Friday, March 30, 2007

Another Large eSpeed (ESPD) Holder Calls for a Sale or Other Measures to Increase Shareholder Value

In a 13D filing after the close on eSpeed Inc. (Nasdaq: ESPD), WC Capital disclosed a 6.4% stake (1.92 million shares) in the company. The firm also disclosed a letter send to ESPD Chiarman, Howard W. Lutnick.

In the letter the firm said the shares are currently very undervalued. The firm also requested the board review certain options. 1: Sale of the Company, 2. Convert Class B shares to Class A, 3. Return of Capital to Shareholders (one-time dividend, share repurchases ), 4. Initiate Procedures and Structures Increasing eSpeed Autonomy.
Commenting on eSpeed's valuation the firm said, "Our analysis has led us to believe that the range of the company's theoretical valuation could be considerably higher than the current share price which could result in a value 28% to 70% greater ($12 to $16 per share) than the current valuation of $9.40 per share."
NOTE: eSpeed is also an activist target of Chapman Capital. Link to ESPD/Chapman reports.
A Copy of the Letter:
Dear Mr. Lutnick:
Thank you for the recent opportunities to discuss eSpeed's current business strategy and longer term opportunities.
As long-term shareholders of eSpeed we have performed our own analysis of the value of the company and have concluded that the shares are currently very undervalued. Specifically, we believe that the current valuation does not accurately reflect: 1) the company's strong cash positions of $187 million ($3.72 per share) as of December 31, 2006; 2) the company's strong duopoly position in the electronic trading of debt securities and related instruments; 3) the potential cash flow from the "core" trading business, which has been and continues to be masked by the large continuing investments in unprofitable new business initiative, and 4) the intellectual property inherent in the company's proprietary trading technology.
While our tone and sentiments may differ from those of other shareholders, we do nonetheless agree with several issues they have raised. Given the company's dramatic undervaluation relative to other "exchanges", we believe that steps to ensure a fair return for eSpeed shareholders are appropriate. Specifically, we request that the Board of Directors reviews the following options (many of which we have inquired about on past conference calls):
1) Sale of the Company: We believe the value of eSpeed's existing core business and assets could be significantly higher than the current enterprise value of the company which is approximately $475 million, based on the recent trading of $9.40 per share. We request that management actively engage industry and/or "financial" buyers (i.e. private equity) to ascertain values at which a transaction for all outstanding eSpeed's shares may be feasible.

2) Convert Class B shares to Class A: As allowed by Delaware law, we believe that in the "post-Enron" era of corporate governance, the company should convert the "super voting" Class B shares to Class A shares. This would allow an equitable "one share, one vote" structure and also give Class A shareholders the opportunity to have a greater say in important corporate matters. At the same time, it would allow Cantor Fitzgerald to maintain a dominant position in matters requiring shareholder voting.
3) Return of Capital to Shareholders: Given the significant liquid resources (cash and equivalents) of the Company, which were $187 million on December 31, 2006, we request the Board of Directors strongly consider options for returning capital to equity shareholders. We believe that a special one-time dividend of a meaningful size, a "Dutch" tender for the Company's shares or an aggressive "open market" share repurchase would enhance the value of the shares for all remaining shareholders. While the Company is authorized to repurchase shares in the open market, the Company has not done so to a meaningful degree.
4) Initiate Procedures and Structures Increasing eSpeed Autonomy: Given the complex three-way relationship between Cantor Fitzgerald, BGC and the company, we believe that segregating various business practices and initiating independent controls would protect the company's shareholders and potentially enhance returns. Specifically, with the pending public offering of BGC shares, we believe that the two public entities should have different accountants and independent Board Members. This will lessen the likelihood that one party is treated inequitably and that appropriate allocation of resources and expenses occurs.
We believe eSpeed is a valuable business enterprise that is significantly undervalued based on its current equity valuation. Our analysis has led us to believe that the range of the company's theoretical valuation could be considerably higher than the current share price which could result in a value 28% to 70% greater ($12 to $16 per share) than the current valuation of $9.40 per share. This analysis is based on reasonable multiples of revenues and/or cash flows and the significant cash position of the company. We request that the Board of Directors aggressively and expediously explore all options that could result in this type of outcome for the benefit of all eSpeed shareholders.

