in his country in order to turn popular opinion of him, which is already weighed. Consequently, he noted in a letter that he is prepared to cut the supply of oil to America if he finds evidence to support his claims – evidence which may not have to be real.

Venezuela currently provides the USA with approximately 1.3 million barrels of oil and other petroleum products per day and any cut in this number could significantly jump oil prices. Those that believe he would not take such action believe that it would hurt his economy too much to do so as many social programs he has in place depend on the country’s rich oil revenues. However, many others believe that the leader may just be crazy enough to pull it off – at least for a short time.

Let’s put this into prospective. Last week, there was an explosion on a pipeline connecting Canada’s oil with the United States that jumped oil over $4 despite the fact that it could be repaired in a matter of days. The idea of 1.3 million barrels going missing for an undefined period of time could make a substantially larger impact on the price and potentially bring it past $100 a barrel if not much higher.

So, how likely is this cut? Well, Hugo Chavez recently proposed a series of changes to his country’s constitution that would essentially convert the country into a totalitarian state from a democracy. Much of his public support stems from social programs that are highly dependent on oil revenues to sustain. So, many argue that any cut in this funding – even if for a short time – would harm the income from these operations. Meanwhile, others insist that he could turn this around and blame the United States for any economic damages that came as a result.

In the end, we know that Hugo Chavez is probably crazy enough to make such a cut but it would come at a steep cost and be somewhat risky. This means that the cut would probably not last for long. Regardless, the inevitable rise in oil prices may be of great concern for investors who are already worried about cuts in consumer spending and the economy as a whole. Combined, these factors make the political situation in Venezuela worth watching!

Activision Inc. (NDAQ:ATVI) announced this weekend that it would merge with Vivendi Games to create the world’s largest pure-play online and console game developer valued at almost $19 billion. The deal Vivendi purchasing 62.9 million newly issued shares of Activision at $27.50 per share, giving Vivendi a 52% stake in the new company to be called Activision Blizzard. Once the transaction closes in the first half of 2008, Activision Blizzard will launch a $4 billion all-cash tender offer to purchase the remaining shares at $27.50 – a 24% premium to the company’s closing price on Friday.

Activision Blizzard is expected to have approximately $3.8 billion in pro-forma combined 2007 revenues and the highest operating margins of any major third-party video game publisher. The new franchises under this name would include World of Warcraft, Guitar Hero, Call of Duty, Tony Hawk, Spider-Man, X-Men, James Bond, Crash Bandicoot and the TRANSFORMERS line. Many investors are bullish on this pure-play saying that growth will only continue to grow as online gaming and consoles become increasingly popular – especially after the Christmas season.

So, is this good news for shareholders. Well, the deal comes in at a 24% premium to Activision’s closing price, which some may see as lacking given the strong performance of the company. Meanwhile, the new company will remain a non-public entity which means shareholders will not be able to capitalize on the synergies and pure-play nature (at least in the United States). Regardless, this situation is definitely one worth watching as it is a combination of two major industry players into one of the best pure-plays.

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The Brink’s Company (NYSE:BCO) is starting to feel the heat from activist shareholders seeking to unlock value in their investment. MMI Investments and Pirate Capital are two such high-profile hedge funds that have built up a substantial stake in the company. Many shareholders and investors are closely watching this situation as it could leave a lot of room for share appreciation.

MMI Investments, which holds 8.4% of the company’s stock, announced late last week that it intends to nominate four directors to the company’s board during its 2008 annual meeting. The nominees include John Dyson, Peter Michel, Robert Strang, Carroll and Wetzel. If elected the directors would take actions to ensure that the company acts in the best interest of shareholders to unlock value in whatever ways are possible.

“We are not seeking control of the board,” said Portfolio Manager Clay Lifflander. “We simply believe that the board as currently composed has demonstrated that it lacks the security industry prospective, strategic alternatives acumen and stockholder representation necessary to protect and maximize the value of Brink’s stockholders’ investment.”

The move follows similar actions taken by another famous activist hedge fund that demanded that the company immediately put itself up for sale back in 2006. Pirate Capital said shares of Brink’s could be worth $68 to $72 per share in the event of a sale or split-up. The hedge fund believes that a sale would attract substantial interest from other companies in the security sector that could use the acquisition to bolster their market share. However, a more difficult M&A market has put the breaks on such a deal.

Combined, these two activist hedge funds control almost 20% of the company, which should give them substantial room to get directors elected and make improvements to unlock shareholder value. If these directors are elected at the next annual meeting, we can expect the company to take some actions to return cash to shareholders and perhaps pursue some strategic alternatives. Combined, these factors make BCO a stock worth watching!

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