Bank of America Corporation (NYSE: BAC) continues to mount a near-parabolic recovery along with much of the banking sector. Investor sentiment has changed rapidly as the government rescued the two largest U.S. mortgage underwriters and signaled a possible end to the problems plaguing the sector - at at least a signal that the peak has passed. So, where are things headed from here?

Bank of America may not be as strong as the recent run-up in share price would have investors believe. The stock topped the list last week for stocks that rose in price but had the largest outflow of money. This means that the price increase that we’ve seen may not really be the vote of confidence that it seems. Meanwhile, Bank of America will also continue to struggle with the mortgages associated with its acquisition of Countrywide Financial.

The government’s bailout of Fannie Mae and Freddie Mac may provide would-be homeowners with more options, but it may not do all that much to stop the rising tide of foreclosures. In fact, just last week we saw a report showing that the rise in foreclosures is anything but over. Meanwhile, it will take awhile for consumers to gain enough confidence to start buying homes in order to increase property values - the other thing that could slow foreclosures.

Many analysts are also not so sure about Bank of America. Stifel Nicolaus & Co cut its full-year profit estimate on the bank, citing concerns about continued deterioration in its consumer loan portfolio. The nation’s second largest bank reported not long ago that its profit fell 41% in the second quarter on losses in its struggling mortgage operations, but still managed to top analyst estimates. However, it had to more than triple its loan loss provisions - that is, money set aside for bad loans.

Accelerating losses in its home equity, domestic credit card, residential mortgage and small business loan portfolio are creating problem for the bank. Meanwhile, cash is flowing out of the stock at a record rate. Only a rise in the stock price is causing investors to look the other way - a mistake that could cost them in the future.

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Garmin Ltd (NDAQ: GRMN) shares dropped more than 20 percent today after the company announced second quarter earnings that missed analyst expectations. The high-flying GPS maker also disappointed investors when it forecasted limited growth for the rest ofthe year and said it was delaying its entrance into the cellular phone market. Many investors are now questioning whether or not this GPS giant can be valued as a growth company in today's environment.

Garmin reported total revenues of $912 million, which is up 23% from $742 million in the second quarter of 2007. Gross margins remained solid at 45.8%, despite the economic slowdown, compared to 48.2% in the first quarter of 2008 and 50.5% in the second quarter of 2008. Operating margins were up 20 basis points sequentially to 26.2% in the first quarter, but were down compared to 32.5% in the second quarter of 2007. And finally, diluted earnings per share increased 21% in the second quarter.

"We are pleased with our financial results for the second quarter given the economic conditions facing the consumer electronics segment," said Kevin Rauckman, chief financial officer of Garmin Ltd. " We also generated $34 million of free cash flow in the second quarter of 2008, resulting in a cash and marketable securities balance of just over $1.0 billion at the end of the quarter." This number is a positive note, but not enough to convince investors...

The forecasts are where investors lost confidence. Garmin anticipates overall revenues in 2008 to hit $3.9 billion and earnings to hit $4.13 per share, including the $0.27 related to the tender of their Tele Atlas NV shares. The company also reiterated growth rates for all of its division, except for the marine segment, where it said that high fuel prices have led it to forecast flat revenues for 2008. Meanwhile, the firm also forecasted a drop in operating margins to 25% as input costs rise and selling prices lower.

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Merrill Lynch & Co., Inc. (NYSE: MER) shares fell sharply today after the troubled investment bank priced its share offering at $22.50. This pricing point suggests that they weren't able to sell shares at the current market price and raises questions about both dilution and the company's ability to maintain its share price. Shares fell sharply before recovering to $23.90 on the news today.

Merrill Lynch told investors yesterday that it would raise $8.5 billion by selling newly issued stock despite the fact that CEO John Thain repeatedly denied that the firm would need to raise more capital. In fact, back in January Thain was quoted as saying, "We're very confident that we have the capital base now that we need to go forward in 2008." Such comments had many investors convinced that such dilution wouldn't occur anymore.

