Wilshire Enterprises, Inc. (AMEX: WOC) shareholders should take Full Value Partners’ proposed tender offer with a grain of salt. Just days after the hedge fund proposed a $2.00 per share tender offer, the company fired back asking whether they had the financing and if so encouraging the tender offer.

Here’s a copy of the letter:

We are in receipt of your letter of February 23, 2009. We must challenge your assertion that you are prepared to commence a so-called offer for all outstanding Wilshire shares, as it appears to us that your true purpose and intention is to artificially drive up the price of the Company's stock and garner votes in the midst of the ongoing proxy contest.

Further, we question whether you even have the ability to commence your purported tender offer, as you have not provided the Company or the market with details regarding whether you have the necessary financing. Again, it appears to us that you are merely acting in your own self-interest by misleading our stockholders in a desperate attempt to gain support for your inexperienced nominees and your proposal to liquidate the company in this depressed market at fire sale prices.

If you are prepared to commence a tender offer, we encourage you to do so. If and when a tender offer is commenced specifying all of its terms and conditions, the Board of Directors of Wilshire will consider it and its implications in the context of assessing the best interests of Wilshire and all of its stockholders.

The only issue left unaddressed is the poison pill that Wilshire Enterprises has on the books. This would make it difficult for Full Value Partners to take control of the company even if it did have a majority of shares. This could be a reason why the hedge fund has refused to make a tender offer as they would be unable to liquidate the company even if they did tender shares until the provision is removed.

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Advanced Life Sciences (NDAQ: ADLS) wants to issue millions of new shares that could significantly dilute existing shareholders. Groundworks of Palm Beach, which owns approximately 5.74% of the firm, opposed this proposal in letter to the board found in a Schedule 13D filing with the SEC. Here's a copy of that letter:

As a material stockholder of Advanced Life Sciences Holdings, Inc. (the “Company”), I am requesting that you either amend or withdraw your unwarranted proposal to increase by 300% the authorized common stock of the Company. I currently beneficially own, directly and indirectly through my corporation Groundworks of Palm Beach County, Inc. (“Groundworks”), approximately 5.74% of the common stock of the Company, and have, therefore, made a significant financial investment in the survival and eventual growth of the Company. Consequently, it was with dismay that I reviewed the Company’s request to increase by 300% the authorized common stock.

As disclosed in the Schedule 13D I filed today with the SEC, I acquired my Company shares over a period of approximately ten months for investment purposes. However, upon review of the Company’s preliminary proxy statement filed with the SEC on February 6, 2009 (the “Preliminary Proxy Statement”), I have significant objections to the proposal pursuant to which the Company intends to seek approval of an amendment to its Amended and Restated Articles of Incorporation to increase the number of authorized shares from 65,000,000 to 185,000,000, including an increase in the number of authorized shares of common stock from 60,000,000 to 180,000,000 (the “Proposal”). Based on the objections that I fully explain in this letter, I, on behalf of myself and Groundworks, hereby request that the Company remove or amend the proposal.

I have significant concerns regarding this proposal stemming from both the size of the increase and the fact that the Board has not provided sufficient information as to how it intends to use this exorbitant amount of shares. I believe that a proposal seeking an increase of 120,000,000 additional new shares underlies the problematic issues that the Company is facing. While I understand that the current economic conditions, combined with delays in the NDA filing, have placed the Company in a difficult liquidity situation, I do not believe that you have justified the necessity of increasing by 300% the Company’s authorized common stock. I recognize that the Company currently has some need to increase its authorized common stock to generate sufficient funding for its operations through July 2009, when it expects to receive FDA approval of Cethromycin for use in community acquired pneumonia (“CAP”) and to allow for a small time cushion thereafter during which the Company finalizes commercial relationships. However, you have not provided sufficient explanation as to why a more reasonable increase of 60,000,000 shares would not provide you sufficient liquidity to accomplish these near term goals. In fact, the business purpose for the authorization that is stated in the Preliminary Proxy Statement is vague and unclear. In the Preliminary Proxy Statement, the Company lists several types of transactions in which the additional shares may be issued, but the Company does not state whether it has any specific plans for the shares or to whom they would be issued, whether it be to affiliates of the Company or to existing stockholders. Considering the precarious state of the Company under your stewardship, a state that I acknowledge has been somewhat exacerbated by market conditions, I believe that stockholders should have more information regarding the proposed use of any newly authorized shares.