Thank you for your attention to this matter.
Sincerely,
Aaron H. Braun
Manager of WC Capital Management LLC (also known as Willow Creek)

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MLF Investments Raises Stake in La-Z-Boy (LZB) to 7%

In an amended 13D filing on La-Z-Boy Inc. (NYSE: LZB), MLF Investments disclosed a 7% stake (3.6 million shares) in the company. This is up from the 5.9% stake the firm disclosed in their original 13D filing in February.

The firm said the aggregate cost of is 3,618,218 shares is approximately $45,076,717 (about $12.46/share - stock currently at $12.72).

In the original filing, MLF Investments said they support the company's management and their plans and programs of focusing on the La-Z-Boy brand, improving manufacturing efficiency and maximizing the potential of its distribution network, the La-Z-Boy Furniture Galleries. The firm also said it is their intention to offer to help the company strategically if such opportunities present themselves.

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Thursday, March 29, 2007

Pirate Capital Cuts Stake in Cornell Companies (CRN) to 8.9%

In an amended 13D filing on Cornell Companies (NYSE: CRN), Pirate Capital disclosed an 8.9% stake (1.25 million shares) in the company. This is down from the 16.5% stake (2.32 million shares) the firm disclosed in a past filing.

On March 5, 2007, Thomas R. Hudson Jr., the Manager of Pirate Capital, resigned as a member of the Board of Directors of the company.

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Nierenberg Losing Patience with Electro Scientific (ESIO), May Nominate its Own Candidates to the Board

In an amended 13D filing on Electro Scientific Industries Inc. (Nasdaq: ESIO), 11.7% holder Nierenberg Investment Management said it is losing patience with ESIO as its share price weakens.

Nierenberg said, "In our view, the company continues to depress its return on equity (ROE), by failing to make its excess cash work harder and smarter for its shareholders, and its share price, through ineffective communication with the financial community." Nierenberg continues, "... if ESIO does not publicly commit to tangible and substantial actions to both improve ROE and upgrade the effectiveness of its financial communications, we may conclude that we have no alternative but to consider nominating our own candidates for election to ESIO's board of directors, in opposition to the two incumbent outside directors up for re-election this year, as permitted in May 2007 under ESIO's bylaws."

From the 'Purpose of Transaction' section of the filing:

We are losing patience with ESIO as its share price weakens. In our view, the company continues to depress its return on equity (ROE), by failing to make its excess cash work harder and smarter for its shareholders, and its share price,through ineffective communication with the financial community. We have commented on both of these issues in our prior 13D filings in December 2006 and January 2007 and in conversations with ESIO representatives. From what we can discern today, little seems to be changing. If our perception happens to be wrong, it could be because the process of change at ESIO is slow and invisible,in which case we believe the burden is now fairly on ESIO to prove us wrong with concrete action and persuasive communication.


On January 22 ESIO issued a press release reaffirming its commitment to shareholder value and stating that it was considering various suggestions it had received. Since then, however, the company has announced nothing.


In response to that statement, we amended our Schedule 13D to indicate, among other things, that we were prepared to be patient while the Company evaluated our proposal, a similar proposal from its largest stockholder and other input it obtained. However, we have grown tired of waiting, particularly while ESIO's share price declines. Therefore, if ESIO does not publicly commit to tangible and substantial actions to both improve ROE and upgrade the effectiveness of its financial communications, we may conclude that we have no alternative but to consider nominating our own candidates for election to ESIO's board of directors, in opposition to the two incumbent outside directors up for re-election this year, as permitted in May 2007 under ESIO's bylaws.