In fact, on April 4th of 2008 he even commented: "In 2007, we lost 8.6 billion dollars after tax, but we raised 12.8 billion dollars in new capital. We raised significantly more capital than we lost. And we did that on purpose so that we could say to the marketplace that we raised more than enough capital. We replaced all the capital we lost. We have plenty of capital going forward, and we don't need to come back into the equity market. The goal is to maintain our current ratings. No more capital raising; I'm sure we have enough capital."

Merrill Lynch needs the capital after unloading more than $30.6 billion in repackaged debt at a fire sale price ealier this month in an attempt to reduce the risk on its balance sheet. Such news only underscores the fact that the financial sector remains exposed to losses that will require more loan loss reserves, more write-offs, and more capital to keep afloat. All of this is bad news for Merrill Lynch and others in the financial sector, except perhaps Goldman Sachs.

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Kraft Foods Inc. (NYSE: KFT) shares surged higher today after it reported strong second quarter earnings and forecasted a strong full year. The world's second largest food-maker announced higher profits thanks to commodities hedging, successful price hikes and the dollar's decline overseas. The news comes half way through the company's three year plan to restructure itself.

Second quarter income increased 3.5 percent to $732 million from $707 million a year earlier. Excluding items, profit beat analyst estimates by 8 cents per share. Meanwhile, revenues also rose some 21 percent to $11.2 billion from $9.2 billion a year earlier. Finally, Kraft now expects to earn at least $1.92 per share in 2008, which is 2 cents higher than its previous forecast and matches analyst estimates.

Kraft earnings benefited the most from a $150 million hedge in grain, which helped it lock in prices for the commodity. Price increases helped the company recoup costs in other areas, such as cocoa, sugar and transportation. Oil prices have climbed 61 percent in the past year, while wheat used in cookies and pizza has risen 27 percent. Some consumers have switched to less expensive brands after the increases, but Kraft still holds a commanding lead in its markets.

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Point Blank Solutions Inc. (OTCBB: PBSO) announced another delay in their annual meeting today, which has some shareholders furious and others grateful. The body armor manufacturer said they need to wait for the Army's IOTV contract award before completing their review of strategic alternatives, which includes a potential sale of the company to some 90 potential parties.

Point Blank has already been awarded with a bridge buy of 150,000 IOTV's for a total of $86.2 million while the Army finishes determining who will win the larger 736,000 IOTV contract. The latter could be worth around $200 million or more, which is more than Point Blank's current market capitalization. Obviously, the award would substantially impact PBSO's valuation to a potential buyer.

However, at least one activist investor is sick of constantly waiting around. Steel Partners, who has been involved with the company since its fraud charges, has been waiting for an annual meeting for over two years and is currently suing the company to hold it. Interestingly, the activist hedge fund is also holding a proxy contest to overtake the board.

"The postponement was a unilateral stunt pulled by a Board in fear of losing an election contest and was designed to block the democratic process, limit accountability and further entrench the Board and management team," said Steel Partners in a regulatory filing. "Ask yourself whether you believe this Board was truly serious about exploring alternatives to maximize stockholder value or whether the Board was more interested in disenfranchising stockholders?  We think the answer is obvious."

Supporters of Steel Partners believe that the hedge fund is simply trying to deliver shareholder value as quickly as possible. However, skeptics believe that they may be positioning themselves to acquire the company on the cheap before any major contract is awarded. After all, it is not uncommon for hedge funds to privatize a company during a turnaround when they are vulnerable and then re-IPO it later on and make bank.

Point Blank also faces problems with its former CEO David Brooks, who is facing criminal charges for fraud. Combined, Point Blank contends that it is facing adverse interests from both of these large shareholders and they say they are simply trying to protect the interest of the thousands of minority shareholders.