Second, I believe that the proposed exorbitant increase in authorized shares gives the Board of Directors too much discretion as to how the shares will be issued. This is particularly the case since the Company’s shares are currently subject to possible delisting by the Nasdaq Capital Market for failure to satisfy Nasdaq’s market capitalization requirements. If the shares are delisted, the Company would not be subject to Nasdaq’s protective rules, such as those that require stockholders to approve an issuance of shares that would result in a change of control or the issuance of more than 20% of the outstanding shares. An increase of 60,000,000 shares at $0.25 would generate an additional $15.0 million in cash proceeds. Does the Board intend to use more than $15.0 million of stockholders’ money before it receives notification from the FDA? According to the Post-Effective Amendment No. 1 to Form S-3 on Form S-1 filed by the Company with the SEC on February 13, 2009, the Standby Equity Distribution Agreement that the Company has executed with YA Global Investments, L.P. will result in approximately $0.11 per share dilution to all existing stockholders if the 10,361,251 shares covered by the registration statement are sold to YA Global at $0.29. That steep level of dilution may be necessary between now and August 2009 to keep the Company afloat until it receives notice from the FDA. However, I do not believe that we should permit the Board to continue these hugely dilutive transactions beyond August 2009.

If the Company receives an FDA approval for the use of Cethromycin in CAP, the Company will be in the position to, as you state in your 10-K, “raise additional capital by licensing [the Company’s] lead compound, Cethromycin, to commercial partners”, which would not involve the necessity of significant equity issuances. However, if the Company does not receive approval, I believe that stockholders should have the opportunity to vote upon any transactions that would result in significant dilution. I do not believe that stockholders should provide the current board of directors the excessive level of discretion that would permit them to remain entrenched if the Company does not receive an FDA approval for Cethromycin. Instead, it would be prudent, if it must be done at all, to first request authorization of 60,000,000 new shares, and, if there is a need for additional shares, return to the stockholders, the true owners of the Company, and justify the additional 60,000,000 shares at a later date.

Finally, I believe that the Preliminary Proxy Statement does not provide sufficient information regarding the risks of increasing the authorized shares. The issuance of additional shares of common stock will have a dilutive effect on earnings per share and on stockholders’ equity and voting rights. Furthermore, future sales of substantial amounts of common stock, or the perception that these sales might occur, could adversely affect the prevailing market price of the Company’s common stock.

In addition to the dilutive effect, the existence of the additional authorized shares could have the effect of discouraging unsolicited takeover offers, which could in turn limit stockholder value by eliminating the takeover or control premium for the Company’s shares.

I believe the anti-takeover effect of the Proposal is a significant risk to stockholders, particularly since the low price of the Company’s shares has, I believe, limited the ability of stockholders to obtain value for their shares outside the context of an acquisition by a third party.

I desire a degree of compromise with you and appreciate the hard work you have put into reaching this point. I recognize your personal contributions to the business and note the substantial commitment Dr. Flavin has made to the Company via his loan to the Company of $2 million. However, I believe that your program is well behind the timeline you had outlined and represented to your investors and therefore, your performance of the goals you set and the timelines to which you professed are at least partially responsible for the precarious financial position we now find ourselves in. I agree that the authorization of some new shares, while highly dilutive, is necessary at this point, but ask that you amend the Proposal to increase the number of authorized shares to only 125,000,000, including 120,000,000 of common stock.

If the Proposal is not removed or amended, I, on behalf of myself and Groundworks, plan to file with the SEC, and disseminate to Company stockholders, a proxy statement soliciting proxies from stockholders of the Company to vote against the Proposal at the Annual Meeting. I do not intend to solicit proxies against the Company’s other proposals listed in the Company’s Preliminary Proxy Statement, specifically the election of directors and the ratification of auditors.

Thank you for taking the time to consider my objections to the Proposal. I sincerely hope you will act now to remove or amend the Proposal for consideration at the Annual Meeting. I am available to discuss these issues with you at your convenience.

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APAC Customer Services, Inc. (NDAQ: APAC) may face some opposition to its buyout plans after a major shareholders expressed belief that the buyout price is inadequate. Ronald Chez, who owns a 7.2% stake in the firm, believes that APAC’s great fourth quarter results demonstrate that the shares are worth well in excess of the proposed buyout price of $1.61 per share in cash. In fact, the only sell-side analyst covering the company issued a $3.00 price target!

