New research data shows that online advertising is beginning to run out of steam at what could become a turning point for the industry. Many analysts have been concerned that such trends would continue as the industry began to mature, but the decline in consumer spending could expedite the process as fewer consumers click on ads while more publishers are looking to fill ad inventory. The big question is whether or not this trend will be permanent.

Citigroup's Mark Mahaney is one such concerned analyst and reduced his price target on Google Inc. (NDAQ: GOOG) this morning amid concern that there is deterioration on paid click growth. The reason? ComScore, which measures online trends, released its January 2008 qSearch paid click report that showed a 7 percent sequential decline versus December 2007 and a flat annual growth in paid clicks for Google. More, the number of paid clicks per Google search query declined by 8 percent. This is clearly bad news for intermediaries like Google that rely on transaction volume to drive revenues.

Meanwhile, a recent report put out by the Newspaper Association of America showed that publishers are being hit equally hard - especially newspapers advertising online. The report showed that such advertising had slowed down from a 30 percent growth rate during the past three years to just 18 percent now. Unfortunately, the move downward comes at a critical time for newspapers that are under pressure to increase their online revenues as subscription and print advertising numbers decline.

The trend is a disturbing one that could last some time. Consumers that have no money are less likely to click on advertisers and spend money. This means that advertisers are going to pay less per click or banner impression. Given that the supply of publishers is unchanged, this means that there is a lot of inventory with few buyers. Unfortunately, this spells lower payouts for publishers like newspapers and less money for intermediaries like Google. It could end when the consumer situation recovers, but whether or not it will see the 30 percent a year remains to be seen.

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Ansys Inc. (NDAQ: ANSS) announced today that it agreed to buy Ansoft Corporation (NDAQ: ANST) for $832 million in the form of both cash and stock.

The deal will put both simulation-software companies under one roof while giving Ansys access to Ansoft’s valuable electronic-design automation software – software “used to simulate high-performance electronics designs found in mobile communication and internet devices, broadband networking components and systems, integrated circuits, printed circuit boards and electromechanical systems” according to the press release on the deal.

Under the terms, Ansoft shareholders get $16.25 in cash and 0.431882 share of Ansys stock for each share of Ansoft they currently own – which values Ansoft at a 39% premium to Friday’s closing price.

Ansys will fund the deal by issuing 11.1 million shares of new stock and using $346 million of a credit line with Bank of America (NYSE: BAC). In other words, this acquisition is funded by diluting current shareholders and debt.

Ansys President and CEO James E. Cashman III said, "Both companies have a strong commitment to their customers and employees, and share a passion for the development of innovative products and services and a history of world-class execution. This combination will further strengthen these values and will allow us to better serve our customers by accelerating the delivery of comprehensive, customer-driven engineering simulation solutions and by enabling us to provide high quality support throughout the world.”

Though the deal may better serve customers, in the short-term Ansys expects the deal will only “modestly” help earnings per share but raise revenues to nearly $500 million annually. Only time will tell how Ansys balance the advantages of this acquisition with the dilution and debt that are making it possible.

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The newspaper industry is making the news, but not in a good way. The Newspaper Association of America reported that ad revenues in the industry have fallen by 9.5 percent in the biggest drop in any year since 1950. The decline comes at the heels of an economic slowdown and an increase in online advertising that together have put a damper on the fourth quarter - a peak period for ad sales.

The nation's largest newspaper company, Gannett Company (NYSE: GCI), was one of those hardest hit with a 7.2 percent drop in revenues. The numbers reflect a growing trend in the daily newspaper industry, as more readers flock to the Internet for news. This has led to a decrease in circulation and revenues in print publications around the country that has sent many newspaper companies to 52-week lows.

Many newspapers have relied on their online news services to at least partially offset losses in their print division. These online newspapers have seen revenue growth of 30 percent over the past three years, but the economic slowdown dropped this rate of just 18.8 percent during the fourth quarter. Meanwhile, online advertising revenues for newspapers still only account for around 7.5 percent of total revenues.

One of the solutions to this problem is being offered by Yahoo Inc. (NDAQ: YHOO) of all companies. The search giant plans to roll out a new set of online ad tools for 600+ newspapers that have joined its consortium. Reports have indicated that Yahoo has some 572 people working full-time on the project that could help newspapers successfully syndicate and monetize their content online to offset declining print revenues.

The Yahoo newspaper consortium was formed in November of 2006 and initially involved a combination of its HotJobs help-wanted site with local newspapers. Many saw great success with this program and are looking forward to the company's next beta testing of a platform that will help publishers target behaviorally and geographically across its growing network of newspaper sites. Few details of the new program have been leaked, but newspaper executives are uniformly impressed.

This potential for online advertising in the newspaper industry has prompted some investors to push for a separation of online and print publications via a spin-off of the online divisions. The theory as that this would allow investors to assign a higher multiple to the online segment and allow investors to unlock value. Unfortunately, this would leave the print publication to die a slow death or survive on razor-thin margins.

In the end, the newspaper industry continues to struggle with both an economic decline as well as a move from print advertising to online advertising. The solution to this problem is to embrace online advertising and Yahoo may be the answer for the industry. Meanwhile, many investors are insisting on a series of spin-offs to unlock value for shareholders and enable the online segments to growth.

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Citigroup Inc. (NYSE: C) investors are looking for change and new chief executive Vikram Pandit is ready to act. The bank announced a broad restructuring move after the banking giant loss half of its market value in six months thanks to the sub-prime crisis. The new additions to the larger restructuring plan involve breaking up the consumer banking group into regional divisions and separating its credit card division.

The consumer banking business saw a 35 percent decline in profits last quarter due to consumer mortgage defaults and credit concerns. The performance of the division is important as it accounts for nearly 70 percent of Citigroup's revenues. Previously, the unit was ran by two people but now it will have five bosses as new blood is brought in to change things up.

The move to split the consumer banking business comes amid a larger restructuring that has taken Vikram Pandit across the world slashing more than 6,000 jobs. The executive also worked to reduce loans and securities on the company's books in order to shrink its balance sheet and reduce risk. This is a huge move given that the company's balance sheet is the largest in the world with over $2.2 trillion of assets.

Shareholders remain divided on whether or not the Citigroup will be able to pull itself out of this mess. Some see this new management shake-up as irrelevant. After all, changing who reports to whom makes very little difference after the fact when everyone knows where the problems lie. Others like Oppenheimer analyst Meredith Whitney are predicting steeper additional write-downs for the troubled firm.

In the end, Vikram Pandit must work to prove to shareholders that he can enforce change. He may have worked to make the organization much leaner, but it will take more than that to solve its problems. In particular, it will need to work to setup better risk control measures as well as work to reduce the amount of bad assets on its balance sheet to limit further losses. Whether or not this can be accomplished in the near term remains to be seen.

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As reported here Wednesday, Take-Two Interactive Software's (NDAQ: TTWO) board rejected Electronic Art's (NDAQ: ERTS) most recent buyout offer, saying that it was not in the best interest of shareholders. Instead, the company also confirmed that it would explore strategic alternatives to maximize shareholder value in other ways that could deliver a higher value than the current $2 billion EA offer.

In a strange move today, however, EA extended its $2 billion, or $26 per share, offer by a week while adding that a “poison pill” provision adopted this week by Take-Two be canceled or at least not apply to its current takeover attempt. A poison pill is a mechanism whereby new shares are issued in the face of a hostile takeover, thus raising the price of a takeover or making a takeover simply unfeasible.

EA's announcement is odd because it is acting as if Take-Two was pursuing it, not the other way around. "The actions of the Take-Two board may increase the risk for their stockholders by delaying a potential transaction," EA's Senior VP of Corporate Development Owen Mahoney said in a statement. "We continue to believe that our $26 per share offer price is full and fair, and that a transaction between Take-Two and EA is the most compelling combination financially, strategically and operationally for all parties."

EA's offer was set to expire on April 11, but now will remain on the table until April 18. Even so, Take-Two has continually said the price is too low, especially with a new release of its immensely popular “Grand Theft Auto” game coming up.

Take-Two Chairman Strauss Zelnick said the poison pill provision was instituted to "ensure that the Take-Two board has adequate time to consider all strategic alternatives for maximizing value for Take-Two stockholders. The agreement will not, and is not intended to, prevent a takeover of the company on terms that are fair to and in the best interests of all stockholders." In other words: EA's offer is too low, so we are going to do everything in our power to kill it or drive the price up.

Today's announcement by EA really is nothing more than a PR ploy that does nothing to change the likelihood of a deal at the current $2 billion price. The announcement is good news from the perspective of a Take-Two shareholder because it is clear EA has continued interest in the deal, and if EA really wants to get a deal done it is going to have to be at a price above $26 per share.

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Captaris, Inc. (NDAQ: CAPA) may be able to efficiently manage business data, but a strategic review of its own company is another story. Private equity firm Vector Capital offered to acquire the software company for $4.75 per share just last week, but the deal fell through after the company failed to take any decisive action. Now many shareholders are left wondering whether any deal will be done at all.

The news of Vector's offer came just a day after Captaris announced that it received unsolicited inquires from multiple parties about a possible transaction. The company then worked to establish a special committee of independent directors to evaluate strategic alternatives. It also hired RBC Capital markets as its financial advisor to help explore its options.

The problem came when the Captaris refused to accept a generous offer from Vector. The private equity fund was willing to sign an acquisition agreement that would allow the company to continue shopping for other higher bids while reimbursing them up to a million dollars for any legal expenses. Since many auction processes fail, this would provide investors for a fail-safe premium.

Unfortunately, Captaris rejected the offer for some reason. Vector immediately came out saying that it was "extremely disappointed" by the company's refusal to engage in meaningful discussions over their offer. This is especially true since many other large investors, including hedge fund Emancipation Capital, came out in support of the generous acquisition agreement.

"Our offer represents immediate and certain value, does not preclude the continuation of [the company's] exploration of other strategic alternatives, and thus would clearly be in the best interests of all Captaris shareholders," Vector said.

Emancipation Capital supported this notion and urged the company to move forward in signing the acquisition agreement. The hedge fund noted that by entering into the agreement, shareholders are assured of a price premium and have a reasonable shot at a higher offer without the risk of a failed auction. It also suggested that the company seek a higher price from Vector as a condition of the agreement as well as a lengthened go-shop timeline.

Captaris responded blandly yesterday by encouraging Vector to participate in its process of reviewing strategic alternatives on a fair and equal basis with other potential bidders. It also noted that it would evaluate any offer from Vector "on an equal footing with proposals from other interested parties." Today, Vector announced that Captaris has gone ahead and rejected the bid.

The move has many shareholders wondering just what happened. The only justification could be a substantially higher offer in the works by another party interested in acquiring the company. But then, why would it refuse entering into what would essentially be a standby offer? And why wouldn't it seek a higher bid instead of simply rejecting the offer? These are all questions that many shareholders are now looking to have answered.

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Motorola Inc. (NYSE: MOT) may have agreed to Carl Icahn's proposed spin-off, but they are not out of the woods yet. The billionaire activist investor sent another letter to the board (via a Schedule 13D/A filing) earlier this week bringing up several concerns about the speed and manner in which a new management team is selected for the mobile devices division. He also questioned why the transaction will take so long and why it took the threat of a proxy fight to take action. Icahn believes that many of these problems could be solved if the board were to install one of his candidates.

Carl Icahn has faced some criticism for not dropping his proxy fight against the company despite the spin-off agreement. The board said in a conference call that they proposed two new board nominees to him, but he declined to accept them and pressed on with the campaign. However, Icahn insists that this is only half true:

"It is true that Sandy Warner, head of the Nominating Committee called me and offered seats to two of my Nominees if I would drop the proxy fight. However, you failed to mention in your conference call that I told Mr. Warner that I would gladly accept this offer if the Board would also accept Keith Meister. Mr. Warner replied summarily to this offer that Meister did not “qualify.” I asked Mr. Warner what does one have to do to qualify — lose $37 billion dollars? Mr. Warner then replied that the Board did not “know” Meister. My answer was that Meister would fly anywhere at any time to meet the Board so they could “know” him (I did mention that the situation at Motorola is too serious for the Board to remain a country club). My offer to Motorola stills stands ... having a highly intelligent, energetic individual like Keith, who has 145 million reasons to spend his time working toward the spin-off being accomplished, may well make [the promise of a spin-off] come true in a timely fashion."

Carl Ican also argued that his request for more information about what steps the board actually took to correct the problem was well justified:

"You have stated to the press that our request for information about what steps the Board actually took to correct the problem at Motorola is an unnecessary distraction. We disagree. In a political election when constituents believe their representatives’ performance was inadequate, they are certainly not denied information as to whether their representative acted in a grossly negligent fashion. Why should it be different in Corporate America?"

In the end, a proxy fight is something that nobody needs as it is costly and time consuming. All Icahn wants is Keith Meister to be installed on the board and he would be willing to drop the proxy contest. This move is necessary to help ensure that a successful spin-off takes place that it will successfully unlock value for shareholders.

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Bear Stearns (NYSE: BSC) shareholders hoping for a higher offer from J.P. Morgan (NYSE: JPM) might as well call it quits now. Chairman James Cayne sold his entire 5.66 million share stake at $10.84/share for a paltry $61.3 million just weeks after it was worth nearly $380 million. Despite the news, shares rallied to $11.23 before falling after hours to $10.70, which is still above the planned $10.00 per share offer.

A letter filed with the SEC also revealed several other provisions that put the proverbial nail in the coffin. Among them, a provision saying that enables the company to bypass shareholder approval because securing such approval would "seriously jeopardize" the financial viability of the company. Essentially the company is saying that the owners are not responsible enough to make a decision about the future of their own company.

Shares have been trading up recently on speculation that the unhappy James Cayne would try and assemble a competitive offer with billionaire financier Joseph Lewis - the company's second largest shareholder. However, any deal of that sort seems unlikely unless it was Joseph Lewis who received his shares in a private transaction. This possibility seems to be the only thing left keeping shares above the buyout price.

Traders remain divided on the idea of a higher bid. One camp argues that J.P. Morgan's large stake would make it nearly impossible for another bidder to successfully emerge. The other contends that the equity portion of the deal pales in comparison to the assumed debt, which means that a higher offer is entirely possible (as we've already seen with the $2 to $10 jump). However, in the end, the fact that the company has agreed to the $10 offer along with J.P. Morgan's large stake all but seals the deal for this one.

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American Express Co. (NYSE: AXP) announced today that it has agreed to purchase GE Money's Corporate Payment Services (CPS) from parent General Electric Co. (NYSE: GE) for $1.1 billion. CPS provides purchasing services and cards to large corporations.

American Express said in a press release that “today’s agreement is part of an ongoing strategy to focus on the payments sector” and that the acquisition is lucrative given that “Corporate Payment Services generated over $14 billion in 2007 global purchase volume and maintained $1.1 billion in receivables at year end 2007. Its billed business has grown at a compounded rate of 18% over the last five years.”
 
Interestingly, GE is CPS’s largest client, so the terms of the deal require GE to remain a client of American Express after the sale for a set number of years.

President of American Express’s Global Commercial Card & Services Anré Williams said in the press release that, “Corporate Payment Services is a terrific business with strong leadership and talented employees who have been generating impressive growth through a combination of excellent customer service and cutting edge technological innovation. Expanding our corporate purchasing and expense management services is a top priority for American Express. Acquiring Corporate Payment Services adds to our purchasing card capabilities and gives us the opportunity to accelerate our growth. In addition, Corporate Payment Services also has excellent credit metrics and a premium client base.”

When referring to credit metrics, CPS has an advantage compared to other forms of credit because accounts are usually paid-in-full at the close of each month because charges are typically travel expenses for employees of large companies. The deal also includes GE’s vPayment technology, a fraud detector technology.

American Express, not surprisingly, expects an immediate boost to revenue from the purchase – but earnings per share growth from the deal will not be seen for a few years. Overall, the deal makes sense for American Express but it is not something to get overly excited over. American Express shares are up slightly on the news while GE shares are down slightly.

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Citi Trends, Inc. (NDAQ: CTRN) hasn't had much of a trend the last few years as it has swung widely from profits to losses and back. However, the company is hoping to change that in 2008 with a series of changes designed to stabilize its earnings and unlock value for shareholders.

Citi announced a decrease in its earnings for 2007 as its earnings came in at $0.59 in the fourth quarter compared to $0.73 during the same time last year. The decline came as a result of negative same-store sales and a related need to increase clearance markdowns along with the inclusion of an extra week in 2006. Net income also took a hit as the company's profits dropped from $21.4 million in Q4 2006 to only $14.2 million in Q4 2007.

Sales increased 6.2% from $126.8 million to $134.6 million, but this can likely be attributed to the increase in clearance markdowns. Citi effectively sold more products at a discount, which boosted its sales at the expense of its net income and profit margin. Meanwhile, the 1% growth in same-stores sales suggests that the majority of any growth that did occur was at new stores - an unsustainable paradigm.

The sunny side of the story - and cause for today's celebration - was Citi's positive outlook. The company estimated 2008 earnings in the range of $1.10 to $1.15 per share, which crushed analyst estimates of only $1.00 per share. The strong guidance is based on estimated same-store sales growth of 2% to 3% due to a planned 15% increase in selling square footage. Same-store sales are an important measure for retailers since it measures revenue at existing stores rather than newly opened ones.

Some analysts are skeptical that Citi can pull off the gains, saying that the company has a history of unpredictable swings. As a result, many retained their ratings on the stock until the company could "prove" that it was able to make meaningful changes. Investors seem to be a different story, however, as the stock swung up some 25% on the news of a possible turnaround in 2008. Which side is right remains to be seen...

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ConAgra Foods, Inc. (NYSE: CAG) gave shareholders something to chew on today after announcing spectacular earnings along with a sale of its cash cow trading unit.

The company announced much higher-than-expected quarterly profits thanks to strong performance in its food and ingredients segment along with its extremely profitable trading unit that made a ton of money predicting the rise in food and energy prices. These helped to offset falling profit at the company's larger consumer foods unit, which has been hurt by soaring commodity costs.

The trading units at companies like ConAgra have been performing extremely well in today's economy. The lower U.S. dollar combined with higher demand abroad has sparked a long-lived rally in the commodity markets. The profits made on these hedges were so large that ConAgra's own trading unit was able to make 38% more money than its food and ingredients division by booking only half the revenues!

However, ConAgra recently agreed to sell its trading unit to Ospraie Management for an estimated $2.3 billion, including $1.6 billion in cash, $525 million in debt securities, and a portion of the unit's earnings for the remainder of the calendar year. The company wanted to exit the business to focus more on its core strategic food platforms and felt the time was right given the boom in commodities.

The divesture will also mean lower and more predictable working capital requirements in the future, since commodities trading can be a somewhat volatile game. The commodity markets can change rapidly and directly affect the cost of raw materials for the company. The divesture of this business will result in more consistent operating cash flows over time and much easier sleep for shareholders.

ConAgra announced that it would use the proceeds of this sale to fund share repurchases, which should help boost the company's stock price. Share buybacks reduce the number of outstanding shares while earnings remain the same, which causes the earnings per share number to increase. This higher earnings per share number means that the share price must go up if the price-earnings multiple is to remain the same.

ConAgra also sees good times ahead. The company boosted its fiscal year forecast for earnings from continued operates to $1.80 to $1.85 a share from $1.55 with fiscal 2009 earnings still slated at a minimum of $1.55 a share. This compares to analyst estimates of $1.60 and $1.61 a shares, respectively. Executives also said that they expect future annual earnings growth of 8% to 10% on 4% sales growth.

In the end, this is all good news for shareholders who stand to exit the commodities boom at just the right time and see the money spent on a program to unlock value. Meanwhile, the company is continuing to back a strong forecast despite some increased competition from private label brands. What more could an investor ask for?

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Oracle Corporation (NDAQ: ORCL) is seen by many as a barometer for the technology sector and its most recent earnings suggests that a slowdown may be on the horizon. The tech giant reported a 30% jump in profits and a 21% jump in revenues, but sparked concern among investors that its many acquisitions hadn't insulated it from the larger economic crisis facing the United States.

Oracle's revenue projections in particular is what failed to impress the street and ignited concerns about a technology spending cuts. The revenue slowdown can be traced back to a reduction in the number of new licenses for software, which grew only 16% when its projected range was 15% to 25%. This is a closely watched indicator since it shows how much companies are spending to buy new software rather than simply just pay to maintain old software.