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A recent plan by Bank of America (NYSE: BAC) to repurchase shares may have sent the stock higher, but at least one analyst is questioning the validity of the claim. The bank's recent plan to repurchase shares may show strength, but continued weakness means that it may not be completed anytime soon. KBW Analyst Jefferson Harralson noted that "a share repurchase authorization is very different than an actual purchase ... I'd be surprised if they follow through in the near term." This news comes just after the board approved a plan to repurchase up to 75 million shares of common stock for up to $3.75 billion during the next 18 months.

The move by Bank of America comes at a time when nearly all banks have faced mounting losses from rising defaults in their loan portfolios, especially loans tied to real estate. The announcement of a buyback jumped the share price quite substantially, but shares may come crashing back down after this announcement. After all, Bank of America already needs to set aside $5.83 billion in cash to cover current and future loan losses.

Shares of Bank of America dropped over 3 percent on the day.

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Northwest Airlines Corporation (NYSE: NWA) swung to a loss this quarter but things weren't nearly as bad as Wall Street had expected given the record fuel costs that hit the industry. The Minnesota-based company reported a loss of $377 million, or $1.43 per share, versus a profit of $2.15 million in the year-earlier second quarter. And let's not forget that all of this is just a year after it emerged from bankruptcy!

On a positive note, revenues for Northwest came in at $3.58 billion, up from $3.18 billion a year ago. The airline also disclosed that it has $3.3 billion in unrestricted liquidity and sees its merger with Delta Air Lines closing in the fourth quarter. The merger should help the company cut costs while lowering oil prices and fare raises should help improve margins over the next few quarters.

Northwest Airline Corporation is the direct parent company of Northwest Airlines, Inc. Northwest is engaged in the business of transporting passengers and cargo. Recently, the company has faced sharp declines in margins thanks to higher fuel costs and slower consumer spending. Shares of the company rose more than 5% during today's session.

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Just when many thought the banking sector was improving, Wachovia Corporation (NYSE: WB) reported a huge second quarter loss. The financial services company reported a loss of $8.66 billion with a shocking $6.1 billion in writedowns. This compares to a net income of $2.34 billion a year earlier. Shares recovered on the day, but the news remains bearish for the sector.

Even the Chairman shared the disappointment: "These bottom-line results are disappointing and unacceptable," said Chairman Lanty L. Smith. "While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility."

Wachovia also cut its dividend again by 87% in an attempt to conserve about $700 million in capital. Clearly, this was a decision that had to be made in order to help the company stay alive over the long-term. The bank is also fresh off issuing some $8.3 billion in cpaital through preferred stock and other securities.

Finally, Wachovia has hired Goldman Sachs to help it analyze and value the billions of dollars in loans sitting on its balance sheets. Once it has a true idea of the valuation, shareholders will be able to better evaluate the company. Until then, Wachovia remains somewhat of an enigma.

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Yahoo Inc. (NDAQ: YHOO) decided to play it safe and settle with activist investor Carl Icahn. The search giant agreed to provide the billionaire investor with three board seats, which will give it some say but no power. The settlement is the latest in the sage over Microsoft's attempt to take over the company. Interestingly, Icahn expressed his belief that a sale of the company merits "full consideration".

Icahn said in a statement he's pleased with the settlement. "While I continue to believe that the sale of the whole company or the sale of its Search business in the right transaction must be given full consideration, I share the view that Yahoo's valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders."

The news of the concession by Yahoo management comes just days after the same management sent a letter to shareholders calling Microsoft's actions "stupifying" and criticizing Carl Icahn for his lack of knowledge of the internet business. However, the move is still seen as a victory for Yahoo. Icahn now has limited voting power while Yahoo management remains in place. So, why did Icahn accept the deal? Many believe that he thought he would end up losing if he went through with the proxy contest.

Perhaps the largest catalyst behind this settlement was Legg Mason's statement that it would back the Yahoo board and urged the two sides to settle their dispute before conducting an actual proxy contest. Carl Icahn owns a 5 percent stake in Yahoo and has been pushing for the company to pursue an acquisition by Microsoft. Eight of Yahoo's directors will now stand for re-election to an expanded 11 member board, including CEO Jerry Yang.