Here’s a letter sent via a Schedule 13D/A filing with the SEC:

As a shareholder of APAC (in excess of 7% of APAC shares), it was certainly a pleasure to participate in the recent conference call with respect to APAC's Fourth Quarter. As you know, the results achieved by Mr. Marrow and his team significantly exceeded expectations. First Analysis, the only sell side broker which follows APAC, raised its price target to $3.00 per share, and it would have been difficult for the analyst to be much more enthusiastic about the performance and prospects for APAC.

It is obvious that the Special Committee of the Board of Directors should not be spending any of the Company's (shareholder's) money with lawyers and investment bankers with respect to Mr. Schwartz's offer. If you listened to the call, you must realize that your shareholders strongly support the position that APAC should be "left alone" so that it may achieve (without interference or distraction) the kind of results that have been far too long in coming. I, and others on the call, have been patient and deserve the opportunity to realize full value on our investment as owners of APAC.

The shareholders expect the Board to fulfill its fiduciary responsibilities, and to provide a positive, constructive environment conducive to continued success. I believe that APAC's value is a significant multiple to Friday's closing price of $1.95.

Tresar Holdings LLC, an acquisition vehicle formed by Theodore Schwartz, announced its $1.61 per share cash offer that represented a 25% premium over the closing price on January 28th when the offer was announced. Since then, shares have rallied substantially higher as shareholders have gained even more confidence in the company’s operations. However, Schwartz’s 49% stake may make it difficult to oppose a buyout…

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Wilshire Enterprises, Inc. (AMEX: WOC) appears to be hoarding shares ahead of a tender offer by an activist hedge fund. Insiders recently purchased an additional 278,933 shares from a distressed seller at $1.10 per share while keeping its poison pill in place to prevent a $2.00 per share tender offer from Full Value Advisors. So, are insiders simply hoarding shares for themselves before allowing the tender?

Here’s a copy of the most recent letter to the board in a Schedule 13D/A filing with the SEC:

Have you no sense of decency?

You recently purchased 278,933 shares of Wilshire from a distressed seller at $1.10 per share.  We both know that that price is far below Wilshires intrinsic value. Yet, you refused our request to waive Wilshires poison pill so that we can promptly conduct a tender offer to purchase shares of Wilshire at $2 per share -- a premium of approximately 100% above its then current price.

Once again, you have placed your own interest, in this case in keeping the stock price depressed to retain the ability to buy shares from distressed shareholders at a fire sale price ahead of their desire to tender their shares to us at a much higher price.

Your assertion that we are free to make a tender offer without you waiving the poison pill is disingenuous and cynical.  Surely, you know whether or not you are willing to allow our $2 per share tender offer to proceed.  Moreover, there is no legitimate reason not to waive the poison pill now.   If you do waive it, we promise to promptly commence a tender offer for shares of Wilshire at $2 per share. If we fail to keep our promise you can easily reinstate the pill.

Therefore, we ask you to reconsider your refusal.  Will you waive the poison pill in order to allow those shareholders that wish to tender their shares to us at $2 per share to do so and forego the personal benefit of having them sell to you at $1.10 per share?  This is a yes or no question.

It appears that Wilshire insiders are either confident in the company's future or confident in a $2.00 per share tender offer - both of these are good news for shareholders!

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Mac-Gray Corporation (NYSE: TUC) may see some changes sooner than later after an activist hedge fund  nominated its own slate of directors to the board. Fairview Capital , which owns a 6.4% stake in the firm, believes that Mac-Gray’s financial condition continues to deteriorate over the past several years. Moreover, management has continued to ignore the changes recommended by the hedge fund.

“Fairview has been a Mac-Gray shareholder for nearly five years,” said Scott Clark, Fairview portfolio manager. “We believe most of Mac-Gray’s financial metrics have shown little improvement during this time, despite more than $300 million spent on acquisitions that Management previously estimated would be accretive. The share price has underperformed the Russell 2000 and S&P 500 indices in each of the past three years, and now stands 57% below the closing price on the day of Mac-Gray’s IPO in 1997. We have concluded that Mac-Gray’s ‘growth’ strategy is not working, and we believe this is best addressed through shareholder representation on the Board of Directors.”

Clark continued: “We view our nomination of directors as a natural next step for our involvement with Mac-Gray. We believe Mac-Gray is an excellent business with a flawed capital allocation strategy. For several years, through conversations with Management and letters to the Board, we patiently tried to convince Mac-Gray to shift its strategy. Despite our advice, and in the face of poor financial performance and a sinking share price, we believe Management and the Board have been unresponsive.”