Narrowing it down even further, Oracle's weakest spot was the 7% growth in sales of new license for business applications. These are programs used by accounting and human resources divisions when companies embark on new projects or expand their businesses. The slowdown in this particular area told many investors that companies were being a lot more conservative with their money and may cut technology spending.

Many investors had hoped that Oracle's string of acquisitions would insulate the company from any major slowdown, since they brought in many new customers. The moves also diversified the firm to such an extent that just 13% of its revenues came from the troubled financial sector. However, the fact that these acquisitions still did nothing to curb the slowdown is what caused the major reaction in Oracle's stock today.

Oracle also caused ripples across the larger technology sector. The move also comes after networking company Cisco Systems (NDAQ: CSCO) posted its results that suggested a potentially weaker year for corporate technology spending. And with companies like Intel Corporation (NDAQ: INTC) and IBM (NYSE: IBM) reporting earnings within the next week, the sector is on edge with concerns of a slowdown.

In the end, Oracle is the latest in a series of bearish announcements in the tech sector suggesting that spending will begin to slowdown. Investors are slowly realizing that even technology may not be immune to the problems in the financial sector despite a lack of direct exposure. Bad news all around.

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Motorola, Inc. (NYSE: MOT) announced today that after an extensive analysis of its businesses that it will split into two distinct companies by spinning off its mobile phone unit.
 
Motorola, best known by consumers for its Razr phone, has been under significant pressure from activist Carl Icahn who has been pressuring the company to take action on its unprofitable cellular phone division. Motorola’s cell phone production had nearly $19 billion in sales in 2007 – which was a significant fall from 2006 but still made it the largest division in the company. Motorola’s communication equipment and “set-top box” unit are the actual profit drivers of the company.
 
The company plans to achieve the split by next year through “a tax-free distribution to [its] shareholders.”
 
In a press release, Motorola CEO Greg Brown said:
 
"Our decision to separate our Mobile Devices and Broadband & Mobility Solutions businesses follows a review process undertaken by our management team and Board of Directors, together with independent advisors. Creating two industry-leading companies will provide improved flexibility, more tailored capital structures, and increased management focus - as well as more targeted investment opportunities for our shareholders."
 
The real question is whether Motorola’s cell phone business is an “industry-leading” company. Despite the success of the Razr, cell phones have become a cut-throat business with razor-thin margins – no pun intended.
 
Regardless of how things play-out, it appears like Carl Icahn has scored another victory. Last year, Icahn basically forced then CEO Edward Zander from the company. Now, it appears as if Motorola, through the split, will become more aggressive about making its cell phone division profitable.
 
This saga probably isn’t near complete yet as Icahn will almost certainly be vocal about the exact manner of the split and the management choices for each new entity which definitely makes Motorola a stock worth watching.
 
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WiMax has been the talk of the technology sector for a long time as the promise of a nationwide high-speed wireless network has many druling at the mouth. The companies behind the project are just as excited as the new network would provide them with licensing opportunities that could make them billions of dollars in the future. The only thing standing in the way is a $3 billion bill that needs to be paid to roll out the initiative. Luckily, cable companies are beginning to step in as the new backers.

The WiMax initiative began as a cooperation between Sprint Nextel Corporation (NYSE: S) and Clearwire Corporation (NDAQ: CLWR) to create a nationwide wireless network using WiMax technology. The network is designed to provide high-speed web access from laptops, cellphones and other mobile devices as well as high-quality mobile video. The two were forced to explore other financing options after Sprint shareholders were unwilling to fully fund the venture, calling it excessively risky and expensive.

Cable companies have now stepped in to fill the void by taking partial ownership in the new venture. Comcast Corporation (NDAQ: CMCSA), the nation's largest cable operator, agreed to contribute as much as $1 billion into the venture alongside rival Time Warner Cable (NYSE: TWC) who would add $500 million. Bright House Networks, the sixth largest cable operator, would also contribute between $100 million and $200 million, according to the WSJ.

Other potential investors include Intel Corporation (NDAQ: INTC) - who could contribute up to a billion dollars - and Google Inc. (NDAQ: GOOG) who may provide hundreds of millions of dollars. However, it is still possible that the entire deal could fall through if all these parties do not agree and the partnership is unable to raise the $3 billion that it needs to make the project happen.

The deal also has widespread implications for shareholders of all the companies. Sprint's shareholders have been the most vocal against the deal after the company told Wall Street that it expects the venture to cost $5 billion by 2010. This prompted many to propose that the initiative be spun off and funded by someone else entirely. Meanwhile, a move by cable companies into the fray would escalate the rivalries by throwing them into a whole new arena.

In the end, the WiMax initiative looks very promising for consumers and like a great future investment for the companies involved, but it comes at a great cost in the near term. This is a cost that many Sprint shareholders believe is too high while many other companies may not be willing to put forth as much capital as the partnership would like to see. Regardless, this is definitely a situation worth watching closely.

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Clear Channel Communications (NYSE: CCU) shareholders are hearing a little static on the rumor airwaves and fleeing towards the nearest exit. Shares plummeted today after private equity firms and banks backing the $19 billion privatization of the nation's largest radio broadcaster failed to resolve their differences over final financing terms. Shareholders now have almost no confidence in the deal, which was slated to take place at $39.20. Instead, many analysts are now predicting shares to fall into the $20s.

The banks financing the deal were unable to create a credit agreement that satisfied all sides of the transaction. In particular, banks are concerned that if they lend the $22 billion needed to fund the deal, they would need to immediately write down the value of the loans as soon as the deal closes and book the losses. Since such debt has been typically marked down by 15%, this would equate to a $2.7 billion loss the moment the deal closes.  

Those involved insisted that there was still a chance that the deal could be salvaged, but the consensus remains that the deal looks unlikely to consummate. The bright side is that Clear Channel could then sue the private equity firms for breach of contract if the deal falls apart since it was not contingent on securing financing. This would help recoup some money, but do very little in the long run.

Clear Channel's business has also significantly deteriorated since the deal was first struck in November 2006. Bad news has been steadily rolling in since the buyout price was raised in the first quarter of 2007. Growth in its radio operations began to slow and then shrink as the firm's downward spiral became clear. Unfortunately for the buyers, the deal was already approved by shareholders so nothing could be done. Now, this burden may be shifted back to the shareholders.

In the end, a failed Clear Channel buyout would be the latest casualty in a series of high-profile busts since the credit market began to deteriorate. The banks and private equity firms at this point are likely still in the negotiations only to protect themselves from litigation by saying they put forth a noble effort. However, the potential losses from being sued for breach of contract still give shareholders some hope that a deal could take place. If not, shareholders could easily see their stock back in the $20s.

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Take-Two Interactive Software's (NDAQ: TTWO) board rejected Electronic Art's (NDAQ: ERTS) most recent buyout offer, saying that it was not in the best interest of shareholders. Instead, the company also confirmed that it would explore strategic alternatives to maximize shareholder value in other ways that could deliver a higher value than the current EA offer. So, what is the best move for shareholders at this point?

Electronic Arts, the world's largest video-game publisher, offered to purchase Take-Two for $2 billion in a hostile bid after management refused to negotiate before the released of its "Grand Theft Auto IV" on April 29th. EA wants to purchase the company now in order to obtain upside from the holiday sales of the game, but Take-Two management sees the buyout is opportunistically timed to capture the value of the upcoming game at the expense of shareholders.

Take-Two's board also insists that it has received indications of interest from third parties interested in purchasing the company since EA's bid, but that no substantive discussions have yet taken place. The company is intent on waiting until after the game is released to being discussions, but it did begin to assemble the materials necessary for interested parties to conduct due diligence. Any auction process would likely unlock additional value for shareholders above and beyond $26 per share.

Finally, Electronic Art's tender offer itself may no longer be viable. Take-Two adopted a Stockholders Rights Agreement (ie. poison pill) that would dilute the stock if EA acquired more than 20% of it. This would make such a hostile acquisition extremely expensive and unlikely to occur. Now, EA would be forced to launch a proxy contest to replace directors and remove the poison pill if it wanted to continue its pursuit.

In the end, Take-Two has rejected EA's offer because it has many other offers on the table that it would like to explore after the April 29th launch of its latest installment in the Grand Theft Auto series. It will be interesting to see EA's next move after the board installed a poison pill that put a fork in their plans. Regardless, this is all good news for shareholders that may now see more than $26 per share.

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Farming may not seem like the hottest industry on Wall Street, but Monsanto Company (NYSE: MON) shareholders would disagree. The global provider of agricultural products raised its outlook for the third time in three months on stronger demand for seeds. The company's stock has more than double during the past year as a result while it is now looking for ways to spend its extra cash.

Farmers are paying top dollar these days for genetically modified corn, soybeans and cotton seeds as a result of a bullish commodities market boosted by a rapidly declining U.S. dollar and stronger ethanol demand. In fact, business is so good that Monsanto announced that it would reach its long-term margin target of 52 to 54 percent this year- a full two years ahead of schedule.

These events prompted Monsanto to also raise its EPS guidance for the fiscal year to $3.15-$3.25 from $2.70-$2.80. The company is due to report its fiscal second quarter results on April 2nd, which are expected to be seasonally strong as farmers in the Northern hemisphere begin planting. Free cash flow also reached a new record of $1.4 billion, which means shareholders are likely to begin the common "use it or lose it" campaign.

Monsanto foresaw this rhetoric, however, and said it will look for ways to invest in acquisitions that further growth, projects that support the current business's growth and dividend, and share repurchase programs that return value to shareholders. Many believe that these future acquisitions may take place in quickly growing markets in India and China as an increasing acceptance of genetically modified seeds would mean more demand.

In the end, the demand for seeds will likely continue as long as the demand for corn and soybeans remains strong. Given the weakness in the U.S. dollar combined with continued demand for ethanol, this is a definite possibility and shares of MON should continue to see upside. The real question is then: Will the company use the excess cash to the benefit of shareholders or squander it on poor acquisitions?

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Market research firm Gartner Inc. reduced its 2008 forecast for personal computer shipments and warned that the estimate could drop further if the economy takes another turn for the worst. The firm now sees growth of 10.9%, or 293 million shipments, versus its forecast late last year of an 11.6% increase. Moreover, the firm warned that those numbers could drop to the single digits. This is bad news for pure-play PC manufacturers along with their component providers.

Gartner sees a healthy PC market right now, but several challenges in the near future. A deepening U.S. recession, the rising possibility of a slowdown in China's economy following the Beijing Olympics and higher oil prices could all put a damper on PC shipments this year. However, the firm also noted that PC sales should be boosted late this year through 2010 thanks to a desktop replacement cycle. Garnter predicted that strength in the emerging markets - which accounted for 60% of global growth in the fourth quarter - would also play a critical role.

This is bad news for pure-play PC-makers like Dell Inc. (NDAQ: DELL) that have already been having a bad year. The PC manufacturer has seen its domestic sales drop off a cliff and has been reliant on strong international growth and cost-cutting to drive revenues and improve its profitability. A slower domestic situation will only require additional international growth while cost-cutting can only be a temporary solution to a long-term problem. The reality is that PC sales are declining while the real money-maker - laptops - are quickly falling in price.

Struggling chip-makers like Advanced Micro Devices (NDAQ: AMD) may also find themselves in trouble. The company relied heavily on new product shipments to break-even last quarter and any slowdown could quickly send them back into the red despite plans to return to profitability by the end of 2008. Luckily they still have a chance at it if the replacement cycle begins as strongly as expected at the end of the year, as they are one of only two major chip manufacturers for PCs and laptops.

The reduced forecast could also affect many other companies to a lesser extent. PC manufacturers like Hewlett-Packard (NYSE: HPQ), Apple Inc. (NDAQ: AAPL), and International Business Machines (NYSE: IBM) may also feel some heat, but their diversified product lines should bar any major losses sustained. In the end, the PC business was thought to be relatively recession-proof, but these new predictions could change the story.

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At least one Coinstar, Inc. (NDAQ: CSTR) shareholder sick of being nickel and dimed has pushed the company to make several key changes. The Shamrock Activist Value Fund, which owns a 13.4% stake, demanded the board of directors be reformed and the poison pill be canceled. The move is seen by many as a precursor designed to make future actions to unlock shareholder value much easier.

Many investors are speculating that Shamrock, owned by Roy Disney and entertainment lawyer Stanley Gold, may be interested in eventually pushing the company to evaluate strategic alternatives. Some are expecting a rough 2008 after a plan was announced to remove cranes, bulkheads and kids' rides at Wal-Mart Stores (NYSE: WMT) and other retailers and install more Coinstar Redbox DVD kiosks and coin counting machines in a move that will lower revenues while increasing investment costs.

Coinstar, however, anticipates that the long-run implications of the Wal-Mart deal are worth it. The company projects that the projects could contribute between $165 and $195 million per year with EBITDA of between $36 and $45 million by mid-2009. This compares to a loss of entertainment dollars amounting to only $65 to $75 million in revenues and $15 to $20 million in EBITDA, which means that the company expects to realize incremental EBITDA gains of between $20 and $25 million when all is said and done.

While the Wal-Mart deal may be holding shares back these days, there are several potential areas in which value could be unlocked. Coinstar's $70 million majority ownership stake in their DVD rental kiosk business Redbox is one such area. The business will do revenues of between $250 and $270 million with an EBITDA of between $20 and $30 million in 2008. Even better, its EBITDA margins will approach 20% thanks to route density and economies of scale beginning at the end of 2009.

Coinstar could also try and divest its struggling entertainment business in order to focus more on its core money exchange businesses. The entertainment businesses have been losing steam while the DVD rental businesses could be easily divested to strategic buyers like Blockbuster (NYSE: BBI) and Netflix (NDAQ: NFLX) for a healthy premium. The move would free up cash that could then be used to establish a dividend or repurchase shares in order to unlock value for shareholders.

One final thing worth noting is Coinstar's cyclicality with the economy. This was brought up during the company's last conference call that showed there is a weak correlation between company and economic performance. The reason is because Coinstar's machines are used for relatively small transactions instead of big ticket items. This is also good news for investors since it makes this stock a relatively recession-proof one.

In the end, this is a stock that could benefit from some shareholder activism and Shamrock's attempt to remove key provisions could be the first step. Luckily for shareholders, the company is also doing well as a conglomerate so there is nothing to lose. Any activist move could substantially increase the share price, but a standalone company is also not such a bad proposition. Combined, these factors make CSTR a stock worth watching!

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Sirius Satellite Radio (NASDAQ: SIRI) received Justice Department approval yesterday for its $4.59 billion purchase of rival XM Satellite Radio (NASDAQ: XMSR). The controversial decision to give antitrust clearance to the deal was based on rapidly expanding technological options for audio media such as mobile phones and internet radio.

Justice Department antitrust chief Thomas Barnett said in a conference call with reporters that, "Competition in the marketplace generally protects consumers and I have no reason to believe that this won't happen here."

This is obviously good news for investors in both companies, though the deal still requires FCC approval. The Federal Communications Commission may prove an even more difficult audience for Sirius CEO Mel Karmazin who lobbied the Justice Department intensely for the deal. The FCC is seen as more susceptible to the outrage of groups like the National Association of Broadcasters that views this purchase as creating a monopoly.

The FCC currently has a policy based on a 1997 decision that prevents the combination of the two satellite radio companies. At this point, rumors from inside the FCC say that no decision has been made but that the Justice Department conclusion makes it more difficult for the FCC to flatly block it.

Though FCC approval is far from a given, the real question for investors remains - is there real upside in the combination of Sirius and XM? Here's what the Justice Department had to say in their statement allowing the deal:

"Because XM and Sirius would no longer compete with one another in the retail channel following the merger, the Division examined what alternatives, if any, were available to consumers interested in purchasing satellite radio service, and specifically whether the relevant market was limited to the two satellite radio providers, such that their combination would create a monopoly. The parties contended that they compete with a variety of other sources of audio entertainment, including traditional AM/FM radio, HD Radio, MP3 players (e.g., iPods®), and audio offerings delivered through wireless telephones. Those options, used individually or in combination, offer many consumers attributes of satellite radio service that they may find attractive. The parties further contended that these audio entertainment alternatives were sufficient to prevent the merged company from profitably raising prices to consumers in the retail channel – for example, through less discounting of equipment prices, increased subscription prices, or reductions in the quality of equipment or service."

The statement also say there are "substantial" cost savings to be had, but overall tone speaks to the reality that satellite radio seems almost like old media in the face of iPods and streaming, high quality internet radio. Sirius and XM possibly warrant investment with total approval now more likely, but the companies certainly don't warrant unbridled enthusiasm.

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Tiffany & Co. (NYSE: TIF) shares rose sharply today after its profits slipped but still topped estimates. The diamond retailer also issued a bullish outlook, saying that it expects "robust" growth in the non-U.S. markets that should drive earnings 10.5% higher than previously expected. However, it still expects a slight decline in U.S. same-store sales as the poor economic climate shows no signs of letting up.

The share price has been so volatile because many investors expected luxury retailers to take a hit amid weak U.S. consumer spending. Many like Tiffany's quickly expanded during the last decade into non-metropolitan markets that are now suffering with weaker consumer spending. However, strong international spending has driven results and led to a substantial increase in earnings that caught many off-guard.

The rise also spurred a rise in other luxury retailers including Zale Corp. (NYSE: ZLC), Blue Nile Inc. (NDAQ: NILE), and Harry Winston Diamond Corp. (NYSE: HWD). Many investors are now bullish on these companies, but it is worth noting that many of them have a lot more U.S. exposure than Tiffany's that has been able to rely on robust international growth to curb losses from lower U.S. consumer spending.

The reality is that Tiffany's saw 40 percent of its sales come from foreign markets with a 20 percent increase in sales volume from abroad, which is substantially higher international exposure than other luxury retailers that could still be hit hard from a U.S. slowdown. This international exposure has been the hallmark of companies that have been able to weather the storm so far this year.

In the end, Tiffany's is definitely still seeing a slowdown in the U.S., but is being helped by strong demand internationally. Investors should look to invest in companies with similar exposure in order to recession-proof their portfolio and prevent any significant losses from a slowdown in the United States.

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Capital Senior Living Corporation (NYSE: CSU) may sound like a boring business but not for shareholders! The company's shares moved sharply higher today after the company announced that it has appointed two new board members and agreed to explore a possible sale. The news comes amid substantial pressure from several activist shareholders that saw unrealized value in the country's largest operator of senior living communities.

The dissident shareholders behind the push included Boston Avenue Management (7.3% owners), West Creek Capital (6.4% owners), and Matthes Capital Management (1.7% owners). New directors from the latter two hedge funds will serve on a committee to explore strategic alternatives, including whether or not to sell Capital Senior Living. Whether or not a sale will actually happen remains to be seen, but the number of activist shareholders and board seats tilts the odds more than usual.

Capital Senior Living also swung to a profit last year after posting a loss in 2006, which substantially improves its marketing in the event of a sale. Additionally, the company's focus on providing significant income and asset growth, strengthening the balance sheet, and improving the comapny's profitability were all realized during its latest earnings announcement.

Revenues, EBITDA, and net income all significantly increased as margins expanded through higher rents and solid expense control. Monthly rental income increased by 4.4% while the average occupancy rate stood at around 90% with management fees around 48%. Additionally, the company expanded its capacity through new developments, consolidations, and in-home services.

Management expects these trends to continue as the company continues to prosper despite a poor economy. Long-term, the baby-boomer population will continue to age and be placed into senior living communities such as these. The company is well positioned as one of the leading operators in the nation and will likely to continue to benefit through these trends despite the tough economic environment.

In the end, the activists believe the stock is undervalued and are seeking to unlock value through a sale process. Meanwhile, the company continues to perform extremely well having swung to a profit and improved in almost every important measure of success. Combined, these factors can only spell good news for shareholders who stand to benefit long-term from the company's success or short-term from the activists' success.

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Borders Group (NYSE: BGP) shares soared over seven percent today after Bill Ackman's Pershing Square announced a financing agreement along with an offer to purchase the company's international businesses. However, is the high-interest financing and low-ball offer really something shareholders should be applauding or just an attempt by the activist to get a good business on the cheap?

Borders Group has been running into problems with a dangerous combination of high debt and low margins in an economy that has little to offer in terms of additional financing. This prompted the bookseller to announce an effort to explore strategic alternatives last week that eventually led to this financial commitment and offer to purchase from one of the most successful activist funds in the world.