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BlackRock Inc. (NYSE: BLK), the largest publicly traded asset manager, said its second quarter earnings topped estimates as $24.2 billion in new cash flowed into the firm. Net income rose 23 percent as deposits increased the funds under management to $1.43 trillion. Profit was $2.14 per share, which beat the $1.97 per share analysts were predicting.

Investors have moved into BlackRock as its funds have sidestepped the worst of the subprime mortgage collapse and financial sector deterioration. Competitors like Legg Mason were hit with $19 billion of redemptions in the first quarter alone and forced to provide $2.15 billion of its own funds to offset losses tied to mortgage-backed securities.

BlackRock also confirmed that Merrill Lynch & Co (MER) - its largest shareholder - shelved plans to sell its 49 percent stake in order to boost its capital. This is good news for shareholders since it means there won't be a large selling pressure that many were expecting to see.

BlackRock itself is one of the only firms that is able to take advantage of the dislocation in the fixed-income market while it was able to raise $16.7 billion in additional funds. The company also garnered $43.6 billion in advisory assets as investors sought advice on distressed portfolios. Meanwhile, the Federal Reserve picked them to oversee $30 billion in Bear Stearns investments after it was acquired by JP Morgan.

All in all, those looking for a good financial play may want to take a look at BlackRock as it remains a very solid play.

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Eaton Vance Insured Florida Municipal Bond Fund (AMEX: EIF) shares rose marginally this week after the board recently announced its intentions to merger EIF into the Eaton Vance Insured Municipal Bond Fund (AMEX: EIM) at a special meeting of shareholders to be held in October.

The closed-end fund was facing some shareholder concerns that its valuation was being hurt through concentrated geographical risk that was unnecessary to endure. Karpus Management, which owns around 14% of the fund, had been a vocal advocate of such a merger in order to unlock value in the fund. In fact, the activist withdrew its hostile intentions and complimented the fund in its most recent Schedule 13D filing with the SEC.

"We would like to commend the Board for its recently announced recommendation to EIF shareholders to merge EIF into the Eaton Vance Insured Municipal Bond Fund ('EIM') at a special meeting of shareholders to be held in October," said Sharon Thomton of Karpus. "Consequently, we wish to withdraw our termination proposal, director nominees and shareholder list request, which were submitted to EIF on April 17, 2008 and April 24, 2008."

However, Karpus did bring up the fact that a related closed-end fund owned by the same group is facing similar problems:

"Given the Board's recently announced action, we also believe that the Board must also address similar circumstances facing shareholders of FEV. In fact, a press release issued by FEV on December 12, 2007 and reiterated again on June 19, 2008 indicated: '... the Board of Trustees of FEV may in the future consider other actions, potentially including a merger of FEV into a similar closed-end Eaton Vance national municipal bond fund.' Without further action by the Board, shareholders of FEV continue to bear concentrated geographical risk without any additional benefit for doing so."

Both of these funds could represent strong buying opportunities for those investors looking to jump on board an activist campaign. The success in EIF will become apparent when the fund is absorbed by the parent and value is unlocked in the fund's shares. A similar story may emerge in FEV, which makes that stock one worth watching closely!

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Insiders know a lot about the companies they work for, so watching their actions can help bank some serious profits. These transactions can be monitored by the public through forms 3, 4, and 5 filed with the U.S. Securities and Exchange Commission (SEC). Here are the top 5 insider buys from last week, which can be useful when creating a watchlist of stocks with a potential catalyst for this week:

1. Lamar Advertising Company (LAMR) - 10% owner Edward McDermott purchase a substantial block of shares valued at over $20 million.
2. Stericycle Inc. (SRCL) - The company's chairman and director each purchased substantial blocks of shares valued at over $10 million.
3. Orbitz Worldwide, Inc. (OWW) - Par Capital Management Inc. purchased over $12 million in new shares.
4. Saks Inc. (SKS) - Inmobiliaria Carso purchased over a million shares for nearly $10 million.
5. Hearst Argyle Television Inc. (HTV) - Hearst Family Trust purchased nearly a half million shares in a transaction worth some nearly $10 million.