“We are confident our two nominees address the major deficiencies that we see in the composition of Mac-Gray’s Board,” Clark added. “Specifically, we believe the Board lacks members with significant experience or expertise in the financial analysis of acquisitions and capital investments. In addition, we believe most of the Board’s independent members own relatively few common shares and therefore are not properly aligned with shareholders.”

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Wilshire Enterprises Inc. (AMEX: WOC) shares dropped sharply lower after an activist investor requested that the company remove a poison pill so they could conduct a $2.00 tender offer. Full Value Advisor’s proposed tender offer represents a significant premium to the current market price, but there  is a broad contingency in the offer and no guarantee that the poison pill will be waived.

Wilshire Enterprises confirmed that it received the letter from Full Value Partners “supposedly asking permission” to make a tender offer for share of common stock. The company insisted that Full Value Partners “well knows” that it doesn’t need the company’s permission to make a tender offer and it is free to do so if it has the necessary financing available to complete the offer.

Here’s a copy of the letter:

We noticed that you have been purchasing shares of Wilshire at around $1.00 per share. In addition, there are rumors that you or a party with whom you may be directly or indirectly connected is seeking to buy blocks of shares with the proxies.

As you know, we believe Wilshire is worth significantly more than its current stock price.  Therefore, we think it is fair to allow all shareholders to sell their shares, if they so desire, at a significant premium to the current price. To that end, we propose that we (and our affiliates) conduct a tender offer for shares of Wilshire at $2 per share or a premium of approximately 100% above current levels.

In order to conduct a tender offer, we need to have the poison pill waived. Please advise us immediately if you will waive the poison pill so that we may conduct a tender offer to purchase shares of Wilshire at $2 per share. The only contingency we would impose is that there be no material deterioration in Wilshires financial condition prior to the closing of the tender offer.

You may not be aware that you have a conflict of interest because it is unlikely that you will be able to acquire any more shares at the current price level once shareholders know that they can tender their shares to us at $2 per share.
Nevertheless, we believe you have a duty to waive the poison pill. In any event, you might wish to advise the market of this information so that they can make an informed decision prior to buying or selling shares of Wilshire.

Thank you.

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Share buybacks have become a very uncommon event these days as companies struggle to conserve cash and stay afloat. As a result, companies that do buyback their own shares demonstrate confidence not only their current cash position and their future prospects going forward.

ePlus Inc. (NDAQ: PLUS) and Zebra Technologies (NDAQ: ZBRA) may not be the best performers in their industries, but the two companies are buying back their own shares at a fast rate. ePlus said it would purchase up to 500,000 shares while Zebra Technologies plans to purchase up to 3 million shares.

Zebra Technology is trading near its 52-week low while ePlus is trading in the middle of its trading range. However, both companies are trading at a cheap valuation relative to their earnings (in the case of ePlus) and earning potential (in the case of Zebra Technology).

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Telephone & Data Systems Inc. (NYSE: TDS) board members may be in for a fight after an activist investor nominated its own slate of directors. GAMCO Investors, which owns approximately 5.9% of the company, said in a regulatory filing that it intends to nominate Gary Sugarman to the board of directors. The Schedule 13D filing provides few biographical details other than the nomination.

Gary Sugarman currently services as Principal at Richfield Associates and was the former founder, chairman and chief executive of Mid-Maine Communications. He also served as president of Brighton Communications and serves on the board of many other companies, including LICT Corporation. His qualifications appear to suit the job, but GAMCO’s intentions remain unseen.

GAMCO Investors is well known in the investment community for its activist investment style. Often times, the fund will identify undervalued companies and push for changes designed to quickly unlock value, including so-called strategic alternatives. These can include share buybacks, special dividends, asset sales, or other similar corporate strategies designed to unlock value.

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Barron’s published a recent article about the current golden years for activist investing. The author argued that record low valuations combined with new shareholder rights movements have created big opportunities for activist investors these days. Activist investors are seeing the largest spreads ever between price and value – just look at companies like Target under pressure from Bill Ackman.

Many companies are increasingly bending to activist investors as well with the economic and political climate changing quickly in their favor. Shareholders have less patience in companies and their boards to make changes while the government is now a shareholder in many major banks and will likely press them for increased rights and help with enforcement for other companies and industries.