Pershing Square's Schedule 13D/A filing offers some key details regarding the proposed deal. The first detail worth noting is the high 12.5% interest rate to be charged on the $42.5 million loan along with the fact that the international businesses are being used as collateral. Many analysts believe that the high interest rate may actually work against any buyout as the buyer would be forced to pay it off.

The $125 million buyout price for the international business may also seem low considering the majority of the company's growth is in these markets. Luckily, it is structured as a backstop purchase so the company is not obligated to sell. More, the company itself admitted this during in their latest press release and maintained that they would only use it as leverage in future negotiations.

Finally, Borders also granted Pershing Square 14.7 million warrants to purchase common stock at $7.00 per share for 7.5 years in exchange for setting up the financing. These warrants represent just under 20 percent of the full-diluted shares of the company on a pro forma basis. While the warrants are above the market price, it may cap the upside over the long-term given the dilutive effects.

In the end, Pershing Square may have bailed out the company for the time being but it certainly came at a price. The activist hedge fund is getting a 12.5% return on a debt investment secured by a purchase that it was already intent on receiving. The same debt will give it an immediate discount to any acquisition of the international businesses and an upper hand with any competition.

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The Bear Stearns (NYSE: BSC) roller coaster ride took another sharp turn today after J.P. Morgan (NYSE: JPM) agreed to quintuple its offer for troubled investment bank. The move came amid widespread criticism that J.P. Morgan was getting a free ride on the backs of Bear Stearns shareholders. The new $10 per share takeover is slated to close by April 8th and now has much greater shareholder support.

The revised deal may seem generous on the part of J.P. Morgan, but it is really not that much different. The common stock component of the old deal was a mere $289 million compared to the billions in losses that it would incur during the acquisition. Moreover, the common stock buyout was to take place through a share exchange that stood to only moderately dilute JPM shareholders. The new deal simply increased this exchange rate from 0.05473 to 0.21753.

J.P. Morgan is still making bank from the Federal Reserve bailout. The investment bank is only responsible for the first billion in losses incurred while the remaining $29 billion tab is being picked up by the Federal Reserve. This means that the total acquisition price is only a billion plus share dilution - still a great deal for J.P. Morgan for an investment bank that was one of Wall Street's finest.

The revised deal is also much more likely to see the light of day. Many dissident shareholders are now satisfied while J.P. Morgan also agreed to purchase 39.5% of the company in order to ensure that it could win any proxy opposition to the deal more easily. Whether or not this deal still gives preference to J.P. Morgan is a topic that could be debated, but at least shareholders were able to get a much higher offer.

In the end, this saga has a lot of lessons and investors should take note. The first is to look at deal components when evaluating whether or not a higher offer is likely. The second is to watch what the majority shareholders are doing as they are most likely to influence a higher bid. Combined, these factors made BSC one of the most interesting stocks to watch over the past few weeks.

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CIT Group Inc. (NYSE: CIT) shares plummeted Wednesday after the firm revealed that it had borrowed $7.3 billion to repay debt, making it a potential acquisition target at these cheap levels. The firm is seen by many to have manageable liquidity in the near-term and a stable credit outlook going forward, but shares are becoming so cheap that financial institutions that want to expand their middle market presence may be interested.

The problems at CIT stem from its dangerous portfolio of securities. The firm's latest 10-Q shows holdings in student loans and other securities that are facing substantial liquidity concerns. In fact, many believe that its portfolio is far worse than that of Bear Stearns, Merrill Lynch, or other large players.

Any potential acquisition would likely not occur at a premium, but rather simply offer shareholders an emergency exit. Meanwhile, the company itself said that it would continue to actively seek additional funding sources, as well as explore and execute on the sale of non-strategic assets and/or business lines. This suggests that the company would be open to any potential acquisition offer.

In the end, there are several courses of action that CIT could end up taking. If the firm decides to stand alone, it could either raise money through bank financing or issuing equity. Obviously, both of these are bad for shareholders unless they truly help the firm turn around. However, an acquisition could offer a great way for shareholders to exit their investment in the near term and cut losses.

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Automakers have it tough these days as consumers are not only spending less money but also dealing with record oil prices. The unfortunate side effect has been slower-than-expected auto sales and a move by consumers to the less profitable fuel-efficient vehicles. The big three U.S. automakers are now preparing to confront these problems by cutting costs and taking other measures to protect themselves. The question is: Will it be enough?

General Motors Corporation (NYSE: GM) announced that it has pushed some planned capital expenses from the first quarter to later in the year in order to make sure it has enough cash in the event of a worsened downturn in the U.S. Meanwhile, Ford Motor Company (NYSE: F) executives said they were also considering further cost cutting measures to reach profitability in 2009. And finally, Chrysler said it would lower production at several plants in anticipation of weaker sales this year.

Despite the similar actions to cut costs, the automakers seem to disagree on the industry's direction. Chrysler noted that it believes the market will continue to weaken for the rest of the year while General Motors has indicated that it expects sales to rebound during the second half of the year. Howver, all of the automakers have agreed that the selling pace in the first two months of the year came in below projections.

There has also been some concern surrounding the financing subsidiaries that provide auto loans to consumers. In particular, analysts were concerned that GM's 49% ownership in GMAC require it to make further cash infusions in order to ensure liquidity. However, GM has denied that such injections are needed and that its financing wing remains in good shape.

In the end, automakers will likely face a tough rest of the year as they gear up for further cost cutting to meet their internal earnings goals. Investors may want to watch for a turnaround as a combination of that and cost cutting could result in higher-than-expected earnings and a boost in the share price. Combined, these factors make GM and F two companies worth watching!

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Micrel, Inc. (NDAQ: MCRL) may be providing power for its customers, but its shareholders have been feeling rather powerless. All that's about to change after a large activist hedge fund expressed its disappointment in the company and demanded that it immediately explore strategic alternatives in a Schedule 13D/A filing with the SEC. The news comes after shares have rallied off of their lows but continue to underperform the market.

Obrem Capital Management, which owns 9.6% of the company, believes that the shares are substantially undervalued and demanded the board take action to proactively enhance shareholder value. The hedge fund blasted management for failing to create shareholder value over the past decade despite the company's multiple competitive strengths. Obrem attributes these failures to a number of reasons that can be easily remedied via an acquisition.

Micrel operates from a strong technology platform with an attractive customer base and a solid reputation within the semiconductor industry. Unfortunately, the company's insufficient scale, poor outsourcing strategy, and bloated cost structure have caused problems. Micrel lags its peers in revenue growth, earnings growth, operating margin, and share price performance despite its multiple competitive advantages.

Obrem recommended that the board seek to unlock value by selling Micrel to a strategic buyer. The problems could be easily resolved in an acquisition through an increase in manufacturing scale and lower costs realized thanks to economies of scale. Additionally, the valuable customer base, top-notch technology, and strong balance sheet would ensure a healthy premium.

In the end, Micrel is a company that is trading below value thanks to problems that could be easily solved through an acquisition. Obrem is hoping that the board will at least setup an independent special committee to examine strategic alternatives, but it will be interesting to see whether or not the company sees eye-to-eye. This makes MCRL a stock worth watching!

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FedEx Corporation (NYSE: FDX) may be delivering to its customers on time, but its shareholders are another story. The package delivery company warned that its fourth quarter earnings would be hit by higher fuel costs and a slower economy. This is the third time in 12 months that the company has lowered its guidance, which has many investors on edge that things may get even worse before they get any better. In fact, Fedex noted that it doesn't expect things to get any better until after 2009.

FedEx is also widely considered to be an indicator of the larger economy, so any slowdown in this company could mean more pain in the broader economy as well. Chief executive Fred Smith continues to point to fuel as the big wild card as it climbed 42% in the fourth quarter. The company was able to mitigate some of the costs by charging customers an additional surcharge, but this obviously caused a slowdown in the volume of business that it conducted.

FedEx said that it planned to counteract the decline through reductions in its capital spending. The company plans to intensify its cost-cutting efforts while focusing on long-term measures like its aircraft replacement program and the expansion of its new Chinese domestic delivery service. In the end, it looks like the majority of the company's income in the near future will be derived from its business activities abroad. Meanwhile, the U.S. economy may take awhile to recover from slowed consumer spending and higher fuel costs.

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General Mills (NYSE: GIS) is eating its competition for breakfast by getting into the complex world of commodity derivatives. The cereal-maker announced a 61% increase in net earnings that can be largely attributed to a successful bet on the fall of commodity prices. Meanwhile, the company also saw continued strength in customer demand and would have beat earnings by a healthy margin even without the one-time gain from commodity hedges.

General Mills saw its sales jump 12% amid product price increases and stronger shipments while its commodity hedge resulted in a one-time gain of 27 cents per share. The cereal-maker also raised its financial forecast for fiscal 2008 to reflect the one-time hedging and tax gains booked this quarter; the lack of a greater forecast suggests that the company will continue to pour more money into marketing its products.

Many companies prefer to hedge their bets against commodities that they use in order to offset price increases and it is not uncommon for these actions to turn a profit in volatile environments like the current one. Some companies like Goldman Sachs (NYSE: GS) even managed to turn a profit by betting against the very products they were offering investors! However, the big question is whether or not the hedges will last long enough.

Hedges that these companies use are often derivative securities like options or swap contracts. These securities are essentially contracts that let companies purchase products at a certain price and date in the future. For example, back in 2006, General Mills may have purchased grain for a dollar to be delivered in 2007 when prices are now two dollars on the open market. The process lets companies plan ahead for raw material costs and keep costs low during tough environments.

In the end, General Mills continues to be a strong company that is trading very close to its 52-week low. The commodity hedge proved to be a boost to its bottom line while its existing product sales still managed to outperform. How long this will last remains to be seen as food costs continue to rise, but this is definitely a stock worth watching in the meantime!

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NYSE Euronext (NYSE: NYX) recently unveiled two new initiatives aimed at increasing shareholder value. The exchange announced a 20% increase in its dividend rate along with a new $1 billion share buyback program. The moves are designed to help shareholders realize value in their investment that has declined more than 30 percent from its 52-week highs. However, the aggressive financial policies have some ratings agencies concerned.

The S&P ratings agency cut its outlook on the NYSE to negative from stable after the announcement of these new initiatives. Although the firm expects the exchange's cash flow generation to support the new capital distribution policy, the share buyback will widen the gap in the company's tangible equity, which is already negative, given the substantial goodwill on the balance sheet from the 2007 merger with Euronext.

In English, S&P is concerned that the NYSE may be taking on more than it can handle with a dividend. The NYSE also has a negative tangible asset value on its books due to the amount of goodwill (intangible assets) that it incurred when it acquired Euronext in 2007. The share buyback program will only further widen this gap since the company will be repurchasing its own equity and lessening that portion on the balance sheet while the goodwill remains the same. Finally, shareholders are also likely to demand more buybacks in the future given the exchange's strong cash flow generation.

However, there are also many positive sides to the announcement. Share buybacks tend to increase shareholder value by decreasing the number of outstanding shares. Since earnings remain constant, this results in an increased earnings-per-share number. The move demonstrates confidence in the company by management and the board of directors. Buybacks are designed to help shareholders assign a fair multiple to the target stock when it is trading below peer or intrinsic valuation.

Meanwhile, the effect of dividends on shareholder value continues to be a hotly debated topic. Nobel prize winners in the 1960's suggested that dividends were irrelevant and investors shouldn't care either way. However, dividends give investors the only true return on their capital. Recent research has also shown that companies issuing dividends tend to be more disciplined users of capital and give investors a higher return with less risk over the long term.

In the end, this news is both good and bad for the NYSE. The initiatives will likely increase value for shareholders but may come at cost of maintaining strong balance sheet. However, given the strong cash flows at the company this may be worth the effort since the firm won't find itself in any real risk in the future.

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The Bear Stearns Companies (BSC)
Investment Technology Group (ITG)

Datascope Corporation (NDAQ: DSCP) is no stranger to activist pressure after a large hedge fund won representation on its board last year. The board seat is now paying off as the medical devices company recently took action to sell off one of its key divisions and return the proceeds to shareholders. The move should help boost the firm's share price, which has been trading within a narrow range before breaking out late last week on the news.

Earlier this month, Datascope agreed to sell its patient-monitoring business to China's Mindraw Medical for $240 million in cash. The company also announced its intent to return the proceeds to shareholders in the form of a share buyback, special dividend, or combination to be determined when the transaction closes. These actions are designed to unlock value by encouraging investors to assign a fair multiple to the company's stock.

The move drew widespread support from shareholders, including 6.7% owner Ramius Capital. The activist hedge fund noted in a Schedule 13D filing with the SEC that the deal "provides for significant value for the patient monitoring business" and represents "the best interest of all shareholders". The activist also "expects that management and the board of directors will continue to explore opportunities to maximize value for all shareholders".

The last statement is of particular interest given Ramius' board presence. Shareholders can expect the activist hedge fund to continue working to unlock value in the company. The regulatory filing also revealed that the hedge fund and its partners remain net buyers of the stock, so investors can be sure that their interests are aligned. In the end, these factors make DSCP a stock worth watching!

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As previously reported here at SECInvestor, a significant chunk of Yahoo's (NASDAQ: YHOO)value in a sale is its minority stake in Chinese search engine Alibaba. We also noted back in February that:

"Yahoo’s stake in Alibaba, which stands at around 39 percent, paid huge dividends after being acquired for $1.7 billion in August of 2005. Since then, the company has IPO’d and dramatically grew in market value while also continuing to grow its revenues at a break-neck pace. Interestingly, Alibaba is also concerned about the Microsoft acquisition, saying that it has a “reputation of using monopolistic tactics”. Foreign control of large companies is also a politically sensitive issue for Beijing, which has forced many prospective buyers to cut their stakes or sipmly delay the application process indefinitely."

Well, it looks like Alibaba is now going to try to take action as Microsoft Corporation's (NASDAQ: MSFT) purchase of Yahoo looks more likely.
Jack Ma, the English teacher that founded the company, plans on advancing a plan to repurchase the 39% of the company that Yahoo owns. Ma and others in the company are supposedly concerned about Microsoft's heavy handed management style as well as scrutiny from Asian users about a titan of American business owning such a large stake.

The WSJ is reporting that Alibaba has already hired a bank and financial adviser to work on the possible purchase details and financing. Though such a repurchase is anything but certain at this point, Alibaba's concern with the deal certainly makes a Microsoft advance more difficult to complete and much less attractive. This is probably the worst development from Microsoft's point of view since the announcement of its takeover bid, so be sure to watch the story as it develops.

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Visa Inc. (NYSE: V) is set to go public tomorrow in what promises to be the largest initial public offering in U.S. history. Shares are expected to price at $44 per share in a $10.2 billion IPO that is second only to Commercial Bank of China's $22 billion IPo in 2006. Many investors are bullish on the offering after MasterCard (NYSE: MA) shares more than tripled since its offering in 2006 while both companies have been posting spectacular growth numbers.

The first concern that many investors cite with Visa is the poor economy, but this is a relatively insignificant issue for several reasons. It is important to realize that companies like Visa and MasterCard have been able to thrive during the credit crisis because they do not extend credit to cardholders. Instead, it is the issuing banks that take on the credit risks and are now facing defaults. Visa makes the majority of its income by charging vendors a small transaction fee each time a card is used.

The second major concern is that consumer spending is in decline and will hurt earnings. It is true that consumer spending is down, but credit card usage isn't slowing down at all. In fact, industry reports show that usage is on the rise. More than 55% of all U.S. transactions by 2011 will take place with credit cards compared to just 40% in 2005. Spending on luxury goods may be slowing, but consumers are starting to use credit cards for even their staple purchases like food and gas.

The third major concern is that the IPO will be too expensive to buy directly. The Visa IPO has been anticipated for quite some time, so it is likely that shares will soar on their first day of trading. As a result, many investors pushed their funds into rivals like MasterCard in order to benefit from the so-called "peer upside" that often affects related companies. Other investors put their money in companies that stand to directly benefit from the IPO. These companies include JP Morgan Chase (NYSE: JPM), which will cash in $1.3 billion, and others like Bank of America (NYSE: BAC).

In the end, the Visa IPO is one of the most anticipated one on Wall Street this year and will set the mood for a long time to come. The company itself is safe from many of the credit concerns facing the economy and will likely maintain its impressive growth rate. However, the popularity will likely push shares up and force many investors to take positions in other companies that may benefit from the rise. Combined, these factors make V a stock worth watching!

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Conseco Inc. (NYSE: CNO) plans to stick to its guns after being pressured to give up two board seats to Steel Partners. The activist hedge fund demanded two board seats in order to effect a review of strategic alternatives for the troubled insurance company. However, Conseco revealed today that it has been reviewing such alternatives for several months and has engaged Morgan Stanley as its strategic advisor through the process.

Conseco CEO Jim Prieur said, "We share with Steel Partners, as well as our other shareholders, a common interest in taking actions that will increase the value of the company for shareholders. In that regard, we have been working with a major investment bank for several months regarding strategic alternatives and plans to maximize shareholder value for Conseco. We believe, and hope Steel Partners would concur, that we already are exploring courses of action suggested by them."

Conseco also revealed fourth quarter numbers yesterday that many viewed as highly disappointing. The insurance company posted a net loss of $72.2 million, or 39 cents per share, including a $23 million net realized investment loss and a $68 million valuation allowance for deferred tax assets. Conseco faces a considerable amount of work ahead as it stabilizes its fundamentals while working with the SEC to correct any past errors.

In the end, shares are up today after yesterday's drop because Conseco appears to be dedicated to conducting a review of its strategic alternatives. Typically, this means that managmenet would be open to a sale that could unlock substantial value for shareholders. Since the stock is artificially depressed for non-material reasons, the likelihood of a strategic or financial buyer is significantly enhanced. This makes CNO a stock worth watching!

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The airline industry may be ripe for mergers financially, but pilots are finding themselves unwilling to negotiate. Delta Air Lines (NYSE: DAL) announced an overhaul of its operations today after talks with Northwest Airlines (NYSE: NWA) have reportedly hit a stalemate. The move should help the airline reduce its costs while it continues to work towards finding a potential suitor that would give it financial economies of scale.

A letter from Lee Moak, head of the Delta pilots union, said that the carriers haven't been able to negotiate a benefits and seniority agreement that satisfies both ends. It also refers to the discussions in the past tense, which suggests that further talks are not likely for the time being. This didn't come as a surprise to many investors as reports in the past indicated that negotiations were moving slowly on the negotiation of a key agreement.

Meanwhile, Delta announced that it will offer voluntary severance payouts to roughly 30,000 employees and cut domestic capacity by an extra 5 percent this year as part of its plan to deal with soaring fuel costs. A memo to employees noted that the airline's goal is to cut 2,000 frontline, administrative and management jobs through the voluntary program and other initiatives. The move will eliminate more than half of its 55,044 person workforce.

Fuel costs are beginning to become a serious problem for airlines, especially after OPEC announced that it would not raise production levels for the year. Delta's actions followed other initiatives like fare hikes and reduced routes by Northwest and Continental as airlines struggle to remain profitable. So far, Southwest Airlines (NYSE: LUV) remains as one of the only truly profitable airline despite recent grounded planes.

In the end, airlines are still facing many problems with high costs that need to be solved. A merger may have solved some of these problems by enabling the airlines to obtain an economies of scale whereby costs could be lowered through bulk purchasing of fuel and different routes could be combined to increase efficiency. Unfortunately, while the deal may have worked out financially, pilots shot it down once again. However, this is still a situation worth watching in case talks resume.

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The financial sector rebounded today on higher-than-expected earnings by two large investment banks while there are still many liquidity concerns floating around the marketplace for other firms with large exposure to subprime securities and illiquid fixed investments. Meanwhile, many analysts are expecting a wave a consolidation to hit the sector under government-funded bailouts for the remainder of those in trouble. Here are a few of the highlights:

Goldman Sachs Group (NYSE: GS) had successfully avoided the subprime crisis when its own traders made a big bet on a decline, but the tough credit markets are finally catching up to the world's biggest securities firm. The company announced a $1 billion loss on residential mortgage loans along with another billion dollar loss on credit products and investment losses. However, shares rose over 8 percent as the damage was far less severe than many predicted.

Lehman Brothers (NYSE: LEH) is another firm that was able to avoid the subprime crisis, but is now finally succumbing to the rough economic climate. The firm reported a 57 percent drop in its net income on weakness in its fixed income division. Its fixed income revenues declined 88 percent amid very poor liquidity in the credit markets forcing the company to write-down the value of many of its securities. However, the damage is less than what many were expecting.