Cardiome Pharma Corp. (NDAQ: CRME) shares moved sharply higher today after the company announced positive phase IIb results for its oral Vernakalant drug. The experimental drug reduced the rate of abnormal heart rhythms in patients with recurrent atrial fibrilation - a condition in which the heart's top two chambers quiver instead of beating regularly, thereby reducing the heart's ability to pump blood efficiently.

Cardiome said it would move forwards with phase III study and seek a development partner or strategic buyer for the entire company. Investors clearly applauded the move since the likelihood of a strategic buyer is substantially higher with every development milestone that they pass. These latest results demonstrated that the dosing group significantly reduced the rate of arrial fibrillation relapse as compared to the placebo group.

"We are delighted to report clearly positive clinical results from our vernakalant (oral) program, which continue to support our belief in the exciting potential of vernakalant as a therapy for atrial fibrillation," said Bob Rieder, Chairman and Chief Executive Officer of Cardiome. "With 949 patients and subjects exposed to vernakalant (oral) in this development program, we now have an extensive safety and efficacy dataset to guide us as we move this exciting clinical program forward and finalize our strategic discussions with interested parties."

Shares of Cardiome Pharma rose 27.46% to $10.63 on the news today.

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Freddie Mac (NYSE: FRE) and Fannie Mae (NYSE: FNM) shares are finding themselves under increased pressure as concerns about liquidity continue to mount. Many regulators are now calling for government intervention in order to save the government-subsidized entities and preserve the struggling housing market from a larger collapse. Unfortunately for shareholders, federal bailouts are only aimed at saving the company and not necessarily its shareholders.

A government takeover of both organizations is among several options being weighed by the Bush Administration. Officials may push for the firms, which own or guarantee almost half of the $12 trillion in home loans in the United States. Such a government takeover is likely to make the common stock of each company worthless, since paying off shareholders with taxpayer dollars may present a problem to perhaps everyone in the USA (minus those shareholders).

Fannie Mae has lost about 80 percent of its value during the past year while Freddie Mac has tumbled more than 85 percent during the same time. The reason is simply because many of these loans are going bad and requiring the companies to come up with capital that they are unable to raise. The government is expected to wait until these losses hit some $77 billion before it would be compelled to start a rescue.

Others insist that a government bailout would be unlikely because the two institutions have some $1.5 trillion in un-pledged assets and access to the debt market. Some insist that Fannie Mae would have to lose $40 billion immediately and Freddie Mac would have to lose $37 billion immediately in order to be considered insolvent. Housing prices would have to decline 40% nationally and delinquencies would have to rise as much as 10 fold to 12 percent to reach critical levels, according to these analysts.

In the end, there is still a lot of uncertainty as to whether or not the two housing market giants are in trouble. If they are, however, it is clear that shareholders will likely lose out in the event of a bailout. The only people that can hope to get their money back would be bond holders.

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Rohm and Haas Company (NYSE: ROH) shares surged over 65 percent today after rival Dow Chemical (NYSE: DOW) agreed to purchase the company for $15.3 billion. The $78 per share takeover deal includes funds from a Kuwaiti sovereign wealth fund and Warren Buffett's own Berkshire Hathaway. The 74 percent premium may seen hefty to some shareholders, but Dow Chemical executives insist that the strong brands and technologies make the premium worth paying.

The acquisition represents Dow Chemicals' efforts to expand higher-margin specialty chemical markets, which can help protect it from the ups and downs of basic chemical sales. Recently, the company has been struggling with the performance of its basic businesses due to increases in raw material costs that it has tried to pass on to consumers. This deal will make Dow the largest specialty chemical and advanced materials company in the world.