Another key area of focus will likely be executive compensation. While this is not the focus of many campaigns currently in the works, it is something on the mind of the average shareholder and could be used as leverage. Barron’s noted Shamrock Activist Value Fund’s activist initiative at tax preparer Jackson Hewitt, which cited the government’s actions to support its bid to balance compensation.

Overall, the landscape is quickly changing and activist investors may be the beneficiaries. Investors wishing to track these activist investors can do so through Schedule 13D filings with the SEC. Typically, these filings contain not only their holdings, but also letters to the board and demands outlining their position. These can be very profitable to watch, especially these days with the increased support for their activities...

MathStar Inc. (OTC-BB: MATH) shareholders may have to do a little math of their own before the next annual meeting after at least two shareholders called for the liquidation of the firm. The board remains committed to exploring strategic alternatives, but told investors that a liquidation would be too lengthy and preferred to merge with another semiconductor company.

MathStar reported $14.8 million in cash and securities in its most recent filing with the SEC after raising about $137 million from private and public investors. With just 9.2 million shares outstanding, this means that investors could get $1.61 per share in the event of liquidation. This represents a clear choice for many investors looking to get their money back.

MathStar also turned down two takeover offers from private company PureChoice Inc. Many shareholders are now worried that the firm may be looking to make an acquisition of its own that could end up hurting shareholders down the road. Whether or not this message will resonate with enough shareholders will have to wait until the next annual meeting.

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Red Lion Hotels Corporation (NYSE: RLH) recently passed a shareholder rights plan (read: poison pill) designed to entrench management and prevent any so-called strategic alternatives. The move angered Columbia Pacific Opportunity Fund, the single largest shareholder of Red Lion. The hedge fund believes that Red Lion is substantially undervalued and should immediately pursue such alternatives to unlock that value for the benefit of shareholders.

Here’s a copy of Columbia’s letter to the board:

As the single largest shareholder of the Red Lion Hotels Corporation ("RLHC" or the "Company") we would like to express our sincere disagreement with the Board's recent adoption of a shareholder rights plan.  In addition, we would like to address the Company's current strategy.

Prior to our formal review process we indicated our belief that the Company's assets were undervalued.  In the process of evaluating the potential acquisition of RLHC, we engaged a number of consultants and advisors to assist us in our review of RLHC's real estate and the Company's position in the marketplaces in which it operates.  Following this process, we came to the following conclusions:

First, we believe RLHC should not be an independent public company.  The market capitalization of the Company is too small to justify public company costs and the Company lacks the operating scale and capital base to fulfill the current flawed growth strategy.  Second, much of RLHC's value is buried in underutilized real estate which is difficult to articulate to investors.  Third, in order to realize full value, RLHC should be liquidated in an orderly fashion or sold.The Company's current growth strategy focuses on acquiring and expanding the Red Lion brand with three to four-diamond hotel properties.  We do not believe the Company has the expertise or capital to successfully execute this strategy.  The Company's recent acquisition efforts in Denver and Anaheim demonstrate this flawed strategy.  These acquisitions have resulted in our opinion of over-paying and over-investing in assets.  As an independent company, it is too costly for RLHC to expand the Red Lion brand in such a manner.  We believe the Company should focus on extracting value out of its current asset base rather than increasing an inefficient and underappreciated platform.

What originally attracted us to the Company was the focus on the Pacific Northwest and our impression that the real estate was undervalued by the market.  The Company's assets are now more undervalued than ever and we believe that even in a depressed marketplace the liquidation value of the Company is well in excess of the current market capitalization.  Our recommendation is for the Board to immediately remove the shareholder rights plan, and begin the process of liquidation or sale of the Company to return value to shareholders in the timeliest manner possible.

We expect the Board to put shareholders' interests ahead of management's interests.

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ATC Healthcare, Inc. (OTC-BB: AHNA) shareholders have been all but abandoned by the company and at least one has been expressing concern. Roaring Fork Capital, which owns about 5.9% of the company, expressed concerns about the firm’s failure to file reports with the SEC, the poor operating results and the tremendous decline in stock price. The hedge fund sent three letters to the board in Schedule 13D filings and received no satisfactory response from the company. As a result, the hedge fund recommended that the company consider strategic alternatives, including a possible sale transaction.