Bear Stearns' (NYSE: BSC) second largest shareholder, Joseph Lewis, called JP Morgan's (NYSE: JPM) offer "derisory" and plans to vote against the buyout. Shares are being repriced for such a vote as many are now speculating that the deal will not be immediately approved. If the market continues to improve, the company may be able to negotiate for a higher price or other bidders could end up coming to the table. This speculation has shares currently trading at more than double the proposed buyout price.

Merrill Lynch (NYSE: MER) shares are up over 4 percent today despite a report by Wachovia citing it as the next riskiest brokerage after Bear Stearns. The firm still has some $30.4 billion in subprime exposure and the worst liquidity ratio at only 52 percent. However, many do not feel that the investment bank is in any real danger as the problems as Bear Stearns were seen as more of a management issue than a liquidity issue in the first place.

There is also some speculator that Lehman Brothers or Citigroup (NYSE: C) may be the next two banks to be acquired in a widely-expected wave of acquisitions to hit the financials following these large declines. The Federal Reserve can't buyout firms itself, so it tends to sponsor larger companies in acquiring weaker ones. We already saw this with the Bear Stearns-JP Morgan deal and may see it with these two companies if they end up showing increased exposure.

In the end, the financial sector is extremely volatile these days and promises to remain that way for some time. It will be interesting to see whether the Federal Reserve ends up sponsoring more buyouts while strong companies like Goldman Sachs and Lehman Brothers continue to impress the street.

Yahoo! Inc. (NASDAQ: YHOO) the internet search and media company that continues to tango with Microsoft Corporation (NASDAQ: MSFT) continues its attempt to prove its worth and strength with a press release today reaffirming its forecasts for the coming year.

The release claims cash flow may almost double to $3.7 billion in the next three years. Yahoo also predicted earlier this year that first-quarter sales for 2008 would be up to $1.38 billion with annual sales as high as $5.95 billion.

"Yahoo! is positioned for accelerated financial growth - we have a powerful consumer brand, a huge global audience and a highly profitable operating model," CEO Jerry Yang is quoted as saying in the press release. "With industry-leading tools, technology, people and platforms, Yahoo! is poised to capture growth in display advertising where we believe growth will be greatest. Combined with our recent progress in search monetization, Yahoo! is well positioned to provide the broadest range of products to our advertisers while delivering the most compelling experiences to users."

The obviously self-serving announcement is only the most recent in a long list of statements made since Yahoo rejected Microsoft's $44.6 billion unsolicited offer in February on the grounds that the price "substantially" undervalued the company - specifically, its stake in the number two Asian search engine.

Microsoft, the world's largest software maker, continues to pursue Yahoo while Google Inc. (NASDAQ: GOOG) also feels the need to get involved. Despite Google's recent acquisition of DoubleClick which raised concerns combined with a privacy policy that concerns watchdog groups, Google CEO Eric Schmidt predictably said, "We would be concerned by any kind of acquisition of Yahoo by Microsoft. We would hope that anything they did would be consistent with the openness of the Internet, but I doubt it would be." Translation: a Microsoft-Yahoo combination would be a competitive threat to our market domination and we at Google will say anything to stop it. Google is not an inept competitor, so such obvious concern about the deal bodes well for the logic of the acquisition and the advantages gained for Microsoft.

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BMC Software Inc. (NYSE: BMC) announced today that it would buy BladeLogic (NASDAQ: BLOG) for $800 million cash, valuing BladeLogic at $28 per share.

The $28 per share purchase price is almost a 20% premium to BladeLogic's closing price Friday, before the deal was announced. With this acquisition, BMC seeks to increase its portfolio of programs that automate customers' data centers. BMC has existing software suites that manage computer systems, but the BladeLogic acquisition is seen as adding strength to an area rife with competitors such as Hewlett-Packard Co. (NASDAQ: HPQ).

BladeLogic programs help simultaneously update programs and make changes over vast computer networks. For instance, if a new security patch becomes available, the program can automatically update individual PCs operating systems without necessitating a support person to go physically to every single network computer. BladeLogic's offerings also allow servers and PCs to be managed together.

"We coveted this business for a long time. Getting them to sell was not an easy process. It took time," BMC CEO Bob Beauchamp said in a conference call about the purchase. "Organizations around the world will spend more than $140 billion dollars this year running data centers. Automation is the only way IT can bring this spending under control and still meet the reliability and time-to-market requirements of their businesses.  BMC’s acquisition of BladeLogic will create the new IT Service Automation leader, unique in its ability to provide these critical capabilities.  It is a natural and very significant next step in our vision of Business Service Management.”

BladeLogic CEO Dev Ittycheria said on the conference call that his company's board shopped around for other offers after getting a proposal from BMC, though he didn't give details of the process. It was widely speculated that BladeLogic, given its relatively small size and attractive business, would be acquired.

BMC has said the deal will reduce its operating earnings next year but add to its profits by 2010. Though BladeLogic shareholders still have to vote on the deal, it has been unanimously recommended by the board and is expected to easily pass.

BMC shares are are down 6% on the news.

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Magellan Heath Services (NDAQ: MGLN) may be good at managing the health of its patients but the company is another story. The healthcare company's stock is trading more than 20 percent off of its 52-week highs and many shareholders are now demanding the company take action to unlock shareholder value. Unfortunately, the company has been unresponsive to these shareholders who are now threatening to take their argument public.

The Shamrock Activist Value Fund disclosed a 4.6% stake in Magellan and letter to the board of directors in their most recent Schedule 13D filing with the SEC. The activist hedge fund commended management for their recent acquisitions of NIA and ICOR but conveyed their belief that the company should now focus on integrating these two acquisitions and turn its attention to shareholders.

"Early indications suggest NIA is roughly tracking to plan and ICORE’s performance is lagging acquisition projections," said Shamrock in its letter. "We find it reasonable for shareholders to expect financial results that demonstrate that the Company’s strategy is one that can create value for shareholders. Until that time, we believe it imprudent for the Board to endorse additional acquisition activity."

Shamrock requested that Magellan authorize a $478 million one-time special dividend of $12 per share. The activist proposed that this be funded through a combination of the company's $315 million in unrestricted cash and billions in debt capacity. Unfortunately, Magellan management disagrees and that has many shareholders concerned that they may be interested in making more acquisitions instead.

"We have been disappointed by the Board’s decision to not meet and engage with us in a discussion concerning this issue," said Shamrock's Arik Ahitov. "Given the lack of response and what we believe is an ongoing risk factor and drag on the company’s valuation, we are left with no choice but to make our concerns public."

In the end, any acquisitions would likely lead to increased costs, pressured margins, and higher debt while a successful attempt to unlock value through a special dividend could result in a substantial rise in the stock's price. It will be interesting to see how the company responds to this public letter, but in the meantime, this is definitely a stock worth following!

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The CME Group Inc. (NYSE: CME) and Nymex Holdings Inc. (NYSE: NMX) finally inked a merger agreement that has been in the works since January when talks between the two were first disclosed. The move comes as CME is still working to integrate the recently acquired Chicago Board of Trade (CBOT) while other exchanges continue to eye M&A opportunities. The push towards so-called global exchanges has forced many of these deals through in order to not only grow but simply remain competitive.

The $9.3 billion deal will give Nymex shareholders cash and stock worth approximately $100 per share. This number is currently 15% higher than Nymex's current price due to risks with the deal and a decline in CME's share price- which lowers the value of the stock portion of the buyout. The two boards have approved the transaction, but it will be interesting to see how much shareholder support they will receive given the steep declines today.

The transaction also leaves only a handful of independent exchanges remaining. The next buyout candidate that many see is IntercontinentalExchange (NYSE: ICE), which specializes in over-the-counter futures. In particular, the firm is known for its U.S. Dollar Index futures. Notably, ICE has been on a bit of a buying binge of its own in the past in an effort to boost its energy-related products. However, a value of just $8.7 billion and consistently recordbreaking volumes on its exchanges certainly leave the door open.

Smaller acquisitions could include companies like MarketAxess Holdings (NDAQ: MKTX), which specializes in electronic trading of corporate bonds and fixed-income securities. This market may not be as hot as over-the-counter futures, but it does add a robust revenue stream and access to 647 active institutional investors that may be interested in other products. However unlike the futures exchanges, shares of this stock are well off of their 52-week highs.

In the end, the exchanges have seen over $46 billion in dealmaking over the past two years and it will likely not stop until the growth in the sector slows. The only remaining futures exchange is Intercontinental, which is already seen by many as a potential acquisition candidate. However, other small exchanges like MarketAxess could also see some deals in the works despite their slow growth. Combined, these factors make the exchange sector one worth following closely!

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Captaris Inc. (NDAQ: CAPA) shareholders received the best news one can hope for in these markets- an unsolicited buyout bid. The $4.75 per share bid currently on the table was made by Vector Capital and comes at a 36% premium to Friday's close. The software developer announced that it will review the $126 million bid and retained RBC Capital to explore other expressions of interest that it has received as well. So, is this a deal that is worth pursuing or is the company worth more?

"We have received unsolicited inquiries from multiple parties who have expressed an interest in a potential transaction with Captaris," said the company in a statement. "We plan to conduct a fair, orderly and broad-based process. This process will commence immediately and we expect to conclude it as expeditiously as possible. Our Board of Directors is committed to conducting a thorough evaluation of alternatives to enhance value for all Captaris shareholders."

Vector Capital, which already owns 10.2% of Captaris, said it was delighted that the company was seeking ways to enhance shareholder value but concerned it was not committed to completing its review expeditiously. "Hiring another capable investment bank, RBC Capital Markets, to replace Credit Suisse and conduct another strategic review comes across as a delaying tactic," Vector said in a letter to the board of directors.

So, why are so many people interested in Captaris? The stock may be trading with an astronomical multiple in today's terms, but with $1.77 per share in cash, a forward multiple of 38x earnings, a price-to-sales ratio of under one, and a book value of $3.55 per share, many are seeing it as a bargain. The shares are definitely on sale as well, trading down 41% during the last 52-weeks despite today's move towards the upside.

In the end, this is all good news for shareholders who could see higher higher bids emerge for the company. After all, Vector Capital is only a financial buyer, which traditionally offer much less than any strategic buyer. It will be interesting to see what other bidders emerge as the company moves forward with exploring their strategic alternatives. Investors should watch for any Schedule 13D filings by Vector Capital or other announcements made by the company via 8-K filings with the SEC.

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Stocks plummeted more than 200 points early this morning after news of an unprecedented bailout of embattled Bear Stearns (NYSE: BSC) hit the wires last last night. J.P. Morgan (NYSE: JPM) announced that it would purchase Bear Stearns for a mere $2 per share with $30 billion in financing provided by the Federal Reserve. The disappearing act that wiped out billions of dollars worth of value in a matter of days has investors on edge now more than ever.

The problems at Bear Stearns began when speculation of a liquidity crisis at the company hit the market. The rumors turned to reality when the steep drop in the company's shares caused many of its creditors to ask for more collateral that the highly leveraged firm didn't have available. The emergency bailout now involves J.P. Morgan guaranteeing all of these trading obligations and was designed to reduce the risk of the broader financial system freezing up even more.

Some Bear Stearns shareholders are also looking at the possibility of additional bids from other interested parties that could include private equity firms like J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co. Currently, shares are trading well above the $2 per share buyout price despite many analysts now saving that there is zero possibility of any additional bidders. The reason is that nobody knows the extent of the damage while J.P. Morgan actually plans to lose $6 billion on the transaction.

Unfortunately, many other vulnerable investment banks took a major hit on the news and could suffer as a result. Lehman Brothers (NYSE: LEH) lost nearly a third of its value so far today while even strong companies like Goldman Sachs (NYSE: GS) took a nearly 10 percent hit. Not all of these investment firms have material liquidity problems, but the steep drop in share prices could force margin calls and cause some major problems.

In the end, Wall Street is still trying to come to grip with the fact that a major investment bank trading at over $57 per share days ago could lose so much value so quickly with a mere whisper of liquidity concerns. Today's bailout will keep the larger financial system liquid, but the future now looks more cloudy than ever as the body count from the mortgage meltdown and credit crisis keeps increasing on a daily basis.

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Microsoft Corporation (NDAQ: MSFT) executives met with Yahoo Inc. (NDAQ: YHOO) today to discuss the proposed takeover offer, according to people familiar with the matter. This would be the first such meeting since Microsoft made its unsolicited buyout offer was made and subsequently rejected. The meeting was not so much a negotiation as an attempt by Microsoft to outline its vision for Yahoo and attempt to smooth over the troubled relations between the two technology giants. So, will this talk help increase the likelihood of a Yahoo acquisition or is it still far fetched?

The talks reportedly covered the impact of such a takeover and were described as mostly a listening session for Yahoo with no financial advisors present. Microsoft reportedly indicated that it wanted very little disruption of Yahoo’s business, but believed the two companies could compete better against rival Google (NDAQ: GOOG) as one unit. Clearly, the combined company would prove to be a big competitor in not only paid search but also Google’s newest venture in display advertising. In fact, the threat was so large that Google was reportedly considering taking action to break up the bid.

Yahoo has held similar meetings with other potential suitors, including Time Warner (NYSE: TWX) and News Corp (NYSE: NWS), in order to thwart Microsoft’s takeover attempt. But Microsoft has been sticking to its guns and rumored to even be considering nominating its own slate of directors to Yahoo’s board to help push the deal through. Meanwhile, the value of Microsoft’s offer is quickly declining, as their shares have dropped nearly 12%, but the technology giant has refused to raise the offer until it gets a good look at Yahoo’s books. It is likely that Microsoft is looking for revenues in paid search and display advertising most closely in order to determine how much it could accredit its own earnings.

In the end, there is no word from either company about the success of the meeting. As of now, Yahoo’s rejection of Microsoft’s $44.6 billion bid stands and there is no word that prominent executives even showed up at the meetings. Investors and analysts will have to wait to see if there is any future progress made by these two companies towards making a deal become reality. However, YHOO and MSFT are definitely two stocks worth watching in the meantime!

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Enzon Pharmaceuticals (NDAQ: ENZN) shares rose today after activist investor Carl Icahn disclosed a 6.93% stake and suggested that the pharmaceutical company explore strategic alternatives in a Schedule 13D filing with the SEC. The billionaire financier insisted that management conduct a comprehensive review of strategic transactions that could enhance shareholder value. In particular, Icahn suggested the company consider monetizing certain assets like royalty streams and under-performing products through either a spin-off or sale of the company as a whole.

Not surprisingly, shares rose today on news of Carl Icahn’s involvement as many coat-tail investors tried to buy a stake next to the legendary activist. However, many analysts also see potential in Icahn’s involvement. Recently, the company swung to a profit on lower expenses and improved revenues. The bulk of its earnings came from the gain on the sale of its Nektar equity assets of $13.8 million and a $6.7 million gain from the repurchase of 4.5% convertible notes at discount to par. But notably, operating income also came in at $870,000 compared to a loss of $11.64 million in 2006.

Carl Icahn also has had a lot of success in the biopharmaceutical industry. Some of his other successes include ImClone (NDAQ: IMCL) which is up substantially, MedImmume which was acquired, and Biogen (NDAQ: BIIB) which recently put itself up for sale. Many are speculating that the activist investor will try to unlock value by cashing in on royalty streams to fund share buybacks that should increase EPS and subsequently the stock’s price (assuming the multiple remains the same). This activist strategy has worked in countless other cases and should unlock value in this case as well.

In the end, this is great news or Enzon shareholders as it could mean substantial value being unlocked over the short term. However, a lot depends on management willingness to explore these alternatives as any proxy battle could be both expensive and drawn out. Luckily, Carl Icahn is well known (and feared) among corporate circles so management should agree to at least consider the options. Combined, these factors make ENZN a stock worth watching!

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Conseco, Inc. (NYSE: CNO) shares have been halved during the past 52 weeks and at least one large investor insists that the stock is substantially undervalued in a Schedule 13D/A filing with the SEC. The insurance holding company’s shares dropped after it fell under scrutiny for improperly reporting benefits and liabilities for insurance products. In fact, it will have to restate nearly three years of financial results that it says may have overstated shareholder equity by $15 million to $35 million.

Steel Partners, which owns an 8% stake, believes that Conseco is trading well below its intrinsic value. As a result, it announced the nomination of two candidates to the Conseco’s board of directors to unlock this value by pushing the company to explore strategic alternatives. These measures could include spinning off or selling business units, executing major stock buybacks, or finding a merger partner.

Normally when companies hear shareholders mutter the words “strategic alternatives” they quickly install poison pills and resist as much as possible. However, Conseco surprisingly agreed to consider the voluntary nomination of Steel Partners representatives for election to the board of directors. This voluntary nomination would greatly speed up the entire process and allow shareholders to realize significant appreciation over the short-term.

Situations like these are very common for Steel Partners, who prefers to find stocks depressed from (relatively) non-material regulatory issues and restore them to intrinsic value. The most likely of the strategic alternatives is a leveraged share buyback that would allow Conseco to increase its EPS, which (at the same multiple) should increase its share price. Other alternatives like a spin-off or buyout are also possibilities that force investors to reprice shares accurately.

In the end, this is all good news for Conseco shareholders. A strong activist investor and a willing board of directors creates a great opportunity to unlock shareholder value for everyone involved. It will be interesting to see just how quickly the company can act, but this is definitely one worth watching closely over the next few months!

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Bear Stearns (NYSE: BSC) can handle the credit markets but rumors are another story. Rumors surfaced early this week that the investment bank was facing liquidity concerns and shares fell sharply. The next day, CEO Alan Schwartz told CNBC that the rumors were absolutely not true and the company had sufficient liquidity. Unfortunately, shareholders failed to believe the firm and shares dropped over 30 percent today- sparking some very real liquidity concerns.

The dramatic drop in Bear Stearns share price forced the firm to seeking backing in the event that it has a real liquidity crisis. The firm announced that it reached an agreement with J.P. Morgan (NYSE: JPM) and the Federal Reserve that will provide it with secured funding for an initial period of up to 28 days. J.P. Morgan also said that it is working closely with Bear Stearns on securing permanent financing or other alternatives for the troubled Bear Stearns.

“Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity,” said Schwartz. “We have tried to confront and dispel these rumors and parse fact from fiction. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.”

Investors and analysts remain divided as to whether or not there are really problems at Bear Stearns. Some view this new plan as a bailout and a last-ditch effort to save the investment bank. Meanwhile, the firm itself insists that it is simply securing additional funds just in case its share price keeps dropping and it experiences a liquidity crisis. The truth is that it is a little bit of both. The rumors turned out to be the cause of the problems.

Investment banks rely on their own stock to secure loans in swap agreements while they leverage their market cap to obtain financing. Now that Bear Stearn’s stock is in the poor house, the loans they backed with stock in the past may now need some hard cash. These additional capital requirements may be too much for the firm to handle, which is why it was forced to seek this additional line of credit from J.P. Morgan and the Federal Reserve.

In the end, this story goes to show just how powerful some rumors are in the marketplace as they can actually turn into fact. The one thing investors can look forward to at this point is that rumored buyout- now that BSC stock is so cheap it could be much more likely at these levels. Combined, these factors make BSC a stock worth watching!

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Take-Two Interactive (NDAQ: TTWO) may have to do a double-take after Electronic Arts (NDAQ: ERTS) launched a hostile $2 billion tender offer directly to its shareholders. The $26 per share offer is four percent higher than TTWO’s closing price yesterday and a 64 percent premium to the pre-takeover price. Electronic Arts says the bid will expire at midnight on April 11th - the day after Take-Two’s annual shareholders’ meeting. So, is this a deal worth taking for TTWO shareholders?

Take-Two’s real value lies in its Grand Theft Auto video game series that has sold more than 65 million copies, making it one of the most valuable franchises in videogame history. The company is expected to release the next version of the blockbuster series on April 30th and has insisted that it will talk to EA afterwards. Take-Two believes that EA’s buyout attempt as well as reported interest by others is simply an attempt to buy a franchise on the cheap.

Unsolicited takeover offers like these have become increasingly common as larger companies seek to add valuable brands to their portfolio rather than retain key executive. However, these offers can be difficult as investors tend to hold out for a better offer until the last second while boards negotiate a deal behind the scenes if majority shareholder support is in place. This situation is no different and illustrates the clear value of Take-Two’s franchise game.