So, just how much will this magic deal help Dow in the future? Well, some analysts are expecting a big boost. Before the deal, analysts have been expecting Dow to earn around $3.50 per share in 2010 and 2011 during the industry trough, but now they are expecting around $4.50 per share. Meanwhile, in 2015 when dow forecasts the peak, EPS is expected to exceed $10 per share. Meanwhile, Dow expects to realize pretax annual cost synergies of at least $800 million per year.

In the end, many investors view this as a very positive move and do not believe that Dow overpaid. The company has entered into a higher-margin business, which should boost growth and earnings multiples. Meanwhile, the move also helps the company realize cost benefits through economies of scale.

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The car market may be hurting in the United States, but sales in Europe are booming for at least one U.S. company. General Motors (NYSE: GM) reported record sales of nearly 1.2 million vehicles in Europe for the first six months of the year. Sales grew 58% in Eastern Europe and 60% in Russia, which offset a weaker market in Spain and Italy.

General Motors has been struggling in the United States recently thanks to a slowdown in the housing market and consumer spending. The result has been an environment where consumers are pinching pennies and loans are difficult to obtain even for qualified buyers. As a result, GM has cut many jobs and taken other measures to reduce costs to salvage its earnings.

The Wall Street Journal also published an interesting piece today pointing out the only way for General Motors to emerge from this mess may be bankruptcy. The automaker is not only too large right now, but also employs too many people in too strong of a union. These are problems that aren't easy to circumvent, especially when it needs $15 billion just to make it to 2010.

General Motors shares are down more than 70% during the past 52-weeks and continue to struggle. European sales may be doing very well these days, but the market is simply too small to make a material difference. And a turnaround in the way it operates in the United States may be too costly to undertake and too difficult with unions.

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VMWare Inc. (NYSE: VMW) announed this morning that its co-founder and chief executive, Diane Greene, is leaving the company. Ex-Microsoft executive, Paul Maritz, is set to replace her as the head of one of the most popular technology companies in the market. Predictably, the stock moved down $13 - or 25% - on the news.

VMWare also took the opportunity to lower its financial expectations for the year, since the stock was already going to be down on news of the departure. The company said it expects revenues for the full year of 2008 to come in modestly below the previous guidance of 50% growth over 2007; however, the company did not update its guidance with specific numbers for Q2.

VMWare was one of the hottest IPOs ever one Wall Street before the economy turned south last year. The company is a provider of virtualization solutions from the desktop to the data center. The company's suite of virtualization solutions addresses a range of information technology problems that include infrastructure optimization and desktop management.

Many investors are now wondering whether or not the drawdown today went too far. The departure of Ms. Greene was a long time in coming due to a lot of friction between VMWare and its former parent company EMC. Greene had had a lot of leeway within the company because VMWare was somewhat of a golden egg for the company. However, her failure to perform caused friction.

Some investors are bullish on news of new blood within the executive ranks. Meanwhile, the growth prospects for VMWare remain relatively strong despite the slowdown in technology spending on the part of corporations. The technology itself is used to reduce costs and improve performance, which is why the company used the word "modest" in its statement.

In the end, it will be interesting to see just how much VMWare can fall before investors take into account future growth and realize its relatively low valuation - for a tech company - of 68x earnings. Some are even saying that it could become an eventual takeover target for a larger business technology firm looking to move into the high growth virtualization arena.

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Microsoft Corporation (NDAQ: MSFT) said today that it might revive takeover talks with Yahoo Inc. (NDAQ: YHOO) if billionaire activist Carl Icahn's campaign to takeover the board is successful. Icahn is quickly building momentum ahead of a Yahoo annual meeting scheduled for next month after he promised to oust the board and chief executive Jerry Yang in order to pursue a sale. The billionaire activist has already won support from several hedge funds and is expected to put up a fight.