Here’s an excerpt from the most recent Schedule 13D filing:

The Reporting Person has repeatedly expressed its concerns to management and the Board of Directors regarding the Issuer’s failure to file reports with the SEC and the poor performance of the Issuer’s operations and tremendous decline in the Issuer’s stock price. The Reporting Person has previously sent letters to the Issuer, dated November 13, 2007, December 6, 2007 and March 6, 2008, all of which were included in 13D filings on those dates. The Reporting Person has not received a satisfactory response to the concerns and requests stated in the three letters. The Reporting Person continues to believe that management of the Company has no plans to address the serious issues confronting the Company, and that the Board should consider strategic alternatives, including the potential for sale of the Company.

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Enzon Pharmaceuticals (NDAQ: ENZN) may face another board shake-up after an activist investor requested that its nominees be added to the board of directors. DellaCamera Capital, which owns a 7.6% stake in the firm, and suggested that its nominees would “breathe new life into a board that has been unable to reverse the decline in shareholder value” in a Schedule 13D/A filing with the SEC.

Here’s a copy of the letter to the board:

Your failure to date to contact the two board candidates that we have nominated is another missed opportunity to avail yourself of reasonably available information and ideas.

We are nonetheless encouraged by Enzon Pharmaceutical, Inc.’s (the “Company” or “Enzon”) January 28 announcement that the Board of Directors (the “Board”) has nominated Dr. Alexander J. Denner and Professor Richard C. Mulligan for election at the 2009 Annual Meeting of Stockholders, despite being concerned about the apparently tentative nature of the Board’s commitment to their nomination. Both of these individuals have impressive backgrounds and a history of taking steps that have led to an increase in shareholder value, as is evidenced by their participation on the board of directors of ImClone Systems Incorporated (“ImClone”).

If these proposed nominees are the leaders that the Board honestly believes can breathe new life into a Board that has been unable to reverse the decline in shareholder value brought on by Enzon’s failed management team, why delay their participation? We call upon you to immediately expand the Board and add these gentlemen so that they can begin to help the Board improve the Company’s operating and stock price performance. Given the desperate need for management oversight and the persistent discount at which we believe Enzon’s stock trades, we see no reason why the Board does not want to avail itself of new and independent voices as soon as possible. No shareholder should be satisfied until it has comfort that the Company has formally added new and independent Board members.

Frankly, we feel that the time has come for the Board to hear from a new set of financial advisors. In our opinion, the Company’s long-time financial advisors at Goldman Sachs, along with Jeff Buchalter, his management team, and the Board, all have to take responsibility for the following failed courses of action: (1) issuing the incredibly-dilutive 4% Convertible Senior Notes due 2013 (the “Notes”); (2) advocating the ill-conceived Evivrus spin-off plan; (3) bungling the sale of the Company’s special pharmaceutical division; and (4) devising the Company’s $100 million Dutch tender for Notes in a manner that was an abject failure, leading to less than $3 million of face value in Notes being tendered, all while refusing to advocate the financially prudent course of action of repurchasing common shares. A new financial advisor could supply a much needed fresh perspective.

If the Board wants the market to believe that it is serious about change, then the Company also should commit to hold its 2009 Annual Meeting of Stockholders in New York City upon a publicly announced, and reasonably early, date. This meeting would serve as an ideal forum to hear from these new Board members so that the shareholders can determine for themselves the Company’s commitment to new and independent voices at the Board level. Considering that Enzon is based in New Jersey and a large number of Enzon shareholders are based in either New York or Connecticut, it would seem that New York City is by far the most geographically convenient meeting location. We believe any attempt by Enzon to hold its 2009 Annual Meeting of Stockholder in Indianapolis (which is where the Company has dubiously chosen to hold its last three annual meetings) would be viewed by shareholders as a thinly veiled maneuver to avoid healthy debate.

As we have consistently indicated, we are intent on seeing value delivered to the shareholders of Enzon.

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Defined Strategy Fund Inc. (NYSE: DSF) is facing pressure to liquidate from activist shareholders. Karpus Capital Management, which owns a 22.1% stake, argued in a letter to the board that the fund should be liquidated in order to realize a 6.5% discount and avoid future fund management fees. Meanwhile, the price continues to erode as clients have sold large blocks of shares.

Here is a copy of the letter found in a Schedule 13D/A filing with the SEC:

I am writing on behalf of Karpus Investment Management ("Karpus"), a registered investment adviser and shareholder of Defined Strategy Fund Inc. ("DSF" or the "Fund"). As of November 12, 2008, the record date for the special meeting of the Fund, Karpus represents beneficial ownership of 972,793 shares of DSF or 24.26% percent of the Fund.