Interestingly, Take-Two’s existing board consists of hostile shareholders from a different era. The company’s previous management and board was ousted a year ago by dissident shareholders who installed directors from ZelnickMedia to control the company. It will be interesting to see how shareholders respond to this offer, and more importantly, how the board responds to the offer given their past skepticism in the offer.

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Time Warner’s (NYSE: TWX) AOL may be finally realizing that dial-up internet doesn’t have the brightest future. The popular internet service provider announced today that it purchased social media site Bebo.com for $850 million in an effort to boost its content network. The deal comes after a broad attempt to transform itself from an internet service provider to an advertising-driven content network. So, will this acquisition end up paying off?

Bebo is a social network that caters to the younger demographic with a focus on entertainment - a combination particularly attractive to advertisers. It is also the third largest social networking site, behind MySpace and Facebook by a large margin. However, Bebo is one of the largest social networks in Britain and is ranked number one in Ireland and New Zealand. This international exposure could be just the edge needed to create value.

Social media acquisitions are hard to value for investors. News Corporation’s (NYSE: NWS) purchase of MySpace was a record at the time and ended up paying off- the $580 million purchase is now worth an estimated $15 billion. However, Microsoft Corporation’s (NDAQ: MSFT) $240 million 1.6% stake in Facebook is still seen as overpaying. It turns out the Bebo also shopped itself to other competitors like CBS Corporation (NYSE: CBS), but many thought it was too expensive.

The acquisition fits well into AOL’s new content provider business model. The company has already launched 17 international websites over the last year and has plans to expand to 30 countries by the end of 2008. Bebo is not only the third largest social network in the U.S., but also has international exposure that could synergize well with AOL’s other holdings. Meanwhile, a string of ad-sales companies should enable the company to drive advertising dollars.

In the end, this is good news for Time Warner’s AOL division. It is possible that the company overpaid slightly, but perhaps the international exposure and prominence of Bebo made it worth the price. Regardless, it definitely marks a continued move away from the internet service provider business and towards the much more profitable content provider side of things. Combined, these factors make TWX a stock worth watching!

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Talbots Inc. (NYSE: TLB) announced yesterday that it lost money in the fourth quarter due to a drop in same store sales and charges from the acquisition of J. Jill stores in an 8-K filing with the SEC. For the fourth quarter, Talbots lost over $171 million or $3.23 per share compared to a basically break-even fourth quarter in 2006. Of the $3.23 loss per share, $2.71 was due to a write-down of intangible assets of J. Jill which was purchased in May 2006.

Talbot is specialty retailer and cataloger clothing, specifically children’s and women’s clothing through Talbots Kids and Talbots Misses. The company runs 25 separate catalogs, 140 superstores and 23 outlet stores. Unfortunately for the company, the May 2006 J. Jill acquisition has been less profitable than hoped and necessitated greater write downs because of lower growth and earnings for the brand.

The J. Jill acquisition was designed to update Talbots more traditional lines and drive growth; however, the brand has proved a money drain – not only is growth slower in that line rather than faster than Talbots other brands, but the women’s retail industry as a whole is experience a significant downturn.

The overall health of Talbot stores seem to be in decline with quarterly sales down 8% to $587 million from $638 million. Talbots President and CEO Trudy Sullivan said, “2007 was a difficult year for Talbots, However, we feel very good about the progress we have made, and believe we are well-positioned to succeed in 2008. Despite the challenges of a weak economic environment, we identified and implemented a number of key initiatives to drive improved short- and long-term performance.”

These key initiatives include closing its 78 men’s and children’s stores to focus on its core customer- middle-aged women.
Looking forward, Talbots forecasts 3% revenue growth for 2008 – even assuming “slightly negative” same-store sales growth. To turn the company around, management is going to have to continue closing under performing stores as well as reinvigorate its product offering.

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Fund.com Inc. (OTC: FNDM) set a new world record yesterday after it purchased the domain Funds.com for $9,999,950 in an all-cash transaction, according to an 8-K filing with the SEC. FST Limited decided to part with the domain and associated intellectual property in an purchase agreement dated October 1st of last year, which broke the record previously held by Business.com, which was sold for $7.5 million in 1999. So, what does Fund.com Inc. have planned for this new domain?

According to their 10-K filing with the SEC, Fund.com said that its new web presence will provide customers with free information about investment funds including original, aggregated and community selected articles about the fund industry, statistics on fund performance and other fund-specific detail. The objective is to establish Fund.com as a source of information for individual investors regarding investment funds, including mutual funds, hedge funds, money market funds, exchange traded funds, closed-end funds, commodity funds and other types of pooled investment vehicles.

What does this mean for investors? Fund.com plans to monetize the web property via online advertising, lead generation and referral fees. One of their subsidiaries, Fund.com Managed Products Inc., will also research and develop intellectual property in the form of fund investment indexes and related index-linked investment products and license these to third parties in consideration for recurring license fees paid to them based on a fixed percentage of assets managed by such their parties using their index-linked investment products.

Who will use this service? Fund.com believes that their target market is a multi-trillion dollar industry as reported by the Investment Company Institute (ICI). Hundreds of billions of dollars flow in and out of funds that receive money from individuals and investment firms. Fund.com believes that third party distribution of funds has largely been undertaken by financial advisors with traditional marketing channels, including in-person client meetings with brokers, so these are all marketing efforts that could be augmented with Funds.com.

In the end, the success of Funds.com remains to be seen after the record-breaking purchase. Regardless, this is definitely a stock that is worth watching over the next few months!

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French bank Societe Generale (EPA: GLE) is not having an especially good day. First, the French police raided its headquarters as part of the continuing investigation of rogue trader Jerome Kerviel - specifically, the police were looking into another SocGen employee who had extensive contact with Kerviel though the exact details of the raid have not been released yet.

Meanwhile, in the U.S. shareholder Phillip Barkett brought a lawsuit against the company on the grounds that it misled investors about its subprime loans as well as didn't take proper precautions against the actions of Kerviel. The Missouri resident who brought the suit owned American Depository Receipts of SocGen and allegedly lost $3,100.

The lawsuit, filed in U.S. District Court in Manhattan seeks to represent all purchasers of SocGen ADRs and all U.S. buyers of the bank's shares on any exchange between Aug. 1, 2005, and Jan. 23, 2008. It states that "[SocGen] thus gave investors no warning about the size of [its] losses," and "SocGen had a 'culture of risk' in which risky trading was tacitly permitted."

These allegations all stem from the shocking $7.5 billion in losses that SocGen, France's second largest bank, announced in January. Amazingly, the bank claims that these trades were carried out without its knowledge by 31 year-old Kerviel who was only a junior trader. These problems have only been exacerbated by recent general problems in the world capital markets which caused SocGen to take further losses in February.

SocGen shares are actually up because today's news, compared to that of the last two months, isn't particularly bad for the company - though shares are still trading more than 50% off their 52 week high.

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Washington Mutual, Inc. (NYSE: WM) shares rose today on speculation that Warren Buffett and Goldman Sachs (NYSE: GS) may be preparing to invest in the company. Shares jumped nearly 20 percent yesterday and continued their rise today after falling to a 12-year low earlier in the week. Many investors believe that the cash-rich Buffett may be looking to buy up some cheap financials at these levels and WaMu is definitely on sale! So, is WM a stock worth watching?

Washington Mutual reported its first loss since 1997 in the fourth quarter after itw as forced to write-down the value of its home mortgage unit by $1.6 billion and set aside $1.5 billion to cover bad loans. The bank also said that it would have to put aside $1.8 billion to $2 billion in loss provisions for the first quarter. Meanwhile, WaMu’s credit rating was lower to BBB from BBB+, bringing it just two steps above junk bond status.

Many analysts and investors are concerned about the company’s large exposure to high-risk markets and loan types that are performing poorly. These loans include home-equity lines of credit that have recently begun to see problems in California and other states hit heavily by the mortgage crisis. However, the Central Banks’ recent plan to inject liquidity in these markets combined with efforts to make mortgages more affordable could end up saving them from much of these losses.

Some are speculating that Warren Buffett has already begun building a stake in the company and plans to eventually merge it with his other large holding - Wells Fargo (NYSE: WFC). The idea may seem nothing more than a dream to some, but any such move could result in substantial value being unlocked for shareholders. WaMu shareholders would receive an ample buyout premium while Wells Fargo would get a cheap acquisition in today’s markets. Clearly, if the economy turns, this could become a great deal.

In the end, this is nothing more than a far-fetched rumor, but it is one that is definitely worth watching. Warren Buffett is one of the most popular investors, so his secrets get out more often than others. Whether or not there is any merit to these rumors remains to be seen, but investors should carefully watch for any Schedule 13D or Schedule 13G filings made by the great investor in WaMu!

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Google Inc.’s (NDAQ: GOOG) may have forked over 20 times DoubleClick’s estimated revenues of $150 million, but the acquisition now looks like it could pay off handsomely. The search giant wrapped up the $3.1 billion deal yesterday after it received approval from regulators in the European Union (see story). Many believe that Google will be able to leverage its existing businesses to make this acquisition a huge success. So, is Google a buy now?

Google has always focused on textual advertising as it can be easily quantifiable in terms of sales and is easily integrated into its search engine. However, there is also something to be said for the so-called “display advertising” business that seeks to promote brands more than just generate sales. This is where DoubleClick steps in as it has relationships with virutally every major online publisher and more htan half of the online ad agencies.

The display advertising industry itself is worth around the same as the textual advertising business. The three major players, including Yahoo! (NDAQ: YHOO), Microsoft’s (NDAQ: MSFT) MSN, and Time Warner’s (NYSE: TWX) AOL, brought in over $10 billion in such advertising in 2007. Meanwhile, banners will account for more than 40% of the $19.5 billion expected to go to online advertising this year. All of this compares to a mere $5 billion in revenues from Google from its textual advertising business, in which it is the largest player.

The million dollar question is: How much can Google grow DoubleClick’s business? Many believe the answer to that question is “substantially” given the fact that the search giant already has both a platform and relationships with thousands of publishers and advertisers. The value then becomes very clear: If Google can take a mere 10% market share, it could mean new revenues of well over a billion dollars. Additionally, these revenues would be on a high profit margin, so they would impact the bottom line.

Many investors are hoping that this is the case, since Google’s textual advertising business has been waning lately. The acquisition also gives Google more exposure to different publisher and advertiser demands, meaning that it could convert itself to a one-stop shop for online advertising and squeeze others out of the space. In the end, these factors make GOOG a stock worth watching closely over the next year as investors get a glimpse of just how valuable this acquisition really was!

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Vaalco Energy Inc. (NYSE: EGY) shares were revitalized today after the company’s largest shareholder demanded a sale in a Schedule 13D filing with the SEC. The news comes after shares in the company fell around 30% in 2007 compared to a 45% rise in its peer group during the same period. Meanwhile, the company’s expenditures on failed drilling projects in the North Sea has pushed its valuation down far below where it should stand. So, will this new call to action be heard by management?

Nanes Delorme Partners, which owns an 8% stake, sent a letter to Vaalco’s board expressing its belief that the company is undervalued and suggesting that the best way to unlock value would be to immediately evaluate a range of strategic alternatives. Those familiar with activist investors know that “strategic alternatives” generally just means one alternative - a sale of the company. Such a move could unlock substantial value for shareholders.

Nanes Delorme estimates that the net asset value of Vaalco lies around $420 million, which equates to about $7.12 per share. This represents a substantial 46% premium to its closing price on Tuesday. The activist hedge fund also conveyed the fact that the company had rebuffed private inquiries regarding a potential acquisition several times at substantial premiums to the current share price. This means that there is clearly interest in the company.

As always, there is a reason for this undervaluation that should not be dismissed. Management has been spending cash acquiring and drilling minor North Sea interests that have been total exploration failtures. Recently, this included a $12 million drilling hole that has yielded no oil. These and similar projects have resulted in a substantial cash drain that could continue to destroy value unless someone stops it. Shareholders are now hoping that Nanes Delorme is that someone.

In the end, this is all great news for Vaalco shareholders. Nanes Delorme is committed to unlocking value for all and even went so far as to say that it could bid for the entire company if it felt its concerns were unheard. And why not? If there is already other interest, it could be flipped for a quick profit! Regardless, this is a situation that is definitely worth watching over the next few months!

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Time Warner Inc. (NYSE: TWX) appears to finally be tuning into the idea of a spin off of its cable division. The media company has been conducting a formal review of how to divest its 84% stake in Time Warner Cable (NYSE: TWC), but depressed cable valuations have somewhat limited its options. Interestingly, the proposed spin off was designed more to increase Time Warner Cable’s strategic options than a way to unlock value for shareholders. So, is this a stock worth adding to your portfolio?

Chief executive Jeff Bewkes signaled yesterday that a split between Time Warner and Time Warner Cable may be beneficial for both companies. The executive believes that a separation of the two may spur merger and acquisition interest in the cable company with the parent’s large stake absent in any transaction. Bewkes also commented, wisely, that it doesn’t matter what size Time Warners conglomorate is but rather whether the return on capital is higher.

Spin-offs themselves are also worth watching because they create opportunity through inherent neglect. Studies have shown that spin-offs tend to significantly outperform the S&P 500 in the first two years by as much as 31% in one study. It is worth noting, however, that the optimal time to buy a spin-off is seen as six months after it takes place. Price performance suggests that this is typically an optimal period to buy to realize the maximum price appreciation over the next 12 to 18 months.

Time Warner Cable is the second largest cable operator in the United States behind Comcast Corporation (NYSE: CMCSA), serving around 14.6 million customers in 33 states. The division also delivers high speed internet services to over 7.4 million residential customers and a growing number of businesses and digital phone services to approximately 2.6 million customers. The cable division is also widely accredited for leading the industry in deploying Video on Demand via subscriptions.

So, will a spin off unlock value for shareholders? The spin off will leave Time Warner Cable much cheaper and more readily available for acquisition while a the spin off may also result in substantial value inherently being unlocked. In the end, these factors make CMCSA a stock worth watching!

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The Boeing Company (NYSE: BA) isn’t happy about the U.S. Air Force’s recent decision to award European competitor Northrop Grumman (NYSE: NOC) with a major military contract and it is throwing a very public fit. The aerospace company called the competition for its air tanker contract “seriously flawed” and even so far as to say that the Air Force selected the “wrong airplane” for the warfighter. The move highlights the increasing concerns surrounding military contracts and could result in some widespread industry and governmental changes.

“This is an extraordinary step rarely taken by our company, and one we take very seriously. Based upon what we have seen, we continue to believe we submitted the most capable, lowest risk, lowest (cost) … airplane,” said Jim McNerney, chairman, president and chief executive officer of Chicago-based Boeing. Program manager Mark McGraw added, “Our analysis of the data presented by the Air Force shows that this competition was seriously flawed and resulted in the selection of the wrong airplane for the warfighter.”

Boeing filed a formal protest with the U.S. Government Accountability Office (GAO) regarding the airforce’s decision charging that the Air Force changed the rules for choosing the tanker during the course of the competition, which resulted in the Air Force choosing an inferior plane. Coincidentally, without the contract, Boeing may be forced to shut down its 767 line in Everett by 2012. So, while Boeing has portrayed the government as at fault, it could have other motives.

Let’s not forget when former Boeing chief financial officer Michael Sears received four months in prison for illegally negotiating a $250,000-a-year job for an Air Force contracting officer while she held sway over a potential multibillion-dollar contract sought by the aircraft manufacturer. Then again, problems are hardly limited to Boeing. Many major players in the defense industry have built strong bonds with Air Force personnel in order to sway decision-making.

The apparent corruption in government military contracting has been a much heated debate that is just starting to receive the attention that it should from lawmakers. These regulators are now looking for ways to better control the process and open it up to as many bidders as possible to get the best price possible. Whether or not these decisions will yield any real results remains to be seen, but this event certainly adds gas to the fire!

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Google Inc. (NASDAQ: GOOG) officially took over ad tracker DoubleClick Inc. today after the EU approved the $3.1 billion deal first announced almost a year ago. The EU found that the deal won't prevent competition in online advertising. Its official statement read:

“The Commission’s in-depth market investigation found that Google and DoubleClick were not exerting major competitive constraints on each other’s activities and could, therefore, not be considered as competitors at the moment.”

Google shares are up almost 5% on the news, with Google CEO and Chairman Eric Schmidt writing in his official blog that he is "pleased to share the news that we completed our acquisition of DoubleClick today. Although it's been nearly a year since we announced our intention to acquire DoubleClick last April, we are no less excited today about the benefits that the combination of our two companies will bring to the online advertising market."

United States regulators cleared it in December. Approval from the EU was the last hurdle before the deal could conclude.

The combination of the two companies led to objections from companies such as Microsoft and Yahoo, who were concerned about Google's potential control over ad prices. U.S. regulators, however, dismissed such concerns in December, and now with EU approval the real question is whether Google will indeed reap benefits from the acquisition.

Schmidt said combining with DoubleClick will allow more rapid ad advances, specifically better ad targeting. The major concern stemming from such promises is not economic but personal privacy. Ad targeting requires knowing the user, and privacy advocates are very concerned about such developments.

Setting aside such concerns, the fact is that this purchase finally gives Google a place in online display ads - which is good news for them and bad news for their competitors.

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Target Corporation (NYSE: TGT) may be a little too loose with its money after it ended the fourth quarter with $8.62 billion in outstanding loans on its consumer credit card division. The attitude of invincibility has many analysts and investors worried at a time when other credit card issuers like American Express (NYSE: AXP) are suffering from rising defaults. However, others argue that private label cards won’t follow the same trends as pure-play credit card companies. So, are these concerns legitimate or simply the product of an overzealous analyst?

Target is one of the only retailers that is actually expanding its private label credit card business during these tough economic conditions. The company’s $8.62 billion in outstanding loans is up 29% from its $6.71 billion outstanding a year earlier. Worse, Target relies heavily on the division to drive revenues with $103 million of its $128 million in earnings last year coming from credit cards. These issues have many analysts worried that the retailer has taken a far too aggressive stance during a tough economic time period.

Many investors and analysts are concerned that the high lagged loss rate may mean that the company relaxed its underwriting standards too much as it pushed many of its private-label cardholders to Target Visa cards with much greater lines of credit. As a result, many are predicting the company’s loss rate associated with its credit card division to be in excess of 8% for the year. Meanwhile, the company’s high growth rate in the past makes it difficult to see any deterioration in credit that has already happened.

Target officials, however, dismissed these claims as simply unwarranted. Chief Financial Officer Douglas Scovanner told the Wall Street Journal that the growth in the credit card portfolio is absolutely not a function of a loosening of credit standards or a lowering of credit quality in their portfolio. The executive also noted that he expects the company report credit losses on about 7% of its loans this year, which is up from 5.9% in the last fiscal year - but hardly a catastrophe.

In the end, these concerns are certainly warranted given Target’s significantly worse creditworthiness and default rates. However, the company has already forecasted a 7% loss rate that should account for most of these expected losses. The accurate estimate remains to be seen, but this is definitely a situation worth watching given Target’s huge reliance on its credit card division for earnings growth!

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Build-A-Bear Workshop, Inc. (NYSE: BBW) shareholders may have to build their value somewhere else. The interactive entertainment retailer announced today that tightened credit markets and a weak retail environment prevented it from pursuing the strategic alternative that so many investors were expecting - a sale. Instead, the company opted to double its share repurchase program and adopt a broad range of operational initiatives according to their 8-K filing with the SEC. So, is this 15% decline justified?

Investors may be disappointed with the lack of a sale, but perhaps it is understandable given the current economic climate. Instead, the company chose to focus on improving its operation performance until things improve. Specifically, the company decided to adopt the following initiatives:

1. Focusing on existing store sales by slowing new store growth to approximately 25 stores - down from 50 stores in 2007 - and realigning store operations management by creating a new position, Managing Director - Workshop Experience, focused on continuing to energize and update the store experience.
2. Enhancing brand appeal with children and growing store sales through raising awareness of our new online “world” website, buildabearville.com.
3. Continuing the position traction experienced in the European operations during the fiscal 2007 fourth quarter through raising brand awareness, increasing average transaction value, and continuing growth of the in-store parties business.
4. Growing store sales by leveraging and expanding our loyalty club program through improved and more frequent communication to members, adding new Guests to the club, and introducing the program in United Kingdom stores.
5. Attracting new Guests through multimedia marketing initiatives, including a new TV advertising campaign that will launch in the second quarter and will leverage buildabearville.com as a new platform for communicating with Guests.
6. Expanding international franchise fee revenues with the addition of 15 to 20 new franchise stores, including a new store in the United Arab Emirates.