Icahn insists that Yahoo must combine with Microsoft in order to effectively compete against Google and has already won backing from large holders, including T. Boone Pickens, and John Paulson. The reason, according to many, is that any campaign by Carl Icahn generally draws a great deal of support given his popularity as an activist. Shareholders also clearly appear to be supporting him as shares rose sharply today on the news.

Microsoft originally offered around $44.6 billion for Yahoo, which comes in at $31 per share. That's 62% more than the search company's stock price before the takeover talks. However, the company rejected the offer saying that it was worth more because of its growth prospects and strong presence in Asia. Unfortunately, conditions have worsened since then and many investors are wondering if they can even get that much from Microsoft anymore.

Carl Icahn has nominated nine directors to replace Yahoo's board, including himself, Mark Cuban, and Frand Biondi Jr. The annual meeting is currently scheduled for August 1st, but it would not be uncommon for the meeting to be delayed if the existing board feels that they will lose the vote. It will be interesting to see what becomes of this situation...

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NVIDIA Corporation (NDAQ: NVDA) shares tumbled today after the graphics processor maker warned that its second quarter may suffer. Shares plunged more than 30 percent after the company issued revenue and gross margin warnings and blamed the problems on weak demand, delayed production of new products and price cuts. The news comes ahead of its quarterly earnings along with that of many other companies operating in the sector.

NVIDIA said that it now expects its second quarter revenues to range between $875 million and $950 million with gross margins also expected to be lower than internal expectations. This compares to a prior revenue forecast of $1.01 billion by analysts. The company also said that it would take a charge of $150 million to $200 million in the second quarter to cover anticipated warranty, repair, and return costs associated with a defect on some of its chips.

Shares of NVIDIA rival Advanced Micro Devices, which owns ATI, fell 3.7 percent on the forecast. Others weren't safe either as the Philadelphia semiconductor index fell as much as 2.7 percent in early trading before recovering to trade down just 0.5 percent right now. The industry as a whole has been experiencing problems as consumer spending has weakened - particularly on high-end computers and graphics cards needed for gaming and graphics design purposes.

Shares of NVIDIA Corporation fell $5.52, or 30.12%, to $12.60 per share on the news.

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Northstar Neuroscience, Inc. (NDAQ: NSTR) shares are up sharply today after a large shareholder offered to purchase the company. Tang Capital Partners announced its offer to acquire the company at $2.25 per share in cash today, sending shares more than 22 percent higher on the day. The announcement was revealed in a Schedule 13D/A filing with the SEC.

"As Northstar's largest shareholder, holding approximately 18% of Northstar's outstanding common stock, we have spent considerable time analyzing Northstar and its options. We strongly believe that the best course of action for Northstar and its shareholders is for Northstar to be acquired in a transaction that represents a significant premium to its current market price," said the hedge fund.

"However, the window for consummating any such transaction is limited; if the Board is to prevent further erosion of Northstar's value, it must act quickly. Accordingly, this non-binding proposal is contingent on our receipt of a positive response on or before July 9, 2008 and Northstar entering into a binding definitive merger agreement on or before July 23, 2008.

"Our proposal provides Northstar shareholders an immediate and certain path to a premium, all-cash transaction that will eliminate future market risk as well as the risk of future erosion in value. We believe that the vast majority of other Northstar shareholders will agree and expect this proposal to be readily approved by them. We encourage Northstar's Board to work with us to finalize a definitive merger agreement and bring the transaction to a shareholder vote as quickly as possible.

"We value the input of the Board and management when considering Northstar's strategic alternatives and have tried on several occasions to have constructive, confidential discussions with management regarding these alternatives. So far, management has been unwilling to entertain such discussions except under conditions that would make it impossible for us to protect the value of our significant investment in Northstar. We have made this proposal now because of our belief that this is the only remaining path to protect that investment."

This is great news for shareholders as the buyout price represents a substantial 50% premium to the going market price before the announcement was made. Whether or not the company agrees remains to be seen, but it appears that shareholders are bullish on the prospects at this point. Still, shares are trading substantially below the buyout premium at just $1.84 per share.

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