As the largest shareholder of the Fund, it is our belief that all shareholders would be best served if the Fund were to liquidate before the currently anticipated termination date on or about February 15, 2010. Not only would an early liquidation allow shareholders to promptly realize the value contained within the 6.5 percent discount the Fund has averaged over the past year, but it would also save shareholders the additional fees that would otherwise be incurred. Moreover, the current market environment has depressed security valuations across most asset classes and, consequently, liquidity has become a valuable commodity. The proceeds from an early liquidation of the Fund could be reinvested by shareholders into supplementary securities, such as other closed-end funds trading at greater than 20 percent discounts, and this would provide shareholders with the possibility of more favorable returns going forward.

It is the Board's fiduciary duty to do what is in the best interest of shareholders and given the current market environment, we believe that an early liquidation would be the best course of action. We urge the Board to act as promptly as possible so that shareholders can realize the value concealed within the Fund and redistribute these assets as they see fit.

I appreciate the Board's time and consideration and would welcome any communication to further discuss our concerns. Please feel free to contact me at [removed].

Any move to open or liquidate the Defined Strategy Fund could result in substantial returns for shareholders, which makes this stock one worth watching closely over the next couple of months!

Target Corporation (NYSE: TGT) has been struggling in recent months as consumers continue to cut back on their spending. However, at least one investor believes there is substantial value hidden in the land underneath the retail stores. Billionaire activist William Ackman’s Pershing Square took a huge bet in the retailer, even establishing a separate fund to invest in it. Due to leverage, the fund fell more than 40% in January and remains down nearly 90% since inception, but the activist appears to remain confident in a recovery.

“While PSIV [the Target-only fund] and Target stock has declined materially, we still believe our fundamental investment case for Target stock will ultimately be realized, although not within the original timeframe we had initially estimated,” said Ackman in a letter dated February 5th. The poor timing is likely the result of a dramatically slowing economy that forced the company to reconsider making any major changes until there was more confidence in the marketplace.

Investors looking to get involved with Target by making this bet may want to consider a pairs trade with the S&P Retail ETF (NYSE: XRT). Purchasing a long Target position in the same dollar amount as a short Retail ETF position will result in a trade whereby the investor would make money when Target stock outperformed the retail sector but not drop when the overall retail sector declines. This offers downside protection with most of the upside remaining in tact.

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The furnace fueling any economic recovery will likely be running on U.S. dollars if plans circulating in the government materialize. Luckily, world stock markets are still struggling and the dollar is seen as a safe-haven for money. The result has been extremely low Treasury yields during note auctions. However, the tables may turn sharply when the world’s economies begin to recover. The combination of trillions of new dollars in circulation along with the inevitable flight from the dollar will increase inflation.

One way to invest in this inevitable inflation is by purchasing Treasury Inflation Protected Securities, or TIPS. These safe government securities pay returns that are adjusted to the consumer price index in order to reduce inflation risk. The premiums on these bonds will therefore increase in line with rises in inflation. iShares Barclays TIPS Bond Fund ETF (NYSE: TIP) is an exchange traded fund that trades these TIPS and makes them more accessible for investors. Those confident in a bearish dollar may want to take a TIP!

Abigail Adams National Bancorp Inc. (NDAQ: AANB) received a $3.45 per share all cash takeover offer from an activist shareholder on January 29th, but investors don’t seem to be taking notice. PS D’Iberville Limited Partnership made the offer after the company agreed to and then subsequently rejected its request to review the firm’s books to conduct due diligence.

Here’s a copy of the letter:

Your letter dated January 28, 2008 (2009 is the correct date) is unacceptable.  Your letter, dated January 23 2009, specifically stated that P.S. D’IBERVILLE LIMITED PARTNERSHIP could inspect the items requested in our letter of September 26, 2008.  You confirmed, by telephone, that you would allow P.S. D’IBERVILLE LIMITED PARTNERSHIP to inspect the items requested and would not cancel the appointment.  P.S. D’IBERVILLE LIMITED PARTNERSHIP demands that you allow us to inspect all the items.  Given your unwillingness to allow us to review all of the books as previously indicated and your rejection of our past offers to assist, we are proposing instead that P.S. D’IBERVILLE LIMITED PARTNERSHIP pursue an acquisition of all the shares of Abigail Adams National Bancorp, Inc (AANB).  We propose a price of $3.45 all cash per share.  We have existing cash resources available to fund this transaction and are prepared to move as quickly as necessary.