These initiatives are all good news as they will force the company to limit its spending while increasing its revenues. This, in turn, should expand its multiple and make any future acquisitions much more attractive to shareholders. So, while today’s news may be bad for the short-term, it is likely the best solution for the long-term. Combined, these factors make BBW a stock worth watching closely over the next year!

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Cadbury Schweppes (NYSE: CSG) finally set the date for the highly anticipated spin-off of its U.S. beverages unit in a 6-K filing with the SEC. Shares in the spin-off are to list on the New York Stock Exchange on May 7th if the measure is approved at the company’s upcoming April 11th meeting. The division - to be called Dr Pepper Snapple Group - includes Schweppes, Dr Pepper cola, Canada Dry ginger ale and fruit-flavored Snapple teas. So, should investors look to buy into this spin-off?

The Dr Pepper Snapple Group will own some of the best brands in the industry. Snapple alone has proven to be a great investment for its many holders, including Nelson Peltz who purchased it for $300 million and sold it for $1.5 billion in just three years! Last year, Cadbury received a large offer from two consortiums of investors including Blackstone, Lion Capital, Bain Capital, TGP and Thomas Lee. However, the company rejected all of these offers in favor of a spin-off.

Spin-offs themselves are worth watching because they create opportunity through inherent neglect. Studies have shown that spin-offs tend to significantly outperform the S&P 500 in the first two years by as much as 31% in one study. It is worth noting, however, that the optimal time to buy a spin-off is seen as six months after it takes place. Price performance suggests that this is typically an optimal period to buy to realize the maximum price appreciation over the next 12 to 18 months.

Cadbury has yet to approve the spin-off and provide additional financial details, but this is definitely a situation that investors should watch. There is clearly a lot of interest in the U.S. beverages division while the spin-off process itself is known for generating value for shareholders. Combined, these factors make CSG a stock worth watching over the next year or so as this spin-off comes to fruition!

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Tecumseh Products Company (NDAQ: TECUA) may provide relief from the heat for its customers, but its shares are quickly heating up. Stock in the hermetic compressor manufacturer rose nearly 15 percent in early trading after a large shareholder suggested that the company put itself up for sale in a Schedule 13D/A filing with the SEC. The move comes after some tension between the two parties and is seen as a logical next step. So, should you buy some TECUA while it’s in play?

The Herrick Foundation owns approximately 17.5% of Tecumseh in the form of a charitable trust. The Foundation’s relationship with the company turned sour last March when it sued the company for governance disputes. The two reached a settlement a month later that involved the resignation of some board members and the installation of many new ones. Among them, a representative from the Herrick Foundation that the company must continue to nominate during the term of the settlement agreement.

The strained relationship between the Herrick Foundation and Tecumseh prompted the Foundation to explore ways to sell its stake. Given the size, there is not an easy way to do this without a private placement or substantial losses. As a result, the Foundation sent a letter to the board demanding that it form a committee to explore the possible sale of the company to strategic and/or financial buyers. Meanwhile, the Foundation would approach potential buyers regarding their interest in purchasing the Foundation’s shares or the company as a whole.

The only roadblocks standing in the way of a potential deal are poison pills, a Class A Protective Provision, and a few other anti-takeover provisions. However, the large ownership stake in the company and sympathetic directors on the board make this deal one that is likely to see the light of day. Combined, these factors make TECUA a stock worth watching closely as this situation progresses!

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Countrywide Financial Corp (NYSE: CFC) shares are down significantly on reports it is being investigated by the Federal Bureau of Investigation for securities fraud, specifically whether it didn’t disclose its true financial condition and the poor quality of its mortgage loans in required regulatory filings. This new FBI investigation is in addition to SEC and Congressional probes already looking into the company.

The headline-making FBI probe led to speculation that Bank of America Corp (NYSE: BAC) might try to significantly renegotiate or even abandon its purchase of Countrywide. In January, Bank of America agreed to purchase the mortgage lender for $4 billion.

Despite such speculation, Bank of America spokesperson Scott Silvestri said today that “the transaction is on track.”

California-based Countrywide was the largest U.S. mortgage lender and particularly vulnerable to the declining real estate market that has led to record defaults and decreased availability of investor capital. Its upcoming operating report for the month of February, expected within the next few days, will reveal how badly Countrywide was further hit by last month’s new round of capital market problems.

Before the news of the FBI probe, Countrywide shares were trading almost 25% below Bank of America’s agreed purchase price, showing that investors lacked confidence in the deal. The proposed agreement gives Countrywide shareholders 0.1822 Bank of America shares for each Countrywide share, which as of Friday’s closing price for Bank of America stock valued a Countrywide share at about $6.70. Countrywide’s actual closing price Friday was $5.07.

Though the gap between Countrywide’s trading price and the purchase price may attract some short-term traders, the huge uncertainties created by this new FBI investigation mean the smart money is staying clear of Countrywide for now.

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Select Comfort Corp. (NDAQ: SCSS) may help its customers sleep well at night, but many of its shareholders are definitely losing sleep on with stock’s performance. The mattress-maker saw its shares drop over eight percent today after one of its largest shareholders sent a letter to the board demanding changes in a Schedule 13D filing with the SEC. So, will the company respond with shares trading at their 52-week low?

The Clinton Group, which owns a 5.07% stake in Select Comfort, requested a meeting with the board to address its concerns about missteps they believe the company has taken that have resulted in a deterioration of performance and that has obscured its strong growth prospects. The activist hedge fund joins many other dissident shareholders created as a result of a shocking 80% decline in market value over the past 52 weeks.

The Clinton Group believes that the board and management should immediately implement several initiatives designed to give Select Comfort strategic direction and restore its operational performance:

1. Revise marketing strategy to refocus on direct marketing.
2. Disband the “Quality of Life Advisory Board” as a wasteful use of company resources.
3. Review its store portfolio to eliminate underperforming stores.
4. Immediately cease all new store openings and spending on unnecessary capital expenditures until sales results improve.
5. Eliminate stores in regions where the Company does not have the critical mass to justify its advertising and the overhead for that region, and then eliminate the excess regional and corporate overhead.
6. Freeze spending on the SAP system installation until it is evaluated by an independent consultant.
7. Consider subleasing or disposing of the costly new corporate headquarters and conduct a study on the future needs of the Company in light of its anticipated growth.
8. Revise new Chief Executive Officer performance metrics to earn 2008 base salary to align with shareholders interests.
9. Consider outsourcing its call center operations.

“The dramatic declines cannot be blamed on a difficult macroeconomic environment alone, as the declines in the broader consumer discretionary indices and overall market declines have not been nearly as severe,” said Clinton Group Vice Chairman Jerry W. Levin in a letter to the board. “Even in a difficult market, we believe that the Company should be able to capture market share if it effectively communicates the value of its mattress products with respect to comfort, sleep quality, and price.”

In the end, Select Comfort is a solid company trading at just 6x earnings because of investor concerns about its future. Luckily, simple solutions are available that can be implemented in order to alleviate these concerns and restore investor confidence. The Clinton Group has clearly outlined these steps and it will be interesting to see whether or not the company embraces them. Combined, these factors make SCSS a stock worth watching!

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Kraft Foods Inc. (NYSE: KFT) is one of Warren Buffett’s most recent investments and shares are now trading just off their 52-week lows. This means that the average investor now has the opportunity to invest alongside the Oracle of Omaha at an even better price. Shares in the packaged food company rose substantially after its spin-off from parent Altria Group (NYSE: MO), but declined in recent months amid a weak U.S. economy. So, is KFT a buy at these levels or could it go lower?

Few can dispute the fact that Kraft is cheap at these levels- after all, if the world’s richest man invests you know it’s a good deal! The stock currently trades at just 19x earnings with an even lower forward multiple of just over 14x earnings. Perhaps more intriguing is fact that the company is trading at a 40% discount to enterprise value with strong free cash flows of $1.75 billion and a healthy debt-to-equity ratio of just 0.77x. It is clear that KFT is attractive on a fundamental standpoint, which is likely why Buffett is interested.

Kraft’s three year turnaround plan is also starting to pay dividends as the company continues to introduce new products while cutting overhead costs. The new product offerings include Bagel-fuls (bagels with cream cheese inside), Nilla Cakesters (a cake version of the Nilla Wafers), and a complete overhaul of the company’s salad-dressing products. Meanwhile, the company also announced that it has cut seven hundred jobs recently as a part of its plan to lower costs over the next year.

The key barrier to overcome, however, continues to be sagging profit margins. Higher commodity costs have eaten into the Kraft’s profit margins as it is unable to pass on the costs to customers amid weak consumer spending. The company insists that it will be able to increase prices in 2008, but many analysts remain skeptical that consumer spending will improve in such short order. It is worth noting, however, that Kraft continues to have one of the highest margins in the industry, so things aren’t as bad as they seem.

In the end, value investors like Warren Buffett like this stock because of its cheap valuation which can be attributed to temporary problems in the U.S. economy. Once prices can be raised, profit margins will improve, earnings per share will increase, the multiples will increase, and the share price will go up substantially. This process could take a few years to happen, but investors like Buffett prefer to buy at the bottom. This makes KFT a stock worth watching!

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McDonald’s Corporation (NYSE: MCD) posted strong results alongside Wal-Mart Stores (NYSE: WMT) as a growing number of consumers seek out value in today’s weak economy. The world’s most popular fast food chain saw a 12 percent rise in same-store sales, driven in the U.S. by strong performance from its breakfast, premium coffees and “everyday value” offerings. Meanwhile, overseas growth was driven by a weaker U.S. dollar that kept prices cheap. So, is MCD a buy?

Chief Executive Officer Jim Skinner commented, “McDonald’s consolidated performance continues to reflect our enduring profitable growth with comparable sales up 6.8% for the year – one of our strongest increases since the initiation of our Plan to Win. We continue to drive our business by linking consumer insights to our strategies of convenience, branded affordability and innovative menu offerings.”

Many investors were worried about McDonald’s after weak consumer spending and higher food costs hit its sales in the fourth quarter. You see, fast food chains are not able to pass on high food costs to consumers without losing sales in today’s weak consumer spending environment. However, McDonald’s was able to keep prices low with its efficient food distribution system while a weak dollar helped spur sales outside of the United States.

It is also important to realize that these numbers aren’t all they seem. McDonald’s earnings did receive a 6.7 percent boost from the decline in the U.S. dollar while 4 percent of its same-store sales increase can be attributed to the extra day from the leap year. However, the results are definitely an improvement from its fourth quarter numbers and should help restore investor confidence in the company.

McDonald’s also reaffirmed its commitment to maximizing shareholder value. It seems that the fast food chain has learned its lesson after its encounter with activist Bill Ackman and vowed to continue its target $15 billion to $17 billion cash return to shareholders between 2007 and 2009. McDonald’s also announced that it would begin a quarterly dividend beginning in 2008 starting at $0.375 per share. This is great news for shareholders as a combination of buybacks and dividends should help keep the company’s multiple near or above that of its peers.

In the end, McDonald’s has proven itself to be a strong company in a weak economy thanks to its value pricing and international exposure. Investors looking for a familiar name but international exposure may want to think about adding MCD to their portfolio. Combined, these factors make MCD a stock that is definitely worth watching over the next year!

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Foxby Corp. (AMEX: FXX) is an actively managed exchange traded fund (ETF) that is currently trading nearly 20 percent below its net asset value (NAV). The discount in the fifth largest among ETFs and is quickly drawing attention from activist shareholders who want to unlock that hidden value. Investment Partners Asset Management made such an attempt in a letter to the board found in its most recent Schedule 13D/A filing with the SEC. So, what are the odds of this 20 percent valuation gap being closed?

Discounts to net asset value are nothing new and can occur for a variety of reasons. First, investors may believe that the firm’s assets are going to decline in the future. Secondly, inferior performance compared to major indicies may cause investors to question why they are investing. Third, high expense ratios can substantially cut into returns. And finally, a thin trading market for the ETF’s shares can use greater volatility.

IPAM alleges that Foxby shareholders are a victim to all of these reasons combined with poor corporate governance. The firm’s directors and management are firmly entrenched with ridiculous bylaws. For example, the board has five classes of directors staggered- so that any proxy contest would have to wait through five separate elections! Perhaps worse, neither the firm’s independent directors nor the chairman were present in person or by telephone at the company’s last annual meeting!

Meanwhile, the Foxby has also been engaging in dubious transactions that simply do not make financial sense. For example, on September 24, 2007, the company used roughly 4% of its net assets to purchase $400,000 of a private company’s securities- Amerivon Holdings LLC 4% Participating Convertible Promissory Notes. The problem was that the assets were valued at just $260,000 merely six days later! It looks as if the firm has spent so much time concentrating on what they can legally do to shareholders that they have lost a sense of what they should do for shareholders.

As a result, IPAM suggested that Foxby explore converting itself into an open-ended fund. This would allow for several things to happen. First, management expenses would be far lower since not as much work is needed. Second, the capital loss carryovers would survive in part if there is a common ownership profile. Third, the discount to net asset value would be reduced to zero because open-ended funds trade once per day at NAV. And finally, the fund would become fully liquid for current or potential invesotrs who wish to enter or exit.

Clearly, there are severe problems at Foxby and this proposed solution could help shareholders realize a 20% gain in mere months if the conversion takes place. This makes FXX a stock that is definitely worth watching!

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Carlyle Capital Corporation (OOTC: CARYF) received a $1.45 billion dollar loan from ING Group (NYSE:ING) in January according to a Dutch news site. The site found a reference to the loan in Carlyle Capital's annual report, but since the story has broke neither ING nor Carlyle have commented.

Carlyle Capital shares were suspended in trading on the Amsterdam Euronext stock exchange, where it is listed, on the news.

Carlyle Capital was floated from its parent, the private-equity firm Carlyle Group, just this last July. Washington, D.C.-based Carlyle Group has more than $74 billion in equity under its management. Founded in 1987, the firm became known for leveraged buyouts in the defense, automotive, and telecommunications sectors. Carlyle Capital was a branch designed to invest in mortgage backed securities using large amounts of leverage. Investing is such securities with leverage, combined with its distinction from Carlyle Group, meaning the parent is not responsible for its debts, immediately raised eyebrows.

It seems as though the fears have become reality as the subprime mortgage crisis has put Carlyle Capital on the brink. The only real financial connection Carlyle Group has to Carlyle Capital is a $150 million credit line, which presumably Carlyle Capital has already exhausted.

'The company believes these additional margin calls and increased collateral requirements could quickly deplete its liquidity and impair its capital,' Carlyle Capital released in a statement. It looks like Carlyle Capital's coming debacle will have to serve as another stern reminder of the seriousness of the remaining mortgage fallout. Only time will tell who's next.

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Ambac Financial Group, Inc. (NYSE: ABK) shares dropped sharply today after the company announced that it would raise $1.5 billion by issuing stock in an effort to maintain its rating. The move will massively dilute existing shareholders by nearly tripling the number of shares while many analysts still question whether it will be enough for the bond insurer to stay alive. Meanwhile, investors sold off the stock again as questions intensify regarding Ambac’s ability to stay afloat. So, will this latest attempt be enough to pull the company out of the water?

Ambac initially ran into trouble when the subprime mortgage market collapsed. Many complex securities comprised of these mortgages and other assets (like CDOs) saw their values decline substantially- and these were insured by Ambac. Now, Ambac is responsible to paying out these claims that many estimate to be $100 billion for the entire financial sector. Many activist investors like Bill Ackman suggest that there simply is not enough money to go around and believes bond insurers will be forced to declare bankruptcy. Meanwhile, Buffett even pulled his offer to help amid worry.

That’s not the only problem: Bond insurers are also losing out on any new business. These companies rely heavily on ratings organizations to give them credibility, so the recent downgrade by Fitch from “AAA” to “AA” puts Ambac in some serious trouble. It is unlikely that the company will be able to attract any new business without a top “AAA” rating. Ambac’s latest attempt to raise $1.5 billion is designed to help it regain this “AAA” rating, but many analysts feel that it will still come up short. Fitch analyst Thomas Abruzzo said in an interview that the company still don’t have triple A levels of capital even with this raise. Instead, they need to effectively lower the downside risk on the structured finance CDOs that they have insured, which now amounts to around $32 billion.

Finally, the move also has shareholders outraged. The troubled bond insurer priced the shares at $6.75, which is 9% below Thursday’s closing price. Since the new shares will more than triple the number of shares outstanding, this effectively automatically lowered the stock price by ten percent without warning while also forcing existing shareholders to share much of any potential upside. Ambac said that it has already sold 14.1 million shares in a $95 million private placement while concurrently pricing a $250 million offering of five million equity units.

In the end, this is bad news for shareholders as they are not only diluted but still own a company with serious problems. Many analysts are unsure whether or not Ambac will be able to pull itself out of the water, and shares are likely to only continue their move downwards until everything gets sorted out. Combined, these factors make ABK a stock worth watching!

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Sprint Nextel Corporation (NYSE: S) shares rose sharply today after the rumor mill shifted into over-drive and suggested that the company may be interested in spinning off Nextel. The speculation stems from the fact that the telecom company will likely have to write-off most of the remaining $30.7 billion in non-cash goodwill value from its $35 billion ill-fated acquisition of Nextel and its affiliates. Indeed, the acquisition has proven to be nothing but problems as Sprint stock lost more than 60 percent of its value trying to integrate the two companies. So, does this rumor have any merit and what would it mean for shareholders?

The idea of a Nextel spin off should come as that much of a surprise. Activist investor Ralph Whitworth was appointed to the board in February and there has been much talk that he would push for drastic changes. Whitworth’s Relational Investors owns a 2% stake in the firm and has been critical of Sprint’s poor performance. In particular, he was very concerned about the company’s plan to spend $5 billion or more on its WiMax initiatives. Instead, the investor hinted that the company pursue other initiatives aimed at unlocking value instead of building expenses.

The Nextel acquisition itself was ill-fated from the very beginning. Sprint experienced a massive customer migration to competitors Verizon Wireless (NYSE: VZ) and AT&T Inc. (NYSE: T) shortly after the merger thanks to technical problems, unfocused marketing and difficulty in combining the two very different company cultures. Shareholders who are already stinging from a $29.7 billion write-down in the fourth quarter are surely ready to get rid of this dog before it attracts more fleas.The idea of a spin off is appealing because it could end up solving all of these problems.

The other big reason to spin off Nextel is to make Sprint a cheaper stock. Merrill Lynch analysts are suggesting that Deutsche Telekon, which owns T-Mobile, may be interested in acquiring Sprint in order to block a price war in the mobile phone industry. A spin off of Nextel would make Sprint a much cheaper purchase with far less of a burden and may increase the likelihood of such a deal. The only downside is that Sprint would be getting a bad price for the Nextel business given the poor market. In the end, this is definitely an interesting situation that is worth following!

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The Blackstone Group (NYSE: BX) has fallen sharply from its peak of $38/share all the way down to its current level of around $15/share over the last year. Analysts are now saying that the $100 billion private equity fund could earn less than half of what was expected during the fourth quarter thanks to increasing credit market turmoil. In fact, leveraged buyout plunged more than two-things in the second half of 2007 compared to the first half of the year. Much of this is due to banks pulling financing out of existing deals and refusing to finance new deals. The result has been an earnings outlook cut over 50 percent from late last year. So, what does this mean for Blackstone shareholders?

Just last year, private equity funds were in a “golden era” with spectacular deal sizes and record profits. Things quickly changed when deal financing from traditional banks dried up, putting private equity firms in a tough position. These firms make big profits through leveraging themselves and then milking a businesses cash flow, selling off non-core assets, and/or turning the businesses around to re-IPO. However, without any cheap money to go around, the process becomes much more difficult.

The solution? Blackstone announced that it is now workong on deals to bypass this reliance on traditional banks and instead get M&A financing from hedge funds and mutual funds directly. This could end up altering its fee results since these parties would likely charge more than banks, but may end up enabling it to obtain more attractive non-financial terms. The private equity giant also continues to raise money from the all-popular sovereign wealth funds, like China’s foreign reserve agency that recently bought a 10% stake.

Blackstone still faces a variety of problems before it can turn around. The private equity fund was sued by Alliance Data Systems last month for not being able to finish its $6.6 billion acquisition of the company, but that was recently dropped in hopes a new deal could be cut. Meanwhile, regulators are also pushing through changes to the taxation of fees charged by hedge funds and private equity funds. Currently, these firms enjoy paying only capital gains tax on their fee income, but this may soon change to the full corporate tax rate. This could mean a jump from around 15% to closer to 40% of net income going towards taxes. Many firms like Blackstone were grandfathered in, but will likely face higher taxes in a few years.

In the end, Blackstone looks like it is in a little trouble right now. A tight credit market has limited its access to leveraged capital while it is still working out the details for alternative financing. If the firm is able to identify alternative sources of financing, this stock could quickly move up. However, many analysts don’t believe the pain will be over until the credit markets improve. In the meantime, this could be a great time to load up on some cheap stock!

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Wal-Mart Stores, Inc. (NYSE: WMT) reported spectacular results this quarter despite disappointing results from its peer group. The world’s largest retailer posted same-store sales number up 2.6% as shoppers tighten their wallets and target the cheaper options. The trend may seem predictable to the average person, but many analysts were caught off-guard with their estimates. Wal-Mart also decided to hike its dividend from $0.88 to $0.95 per year. The move is likely designed to jump-start its multiple that has been trading below peers despite strong growth. So, is this mega-retailer a buy now?

Wal-Mart’s target demographic continues to grow larger as an increasing number of consumers make the switch from quality to value. This should translate into very real growth for the world’s largest retailer as many analysts are now expecting the stock to reach $70 per share if economic and stock market conditions improve within the next 12 to 18 months. Many were previously concerned that weakness in U.S. consumer spending may hurt growth, but it now appears that the company’s “value” image is actually leading to more shoppers purchasing its products.

Unfortunately, the tough environment for retailers may prevent Wal-Mart’s multiples from expanding too much despite strong growth. Decreased consumer spending hurt many players in the industry, including apparel stores like Gap Inc. (NYSE: GPS), Limited Brands, Inc. (NYSE: LTD) and J.C. Penney Co. (NYSE: JCP). Slowdowns in the industry may lead to a lower industry mutliple that so many investors rely on for valuing companies. However, a look at the true measure of valuation, PE to growth (PEG), suggests that Wal-Mart remains undervalued compared to its peers. But in the end, it will take an industry recovery for its multiple to expand and share price to jump.

In the end, this is all good news for Wal-Mart shareholders. Same-store sales have increased during an economic downturn while its profits were also up dramatically. However, it may take some time before the fruits of these improvements are picked on Wall Street thanks to a slowdown in the rest of the economy. If there is a broad recovery in the next year or two, look for Wal-Mart to hit and surpass $70 per share. Combined, these factors make WMT a stock worth watching!

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Motorola, Inc. (NYSE: MOT) warned shareholders today that it has not endorsed activist investor Carl Icahn’s nominees for its board as the troubled company’s annual meeting approaches. However, a growing number of dissident shareholders alongside a plummeting stock price has his odds of a successfully proxy campaign running pretty high. Motorola shares nearly halved since shareholders last rejected Icahn’s bid for board seats to under $10 per share. So, are shareholders ready for change and is Carl Icahn the right man to bring it?

Carl Icahn recently revealed a 6.3% stake in Motorola via a Schedule 13D/A filing, which may indicate that he believes in his odds this time around. The activist investor plans to continue pushing the company towards spinning off its handset division into a standalone company to be led by an outsider. Motorola’s attempt to shop the division have failed and now this appears to be the only option, but many analysts are concerned that a sale now would not obtain full value for its core division. Icahn’s planned spin-off may circumvent this problem by allowing the company to get rid of the division while still retaining a stake that could be held until a successful turnaround takes place.

The problem is that this turnaround could take some time. Motorola’s handset division continues to struggle with declining market share and lower earnings as it loses its dominant edge gained by record sales of the Razor. Now, many service providers are expanding their offerings to include other handset makers like Nokia which could further erode their market leadership. Meanwhile, this slow in growth combined with tight credit has led to no strategic or financial suitors for the division. As a result, investors who were looking for this quick fix are now realizing they may face a long road ahead and began selling off shares.

Carl Icahn now faces increased odds of successfully obtaining valuable board seats that he promises to use to aggressively pursue his agenda. A spin-off of the handset division would likely unlock at least some value in the company’s shares while the excess cash could be used to fund further share repurchases to boost earnings. Meanwhile, any meaningful turnaround in its growth could also expand its multiple and turn this stock into a big with for the activist investor. Whether or not he can pull it off remains to be seen, but this is a situation that is definitely worth watching closely over the next few months!

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Blockbuster Inc. (NYSE: BBI) shares fell sharply today despite announcing strong results proving that it can still compete against online video rental and streaming online video services. The movie rental chain announced in its latest 10-K annual report that its fourth quarter profits grew by 360 percent on the heels of aggressive cost-cutting and the repositioning of some of its subscription offerings. The stock price quickly jumped 3.4 percent in morning trading before investors began to realize that actual revenue increases amounted to just four percent growth year over year. So, can Blockbuster compete or will it eventually face reality?

The market for video rentals is a quickly changing one that many are struggling to grapple. DVD rentals themselves continue to grow as Americans spent some $7.5 billion in 2006, but growth flattened in 2007 thanks to the rise of online downloads and video-on-demand services offered by cable providers. Meanwhile, Netflix (NDAQ: NFLX) has proven to a more near-term threat that has also taken a large part of the company’s market share over the year. Combined, these revelations caused Blockbuster shares to halve last year to around $3 per share where it has remained until now.

Blockbuster does have a secret weapon, however, in the form of its subsidiary Movielink. The online movie download service was formed in 2002 by a group of major movie studios including MGM Studios, Paramount Pictures, Sony Pictures, Universal Studios, and Warner Bros who spent a reported $100 million building the service that has yet to hit the mainstream. Blockbuster purchased the chain for $6.6 million in cash and it positioned the company to leverage its existing infrastructure to promote a new service that is well connected in the sue-happy movie industry. The service provides the company with the infrastructure for digital downloads and provides it with the digital rights to more than 6,000 films.

Blockbuster has also taken action to improve its current operations. Recently, the company introduced its five-point distribution system that allows customers to rent movies in stores, by mail, via online downloads, in DVD kiosks, and through flash memory cards. Meanwhile, the company also managed to substantially cut its costs, which has directly helped increase its profits and bottom line. Combined, this has many analysts predicting that the company will likely perform well in FY2007 and guide fairly bullishly for 2008. As a result, this is definitely a stock that is worth watching at these cheap levels!

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The saga of Bain Capital LLC and China's Huawei Technologies attempt to purchase 3Com Corporation (NASDAQ: COMS) continues as the company postponed a shareholder meeting for the second time.

On February 20th, 3Com, Bain, and Huawei withdrew their application for approval of the deal by CFIUS. The Committee on Foreign Investment in the United States, an arm of the Treasury Department, had expressed national-security concerns about China's participation in the $2.2 billion deal through Huawei.

Specifically, 3Com provides some network security solutions to the U.S. Defense Department, and Huawei's strong ties to China's Communist government raised serious concerns. Many thought the withdrawal of approval meant the deal was as good as dead, but on February 29th it was announced that all three parties planned on reapplying for approval - supposedly with similar financial terms. The major change would be some measure to block Huawei's access to sensitive technologies that stymied the deal originally.

As a result of this announcement, 3Com postponed its shareholder meeting and rescheduled it for March 7, giving it more time to negotiate with Bain and Huawei; however, since no agreement has been reached, the meeting has been delayed another two weeks to March 21.

The real question becomes - with 3Com seemingly intent on a deal, is 3Com stock a bargain? The originally proposed $2.2 billion deal was worth more than $5 per share, and even a renegotiated deal, if it were to get regulatory approval, would almost certainly be no more than 15% lower than the first offer as 3Com's Defense Department contracts are not huge revenue or profit centers. With 3Com currently trading at $3.19 a share, there is more than $1 of upside potential if a deal that withstands regulatory scrutiny is reached - and that definitely makes 3Com a risky but potentially profitable opportunity right now.

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Spanish Broadcasting System, Inc. (NDAQ: SBSA) directors are starting to feel the heat after a large shareholder criticized the company’s stock performance and governance while promising to take action if things do not improve, according to a Schedule 13D filing with the SEC. Discovery Group, which owns a 9.8 percent stake, sent a letter to the board expressing grave concerns regarding the severe and steady erosion of shareholder value that has occurred since the company went public eight years ago. Management has also been unresponsible to these concerns and countless opportunities to reverse these trends. However, the activist hedge fund believes there is still hope as shares trade substantially lower than their intrinsic value. So, is this a good time to get in SBSA on the coattails of an activist hedge fund?

Spanish Broadcasting IPO’d in 1999 at $20 per share, but the stock now trades at just $1.60. Discovery Group attributes this dramatic decline to (1) weak operating performance as measured by essentially no growth in operating income, (2) significant sums of money spent on acquisitions that provided no incremental value to the company, and (3) the utter loss of management’s credibility with the investment community. In the end, the value of the company was about $1.5 billion when it IPO’d while today the market cap stands at just $500 million with $375 million in debt. Operating income also failed to increase, standing at $32 million when the company IPO’d compared to $38 million in 2007. And finally, the company spent $934 million on acquisitions while the company’s value dropped $1 billion.

Discovery Group met with Spanish Broadcasting officials several times during the past two years to discuss the decline in shareholder value and the challenges the company faces to restore a fair valuation given its small size, weak governance, disappointing operating results, unrestrained M&A spending, lack of credibility with institutional investors, and general proclivity towards running the company as if it were privately held. The activist hedge fund also met with several industry players who insist that the company’s premier properties, market leadership position, attractive geographic markets and promising media genre would make it a desirable and valuable target in the ongoing industry consolidation. However, it is generally understood in the industry that the company will not consider any transaction that requires him to relinquish any degree of control and questions its ability to cooperate with any partnership with strategic suitors or private investors.

Just how bad is it? Well, here’s a synopsis of one scenario presented by the Discovery Group in their letter:

We now know this claim to be justified because we have direct knowledge of an important public media company (“XYZ”) that is interested in a potential transaction that could yield a substantial premium to the current SBSA stock price, yet Mr. Alarcon refuses to engage in an evaluation of this opportunity. During a meeting with Mr. Alarcon in December 2007 members of our firm presented the rationale for a combination with XYZ, to which SBSA would bring great strategic value and substantial, immediate cost synergies. Mr. Alarcon concurred with the analysis and suggested that we get the reaction of XYZ’s management to the idea. Our team met in January 2008 with XYZ’s Chairman/Chief Executive Officer and its Chief Financial Officer. We communicated to Mr. Alarcon that the XYZ officials were very enthused about the possible combination and wish to engage in a further dialogue directly with Mr. Alarcon. Mr. Alarcon is also in possession of detailed materials prepared by Discovery that outline a proposed structure for this transaction which yields a premium in excess of 100% to SBSA shareholders. Suddenly and without explanation, Mr. Alarcon refuses to discuss this opportunity. While Mr. Alarcon’s change in posture is consistent with his industry reputation, it is surprising nonetheless. Mr. Alarcon’s resistance in this case cannot be attributed to valuation because the proposed structure gives him the option to either remain invested or liquidate his shares. Rather, it appears that Mr. Alarcon fears a loss of control. That fear is interfering with Mr. Alarcon’s ability to act in the interest of all shareholders.

The Discover Group is now increasing its pressure on Spanish Broadcasting to unlock value by threatening to replace board members if it does not immediately retain an investment bank to investigate three specific alternatives:

1. A Going-Private Transaction. “If Mr. Alarcon insists on retaining all voting control and all management authority, it seems rather obvious that there is no purpose to SBSA remaining public. Given the current stock price and the vast availability of private equity capital, we believe that a transaction can be structured that provides an acceptable premium to shareholders. Any qualified investment banking firm can introduce Mr. Alarcon to numerous private equity firms, many with media expertise. We have spoken to several of these potential financial partners that would be interested so long as Mr. Alarcon is willing to provide them with adequate financial oversight and controls. As testament to the feasibility of this option, Univision was taken private in April 2007 by a consortium of industry-leading private equity firms; Madison Dearborn Partners, Providence Equity Partners, Texas Pacific Group, Thomas H. Lee Partners, and Sabon Capital Group. Currently, Clear Channel Communications is close to completing a similar deal with Bain Capital Partners and Thomas H. Lee Partners. Cumulus Media is working on an announced going-private transaction with Merrill Lynch Global Private Equity.”
2. A Sale to a Strategic Party. “Industry consolidation is now seen as part of the solution to the long-term secular decline in radio advertising. By combining platforms, companies seek to gain competitive advantage and reduce costs. SBSA has a unique franchise in Hispanic radio that is a highly-desirable addition to any broad media platform. The asset values of SBSA licenses and stations far exceed the current share price. While the current management team has not been able to harvest the value of SBSA’s assets and industry position, a strategic suitor would reward shareholders immediately for the opportunity to maximize the potential of this business. As we have explained, we have direct knowledge of parties interested in a strategic combination with SBSA.”
3. Remain Public But Adopt Modern Corporate Governance Standards. “It is highly unlikely that a comprehensive evaluation of all alternatives would result in a decision to remain public, if measured in terms of the best interests of public shareholders. Regardless, while the Company is public, the Directors must find the courage to invoke the governance changes needed to reassure the capital markets that they takes their stewardship responsibilities seriously. The Board must dismantle the antiquated A/B common equity class structure, which only serves to entrench Mr. Alarcon and embolden his self-serving agenda. Importantly, the jointly held positions of Chairman and Chief Executive Officer must be split in order to bring more accountability to bear on the management team. Mr. Alarcon’s track record running SBSA since it became public makes abundantly clear the need for a change in operating management. Lastly, the Board must undertake a director search to add truly independent directors that will serve the interests of public shareholders.”

In the end, this is great news for shareholders and may be a situation worth watching for other investors as the Discovery Group continues to put on the pressure. It will be interesting to see how the company responds in the coming months…

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Dillard's, Inc. (NYSE: DDS) may soon be facing a board and management shake-up after a several large activist investors took their campaign for change a step further yesterday. Barington Capital and the Clinton Group revealed in a Schedule 13D/A filing with the SEC that they are now on the verge of launching a proxy battle to install their own candidates to the company's board of directors. The two activist hedge funds requested a list of shareholders and other documents that typically point to a proxy contest. Unfortunately, the company's poison pill gives the Dillard's family majority control (8 of 12 board seats), but many believe that the two funds will seek to put a minority slate of directors on the board to increase pressure. So, does this represent a catalyst that could make Dillard's a buy here?

Barington Capital originally contacted the company at the end of January, insisting that the vast vlaue potential of the company was not being realied. In their opinion, if the company were more effectively managed it would be worth substantially more than its current stock price. Furthrmore, the company's sizable asset base provides the company with a number of untapped options to create additional value for stockholders. More specifically, the activist hedge fund sees the following opportunities for improvement (in their own words):

1. Dillard's $7.5 billion revenue base offers significant margin leverage capable of producing sizable cash flow gains from any future operating improvements. The Company’s geographic concentration, especially in high-growth areas of the Southeast and Southwest United States, offers unique regional opportunities for its 331-store portfolio. Furthermore, the Dillard’s brand name is well-regarded in the department store sector and the Company has received above average scores in the area of customer loyalty according to a recently released survey by Brand Keys.Clearly, Dillard’s has the scale and brand recognition to be a successful retailer.

2. As Dillard’s trailing twelve month operating free cash flow margin is 2.4% versus 7.7% for its department store peer group, we believe that stockholders can realize enormous upside if margins can be improved to the levels achieved by the Company’s peers. We see a number of opportunities to immediately reduce the Company’s cost base, including by improving sourcing, rationalizing SG&A expenses and lowering capital expenditures. We also believe that there are a host of initiatives in inventory management and merchandising that can drive customer traffic and enhance margins. Among other things, we believe that Dillard’s needs to tighten its current assortment of offerings and vendors and consider a more regular promotional cadence, as its stores, in our opinion, are over-inventoried. In addition, we believe that Dillard’s needs to embark upon an aggressive re-merchandising effort that features new vendors (including exclusive offerings) and updated private label and in-house collections to differentiate its value proposition for customers. Furthermore, it is our belief that the Company needs to enhance its brand marketing by adding more image and lifestyle campaigns that communicate a revitalized message to the marketplace. We are convinced that each of these initiatives would add excitement and newness to the Dillard’s shopping experience and attract customers to its stores.

3. Dillard’s owns approximately 75% of its store portfolio, comprised of approximately 42 million square feet of retail real estate. Currently, the Company’s shares trade at only 0.5x its tangible book value of approximately $32.50 per share. This represents a significant discount to the Company’s peer group, which trades at an average tangible book value multiple of approximately 2.0x. We also believe that Dillard’s tangible book value is understated, since the current market value of the Company’s owned real estate far exceeds its depreciated book value. In fact, in a November 26, 2007 research report, Deutsche Bank estimated Dillard’s net asset value before taxes to be $59 per share. Deutsche Bank also notes that “actions taken to unlock the Company’s real estate value would be positive for the shares, as the NAV [net asset value] for Dillard’s [is] greater than the value based solely on operating fundamentals.” It is our belief that there are a number of measures that the Company can take to enhance the value of its real estate portfolio, including converting certain properties to higher and better use, closing underperforming stores and engaging in sale/leaseback transactions.

These are all classic activist arguments that really do have merit and should be considered by the board. Unfortunately, Barington was shunned by Dillard's and is now being forced to take more dramatic actions in order to unlock value. In the meantime, their investment (and that of other investors) is quickly deteriorating as the company repored slower same store sales, subpar operating performance, and a falling stock price. Many analysts estimate that Barington Capital and the Clinton Group could have around 12% support from institutions, which bodes well for their odds in getting at least one board seat. Combined, these factors make DDS a stock worth watching!

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Yahoo Inc. (NASDAQ: YHOO), in an attempt to continue to thwart Microsoft Corporation (NASDAQ:MSFT), announced it is extending the deadline for nominating directors to its board. Nominations were due March 14, but now Yahoo will accept them until 10 days following the announcement of the date of its annual meeting - a meeting which itself does not have a date set yet.

The nomination process is key because Microsoft will almost certainly try to nominate its own directors to Yahoo's board. Directors that would be friendly to the proposed takeover. Yahoo CEO Jerry Yang spoke on this point in his ongoing e-mail conversation with employees, the full text of which follows:

"Subject: update

yahoos

we want to update you on some news we announced this morning. yahoo!'s board has decided to extend the deadline for nominating directors to our board from march 14th to 10 days following our announcement of a date for our annual stockholders meeting. we have not yet announced the date of this year's meeting.

why did we do this?

in light of the current circumstances, this change removes an imminent deadline. microsoft, of course, could still choose to name directors, but our objective here is to enable our board to continue to explore all of its strategic alternatives for maximizing value for stockholders without the distraction of a proxy contest. it will also make it easier for you to continue to focus intently on delivering on our business strategies and creating value.

since we last updated you, our board and management team are aligned in ongoing efforts to explore a number of alternatives to create stockholder value. we believe we are making progress clarifying the many options available to us. and, of course, throughout this process, management and the board are both speaking with--and listening carefully to--our stockholders. this ongoing dialogue has provided us with helpful feedback.

let's all be clear about one thing: we have a great company, a company with a truly unique set of assets -- including our global brand, large worldwide audience, significant recent investments in advertising platforms, future growth prospects and the excellent momentum we have created behind our core business strategy. so it should come as no surprise that this situation is receiving such a high level of attention -- from national media to blogs.

we ask you to continue to put aside all the rumor and speculation you may be hearing. none of us should allow external reports to shift our focus away from doing what we do best -- transforming the experiences of our users, advertisers, publishers and developers, all while enhancing our leadership position in the online marketplace.

we want to thank all of you again for your continued hard work and dedication to yahoo!. we'll continue to update you as new information becomes available.

jerry and roy"

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Barnes & Noble Inc. (NYSE: BKS) shares fell sharply after the company warned that recessionary pressures will make 2008 a difficult year for the bookseller, as it now expects earnings to be well below analyst expectations. The bookseller also noted that the business environment remains very competitive despite record-setting sales of Harry Potter and improved sales of The Secret in late 2007 and 2008. Currently, Barnes & Noble trades below enterprise value at just over 12x earnings and many investors - including well-known activists - insist that it is cheap these days. So, is this bookseller a turnaround play or flop?