We believe time is of the essence.  You have already wasted valuable time to increase shareholder value since our letter of August 19, 2008.  Your customers, regulators and employees will appreciate immediate action.  This non-binding proposal is subject to the negotiation of mutually satisfactory definitive agreements, regulatory approval, and the completion of customary due diligence, all of which could be progressed and finalized without delay.

We have already made our plane reservations to visit with you on Monday, Feb. 2, 2009.  Failure to confirm by Friday, January 30, 2009, at 4:00 pm that all the records requested in our September 26, 2008 letter will be available for our inspection will be construed to be a breach of your fiduciary duty and obligations pursuant to statute and we will not show up Monday, February 2, 2009.  If you choose not to let us review all of the materials on February 2, 2009, please let us know when we can complete our due diligence inspection.

It is important to remember that non-binding takeover offers are not guarantees, particularly when management doesn’t appear to be interested in selling the company. As a result, shares continue to trade at $2.15 per share despite the presence of a $3.45 per share offer. However, this could represent an opportunity for other activist investors are arbitreurs.

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Amylin Pharmaceuticals (NDAQ: AMLN) shares are trading well off of their 52-week highs after two amid complaints from two activist investors. Billionaire activist Carl Icahn recently nominated his own slate of directors while Eastbourne Capital Management, which owns approximately 12.5% of the company’s shares, followed suit and nominated its own slate to compliment that of Icahn, according to a Schedule 13D/A filing with the SEC.

“We have been a long-term shareholder in Amylin based on our belief that the company has unmatched potential, but we believe this potential has been squandered and has resulted in significant shareholder loss,” said Eastbourne’s Rick Barry. “It is clear that we are not alone in our belief that significant change at the board level is required to ensure that the proper steps are taken to maximize the commercial value of Amylin’s assets.”

The hedge fund noted that Amylin has lost nearly 80% of its market value since its all-time high price on October 5, 2007. Despite this decline and history of disappointing results, however, the fund continues to invest in Amylin because the company’s products could deliver significant shareholder value if managed properly. So, while they have not lost faith in the potential of Amylin’s products and pipeline, they have lost confidence in Amylin’s leadership to execute an operational strategy in the best interest of shareholders.

Clearly, this is a situation worth watching when to large activist investors, including Carl Icahn, get involved to unlock value.

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R.G. Barry Corporation (NDAQ: DFZ) may have reported very strong earnings in the second quarter, but some investors are clamoring for change. Mill Road Capital, which owns 529k shares, believes that the firm is undervalued and offered to acquire the stock for $7 to $7.25 per share in cash, according to a Schedule 13D filing with the SEC.

Here's a copy of the letter:

Mill Road Capital L.P. (“Mill Road”) has been following R.G. Barry Corporation (“R.G. Barry” or the “Company”) for quite some time. We are highly impressed with the Company, its management team, and its Board of Directors. We currently own approximately 529,000 shares of the Company’s stock and are one of the largest shareholders of the Company.

Despite the Company’s many strengths, we think that the public market does not accord a high valuation to R.G. Barry because it is a small company in a very low growth market. Over the last several years we have seen few investment funds interested in investing in the Company. In fact, we believe the trading volume and market capitalization of R.G. Barry stock is so small that it will continue to preclude significant institutional interest in the Company. We are confident that if R.G. Barry were a private company today, it would be considered too small to “go public” at all. We further believe that by remaining public, R.G. Barry will be subject to continuous pressure to maximize short-term results at the expense of long-term return on invested capital, and will continue to incur regulatory costs and burdens disproportionate to the size of the Company. We think the terrific team at R.G. Barry will be better able to realize the Company’s full potential as a private entity.

Accordingly, Mill Road is pleased to submit this offer to acquire all the shares of the Company’s stock it does not currently own at a cash price of $7.00 to $7.75 per share. This represents a robust premium of 40% to 55% over the closing price of $4.99 as of January 27, 2009. Mill Road requires no outside financing to consummate a transaction and hence this offer contains no financing contingency. Due to our knowledge of the company, we believe the period required to complete our business, financial and legal due diligence should be brief and we are prepared to begin this period immediately.

Mill Road Capital is a Greenwich, Connecticut based investment firm focused exclusively on friendly investments in small publicly-traded companies. We manage capital for a prominent and highly respected group of limited partners including state pension funds, foundations, endowments and insurance companies. The investment professionals of Mill Road are largely former Blackstone Group professionals and we believe our experience enables us to complete transactions expeditiously.

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