Famed activist Bill Ackman has been one of Barnes & Nobles most faithful supporters and still holds over $125 million worth of stock in the troubled company, according to his latest Schedule 13F filing. Many investors are predicting that he will eventually push the company to utilize its spare cash to pursue share buybacks in order to boost its earnings per share and encourage a higher share price to maintain its current multiples. However, he may run into problems if the company cannot sustain its growth as this is a key factor to encouraging and increasing multiples. Considering he is already sitting on a large loss, many are hoping he will take action to also turn around the business itself rather than focusing purely on unlocking value.

Some insiders have also shown faith in Barnes & Noble by purchasing large amounts of shares on the open market, according to recent Form 4 filings with the SEC. Chairman of the Board, Leonard Riggio, purchased 300,000 shares earlier this month at prices ranging from $32.29 to $33.86 in cash on the open market. These actions by such high ranking members suggest confidence in the company's management to turn the situation around and improve growth prospects, which would increase the company's trading multiple, especially if Ackman took action. Meanwhile, the company has already instituted a dividend and share buyback program aimed at encouraging investors to properly value the company.

Just what actions is the Barnes & Noble taking to orchestrate a turnaround? In its most recent 8-K, the bookseller said it was focusing its efforts on managing its expenses and working capital with a realistic view of market conditions, as well as continuing to refine its marketing strategies and grow the member program to maximize top line growth profitability. Unfortunately, these actions will take awhile to come to fruition as it now expects full-year earnings to come in between $1.70 and $1.90 per share for 2008 - flat with 2007 on an operating basis. However, the company believes that its strong balance sheet and free cash flow will give it flexibility to compete effectively in 2008 as well as continue to unlock value.

In the end, Barnes & Noble is a company with a strong balance sheet and a dedication to unlocking value. However, it has been struggling recently with its growth prospects, which has led to a lower valuation and share price. It will be interesting to see whether management can take action to turn this company around. Clearly, both major insiders as well as activists are confident which should lead many amateur investors to the same conclusion. Combined, these factors make BKS a stock worth watching closely over the next year or two!

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Apple Inc. (NDAQ: AAPL) announced after-hours yesterday that the company has no plans for a share buyback or dividend despite strong rumors that the iPod-maker would return some of its more than $18 billion in cash and short-term investments to shareholders. Instead, the company announced that it was taking a very conservative stance when investing its cash. This has caused some speculation that Apple may be facing a cash crunch or gearing up for a larger investment in the near future. So, is Apple stock a buy at these levels anyway or is their refusal to unlock value a sign of bad news to come?

Apple announced that it expects its current estimates and guidance to be on track, despite speculation that its iPhone sales may be in trouble. The company also announced that it is working with Nike to make the iPod compatible with gym equipment. The two companies are partnering with gym equipment manufacturers and health clubs to allow members to plug their iPod Nanos into cardio equipment to track workouts, set goals and upload information to a Nike website. Many are hoping that this new partnership will help spur sales of its slowing iPod to make up for an expected decline in iPhone sales.

Meanwhile, Apple stock continues to trade at a reasonable multiple of 27x and a cheap 19x forward earnings. These numbers put the stock's PEG ratio at around 1.09, which indicates that it is fairly priced given its current growth, while the forward earnings are a clear indication that there is some concern about FY2008 results. Some analysts find it hard to believe that the company will be able to retain its current growth given the weakness in the U.S. economy combined with the many potential problems facing the iPhone - a key factor in Apple's future.

All in all, it is hard to argue with a 29% ROE and strong growth now, but there are many concerns about the company's future. Many analysts believe there could be trouble for their iPhone ahead; however, it looks like the majority of this risk is already priced into the stock. In the end, this is a stock that is definitely worth watching through 2008 given its cheap valuation now and strong potential growth prospects if it surpasses expectations!

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E*Trade Financial Corporation (NDAQ: ETFC) shares dropped more than 12 percent today after newly appointed chief executive Donald Layton announced that there are no plans to sell or break up the troubled online brokerage in an 8-K filing with the SEC. The troubled firm likely experienced some difficulty attracting a buyer with some $12 billion in troubled home equity loans on its books that may still present a going concern risk. Meanwhile, the firm is also facing lower revenues and higher expenses stemming from a mass exodus of its brokerage clients amid concerns about liquidity. So, is E*Trade a potential turnaround play or a hopeless cause?

E*Trade began its fall from glory when it announced massive write-downs related to its exposure to subprime mortgages that currently stand at around $12 billion. Private equity firm Citadel infused the troubled brokerage last year with $1.7 billion in debt to keep it alive, but many are still concerned that the firm could be insolvent in another quarter or two if write-offs continue at their current clip. Meanwhile, E*Trade continues to struggle with keeping its brokerage clients onboard, which is putting pressure on both its earnings and liquidity.

Despite these problems, many shareholders are finding hope in E*Trade’s new chief executive Donald Layton. Mr. Layton retired from JPMorgan in 2004 after 29 years where he supervised investment-banking and retail operatations at the bank. Since joining E*Trade, he has won praise for the way he tackled the mortgage mess and helped put the company on firmer financial ground. He also helped enact last month’s appointment of Robert Druskin to the brokerage firm’s board, which may end up paying some dividends in the future.

The price drop seen today is evidence that many shareholders were looking or a quick-fix in the form of a sale. There was speculation that E*Trade would break up its bank and brokerage business and sell them off, but Mr. Layton quickly rejected the notion saying that the ideas are “not practical and do not work”. Instead, he remains focused on being good, long-term fiduciaries focusing on shareholder value. He did caution, however, that the road would be a long one that would likely see lower earnings and liqudity pressures before spectacular results.

In the end, E*Trade is still facing some substantial issues, but it now has a great new chief executive and is hoping to turn things around. The road is likely to be long and dangerous, but investors willing to stick it out may see substantial gains. However, it may be prudent to wait until we figure out just how bad the $12 billion home equity portfolio losses will be before initiating an investment. Combined, these factors make ETFC a stock worth watching over the next year!

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Norwegian firm StatoilHydro (NYSE: STO) announced it's paying at least $1.8 billion to Anadarko Petroleum (NYSE: APC) for stakes in oil exploration and extraction projects in Brazil and the Gulf of Mexico.

StatoilHydro said it's paying $1.8 billion, and as much as $300 million depending on the market price of oil, to Anadarko Petroleum. StatoilHydro gets the 50% interest it didn't already own in the heavy oil Brazilian Peregrino project in return. StatoilHydro also gets a 25% interest in a deep-water oil platform in the Gulf of Mexico from Anadarko - slightly more than half of the platform is owned by BP (NYSE: BP).

"This acquisition strengthens our position in Brazil and adds an important new legacy operatorship to StatoilHydro's international portfolio. We are establishing leading positions in attractive core areas. This is exactly in line with the strategic roadmap we presented at the Capital Markets Day in January - here focusing on deep water and heavy oil," said StatoilHydro's Peter Mellbye, Executive Vice President for International Exploration & Production.
 
The Brazil project, estimated to begin production in 2010, is estimated to have at least 500 million barrels of oil, but StatoilHydro plans on stretching that number by improving the oil recovery factor.

StatoilHydro doesn't expect the Gulf of Mexico project to improve its profitability for some 6 years, but the acquisition is in line with its focus on increases its long-term reserves.
 
Anadarko said the offer was unsolicited but it was happy to complete the transaction and use the capital to invest in existing projects. Anadarko CEO Jim Hackett said, "With our anticipated double-digit production growth in the Rockies and the inventory of high-impact projects in our development pipeline, we are confident in our ability to achieve our targeted production growth rate of 5% to 9% annually - combined with organic reserve growth - over the next five years."

It remains to be seen which company got the better end of this deal - StatoilHydro need the increase in reserves and analysts estimate, based on current production projections, that it paid a very reasonable price for the projects; however, oil exploration is always a gamble.

Both StatoilHydro and Anadarko are down slightly on the news.

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Bond insurer MBIA, Inc. (NYSE: MBI) seem to be dropping like rocks, but that isn’t deterring respected value investor Martin Whitman’s Third Avenue Funds from increasing its stake in the company. The move pits him directly against the famous activist investor Bill Ackman’s Pershing Square, which has taken an aggressive short position in the bond insurers and sees imminent bankruptcy. So, where should you place your bets?

Whitman believes that there is much profit to be made in the bond insurers, whether they continue as going concerns or write no new policies and sell off their existing business. The value investor, known for buying up questionable assets, currently holds around 10 percent of MBIA. Whitman insists that the bond insurer is very well financed and it should easily qualify for an AAA rating with a $17 billion claims paying ability. The value investor went on to say that the MBIA is being victimized by a “well organized bear raid” headed by Ackman that is preventing it from winning a stable outlook.

Whitman believes that MBIA shares are currently trading at a 70 percent discount to tangible book value and represent a great investment opportunity. The value investor also believes that the company will be able to raise the cash that it needs to pay any upcoming claims. In fact, Whitman himself has put in over $300 million and now counts the company among his fund’s largest holdings. Meanwhile, the company itself is saying that the $3.7 billion mark-to-market loss on credit derivatives is completely reversible if the market doesn’t deteriorate any further. Obviously, any reversal in the losses and increased liquidity bodes well for the troubled firm.

Bill Ackman has taken the opposite stance, having been bearish on MBIA for around five years. He warned investors back in the 90s that the company’s collateralized debt obligations (CDOs) may put its Triple-A rating at risk and now his predictions are coming true. The activist investor also brought up several “questionable transactions” that involved insuring a loss after the loss and then collecting on the insurance. Ackman even decided to write a 60-page paper entitled “Is MBIA Triple A?” in December 2002 shortly before these problems began.

Ackman estimates that the bond insurer faces more than $11 billion of potential losses, which would make it nearly impossible to avoid bankruptcy if it does not find a substantial amount of outside capital. The activist investor took a particular interest in the holding companies, reasoning that if the bond insurers’ holding companies were deprived of cash flow, their ratings would fall, and their operating units’ ratings would fall as well. In fact, Ackman remains convinced that these companies will be forced into bankruptcy if they are not bailed out.

In the end, the reason these two great investors are at ends is a debate over liquidity. The crisis facing MBIA is not one based on losses perse, but rather one of how much loss they can handle before they are forced to sell. The fact is that nobody knows how much worse the credit markets will get and, as a result, how much lower these CDO valuations will become. Ackman estimates that claims will reach $11 billion, which would cause huge problems for MBIA. Meanwhile, the company itself and Whitman believe that the market will turn sooner than later and reverse Ackman’s fortune. Regardless, this is definitely a situation worth watching as two of the world’s best investors take opposite sides!

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Circuit City Stores, Inc. (NYSE: CC) directors may be forced to fight for their job after a major shareholder proposed an ouster of the entire board in a Schedule 13D/A filing with the SEC. Mark Wattles’ Wattles Capital Management, which owns a 6.5 percent stake, also proposed to repeal any bylaw amendments or new bylaws adopted by the board without shareholder approval. The move follows his sharp criticism of the company’s turnaround plan and push to pursue strategic alternatives mentioned in his previous January 22nd 13D filing. So, is Circuit City a stock worth adding to your portfolio?

Circuit City shares have fallen sharply from their 52-week high of $19.60 per share to their current levels between $3 and $4 per share - its lowest price since the 1990s. Recently, the electronics retailer has attempted to improve its performance by cutting its workforce by 3,400 last year and eliminating $150 million in general expenses. However, it has reported a $300 million loss so far this fiscal year and anticipates a weak fourth quarter despite the supposed benefit of the holiday season. This weak performance has caused many dissident investors to speak up and take action.

Mark Watson, who also founded Hollywood Entertainment, initially disclosed his stake in Circuit City back on January 22nd. The investor hinted back then that he may push for the company to pursue strategic alternatives, including a possible sale, but did not take the fight public until last week. Now, Watson has launched a proxy battle after being rebuffed by Circuit City’s board. His five nominees have a broad range of expertise and seek to replace CEO Schoonover, who moved to the company from Best Buy three years ago but still has not made public his proposal for changes.

“WCM is submitting the foregoing business proposals for consideration at the 2008 Annual Meeting in order to give shareholders a greater voice in the governance and future strategic direction of the Company,” said Mr. Wattles. “We do not believe that the Circuit City Board has been acting in the best interests of its shareholders … WCM [also] has serious questions as to whether the Circuit City Board as currently constituted can provide the best solutions to the Company’s current problems.”

In the end, it is clear that changes are needed at Circuit City. It will be difficult for Wattles to replace the incumbent board given their entrenchment, but the June annual meeting should prove to be one worth watching closely. Wattles has already indicated an interest in pushing the company towards a sale, which is only good news for investors who are facing mounting losses under current management. And at the very least, these dissident shareholders will send a message to the board. Combined, these factors make CC a stock worth following!

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Joshin Denki Co., Ltd.
CROPS Corporation

Catalyst Paper Corp. (TSE: CTL) is a producer of specialty printing papers and newsprint in North America, including lightweight coated, uncoated mechanical papers and directory paper. The company recently filed a short-term prospectus in their F-10/A filing with the SEC related to its previously announced rights offering for gross proceeds of C$125.3 million. Under the proposed offering, each shareholder would receive one right per common share that they hold that would essentially give them an option with an exercise price of $0.75 per share. As with many rights offerings, this may be a situation worth watching closely!

Rights offerings are interesting since they can often result in the ability to essentially purchase “call options” for pennies on the dollar. Existing shareholders should always exercise or sell their rights, since their existing holdings will be diluted as a result of the offering. However, there are many investors who do not pay attention and rights offering often have extra securities available that weren’t exercised by shareholders. These extra shares are often made available to existing shareholders to purchase, which obviously represents a great opportunity to obtain the cheap “call option” on the stock.

The second half of the opportunity worth watching is the secondary market for these rights, which will trade on the TSX alongside the normal stock. Many shareholders will take the rights but not exercise them because it requires that they put additional capital into the company. As a result, they sell these rights on the secondary market. This increased selling can put downside pressure on the market price for the rights given the fact that there will likely be limited demand all at once. And this can create an attractive buying opportunity for enterprising investors! Combined, this rights offering is a situation that is definitely worth watching!

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American Express Company (NYSE: AXP) is a global payments, network and travel company well-known for its credit cards and travelers checks. The company has been struggling recently as consumers spend less money and more card-holders default on their monthly payments. However, recent purchases by key insiders are indicating to many investors that the end is in sight. So, is this a company worth putting on the radar over the next few months or simply some overzealous directors?

Director Steven Reinemund purchased 10,000 shares in cash at $45 per share in a transaction worth $450,000 on 02/21/2008, bringing his/her total holdings to 20,000 shares. Meanwhile, Director Ursula Burns purchased 1,000 shares in cash at $44.08 per share in a transaction worth $44,080 on 02/25/2008, bringing his/her total holdings to 16,000 shares. These transactions also follow earlier insider buying on February 11th when director Ronald Williams purchased 5,500 shares at $46.25 a piece. Notably, all of these transactions were “Code P” Form 4 filings, which means that they were voluntary purchases in hard cash rather than as a part of an incentives plan or required purchase.

Many are concerned that a weakened economy will hurt the company given its reliance on consumer spending in order to drive revenues. These concerns have driven the stock down to its 52-week low and caused it to trade at just over 12x earnings. Obviously, this is a cheap valuation but could be deserved if the company is indeed facing further problems ahead. According to its most recent 10-K filing, American Express took a $275 million charge thanks to defaults in its credit card division while adopting “cautious view” for the coming year. The company was forced to revise its estimates for 2008 lower s thanks to slower consumer spending and a sudden rise in defaults.

American Express also announced the sale of its banking subsidiary last week for around $823 million, which equals the net asset value of the target at completion plus $300 million. This sale provides the company with an opportunity to add capability, scale and momentum to its strategically important Financial Institutions and Private Bank businesses. As part of the transaction, Standard Charter (the buyer of the banking business) also has an option to buy 100 percent of American Express International Deposit Co 18 months from today with the consideration payable being the net asset value of the target at the time the option is exercised. This move could provide the bank with even more spare cash for use in other areas.

The future of the economy remains uncertain with rising consumer prices, slower job growth, and a dollar that is rapidly losing value, but the sell-off in American Express may be overdone. Several key insiders have definitely expressed support for the stock at these levels and it may be worth watching given their insider knowledge of the company. Combined, these factors make AXP a stock that is definitely worth following over the next year or so!

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Endo Pharmaceuticals (NDAQ: ENDP) had an interesting week after it received a letter from a large shareholder and announced that it was exploring strategic alternatives in a most unusual way. The news comes after the company reported strong results and continued successes in its core businesses, but seems to be more and more focused on making a large acquisition or pursuing in-licensing deals that has many shareholders up in arms. So, is Endo Pharmaceuticals a stock that you should look at adding to your portfolio?

D.E. Shaw Valence Portfolio LLC, a 9.8 percent owner, demanded in a letter to the board that the company immediately hire an investment bank to explore strategic alternatives to increase shareholder value. The activist hedge fund said in its Schedule 13D/A filing with the SEC that it was concerned that the company is overly focused on the need to complete a large acquisition or in-licensing deal, rather than on optimizing the value of its existing business including lead assets Lindoderm and Opana and the profitable generic pain business. This focus on non-core development activities has shifted the company’s focus away from optimizing its increasingly cash rich balance sheet, which they believe is essential in order to unlock the intrinsic value of the company for the benefit of its shareholders.

D.E. Shaw also continues to believe there is strategic interest in the company on financial terms that a substantial majority of the company’s shareholders would, in their view, fully support. Moreover, the hedge fund believes that the company could leverage its free cash to fund a $1.5 billion share repurchase that could substantially improve its earnings per share. Meanwhile, the company’s most recent 10-K filing just reported high quality results for the fourth quarter for full year 2007, highlighting the strength and momentum of its underlying business and core assets. Clearly, this combination of an EPS increase and growth prospects (which leads to higher multiples) is a situation that makes this company ripe for activism.

Despite these arguments, hopes came crashing down when Corporate Communications Vice President Bill Newbould told a reporter from The Philadelphia Inquirer that the company wasn’t evaluating a possible sale following the letter from D.E. Shaw. However, the company then made a surprise announcement in an 8-K filing that it was in fact working with financial advisors and consultants in evaluating strategic alternatives. Apparently, Mr. Newbould was unaware of these developments and unauthorized to make a statement. As a result, he was removed from his position and shares rose 2.3 percent on the day.

In the end, we now know that Endo Pharmaceuticals is exploring a sale and has a good chance of finding a suitor with the help of activist hedge funds like D.E. Shaw. Moreover, the other actions suggested to leverage up the balance sheet and unlock value that way should also help improve shareholder value. Either way, shareholders stand nothing to lose and everything to gain from these recent announcements. Combined, these factors make ENDP a stock worth watching!

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Nabi Biopharmaceuticals (NDAQ: NABI) is engaged in the development and marketing of products that target medical conditions in the areas of transplantation, infectious disease, nicotine addiction, and hematology/oncology. The pharmaceutical company has been an activist target for some time now and recent developments have increased the likelihood that something may happen to unlock value for shareholders. As a result, this company is one that is definitely worth putting on the radar.

Nabi recently announced its fourth quarter and full year earnings in its most recent 10-K filing, which it indicated a momentous year culminating with the sale of their biologics business unit in December. This was a move that Third Point pushed for with much gusto in the past. The company also reported positive data on its up-and-coming NicVAX clinical trial, aggressively reduced operating costs and cash utilization rates, initiated a share repurchase program and significantly reduced their debt. Combined, these moves will not only improve the company’s EPS but also increase their growth prospects in the coming quarters.

Nabi also announced that it would explore strategic alternatives on January 22, 2008 amid pressure from Daniel Loeb’s Third Point LLC – one of the most famous activist hedge funds on Wall Street that produces a rumored annualized return of 22%. Recently, DellaCamera joined the cause by initiating a 5.1% stake and supported the decision to explore strategic alternatives, according to a Schedule 13D/A filing with the SEC. Many believe the the successful drug trials and strong pipeline may make this company an attractive buyout target by a larger firm with an aging pipeline.

Nabi now finds itself in a much stronger financial position with a focused pipeline of high value vaccine programs and well-positioned to pursue their strategic alternatives process – their self-proclaimed key financial goal for this year. With Third Point on the board, shareholders can be assured that something will come from this process. Combined, these factors make NABI a stock that is definitely worth watching!

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