When we advocate "tangible and substantial" actions to boost ROE, specifically we are seeking ESIO's commitment to repurchase at least 6,000,000 of its shares as soon as possible and an ongoing commitment to repurchase at least 1,000,000more shares annually from free cash flow, asset monetization, and cash reserves.We believe other ESIO shareholders would share this preference for a largere purchase, rather than the large special dividend, which we had originally suggested.


We view the company's sluggish share price, its unacceptably low ROE, and its ineffectual financial communications as causes for shareholder concern and engagement. The thoughtfulness which ESIO has demonstrated recently in technology, product development, cost reduction, and sales and marketing does not seem to be replicated in the important areas of balance sheet management,financial strategy, and investor communications. Despite our high regard for ESIO's CEO, our respect for members of the company's board, and our enthusiasm for ESIO's technology, products, competitive position, and organic growth prospects, we are frustrated that ESIO has failed to convert these business assets, and the company's obvious financial assets, into higher ROE and a stronger share price by the kinds of actions advocated by its two largest shareholders.


We have been patient, supportive, and constructive for a long time, longer than many other professional investors might have been, out of respect for ESIO's board and management and out of a desire not to cause unnecessary confrontation in the Portland business community in which we live and work. But time is running out and the time for action is now.

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Large ASM Intl (ASMI) Holder Fursa Seeks Clearance to Purchase Additional Shares

In an amended 13D filing on ASM International NV (Nasdaq: ASMI), 8.9% holder Fursa Alternative Strategies disclosed it is seeking clearance to purchase additional shares of the company's Common Stock which, when combined with current holdings, would exceed the $100 million Hart-Scott-Rodino Form notification threshold.

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Wednesday, March 28, 2007

Loeb's ThirdPoint LLC Cuts Stake in Ligand (LGND) to 2%, Books Profits

In an amended 13D filing on Ligand Pharmaceuticals (Nasdaq: LGND), Daniel Loeb's ThirdPoint LLC disclosed a 2.01% stake (2.03 million shares) in the company. Loeb held 7.725 million shares in LGND for the quarter ended December 31, 2006.

The firm disclosed that on March 26, 2007, certain of the Funds sold 5,720,000 shares, representing 5.66% of the Common Stock outstanding, and the Management Company on behalf of such Funds entered into an equity swap arrangement whereby such Funds acquired the economic benefits, and assumed the economic risks, of owning the shares of Common Stock sold by such Funds.

On March 1, 2007, two of the Third Point Designees, Daniel S. Loeb and Brigette Roberts, M.D., resigned from the Board. Jeffrey R. Perry, also a Third Point Designee, continues as a director of the Company.

Loeb sold the 5,720,000 shares at $10.54. In the original 13D filing, Loeb disclosed spending about $54.3 million for the first 7 million shares he owned (cost basis about $7.75 per share). The firm disclosed about an $8 per share cost basis for its remaining 2 million shares.

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Tuesday, March 27, 2007

Shamrock Activist Value Fund Raises Stake in ProQuest (PQE) to 7.95%

In an amended 13D filing after the close on ProQuest Company (NYSE: PQE), Shamrock Activist Value Fund disclosed a 7.95% stake (2.37M shares). This is up from the 6.67% stake (1.99M shares) the firm disclosed in the original 13D in December 2006.

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Large Bisys (BSG) Holder Okumus Wants a Board Seat

In a 13D filing on Bisys Group (NYSE: BSG), Okumus Capital disclosed a 10.4% stake (12.6M shares) in the company. The firm disclosed a letter to the Board of Directors of the company from its President Ahmet H. Okumus indicating his desire to be added to the Board. The firm changed their filing status from 13G (passive) to 13D, indicating their more active stance with the investment.

A Copy of the Letter:

To the Board of the BISYS Group:
Okumus Capital LLC currently beneficially owns approximately 10.4% of the outstanding shares of The BISYS Group (the "Company"). I am the President of Okumus Capital and I would like to join the Board of Directors of the Company.

While I have the utmost confidence in the ability and intentions of the current Board and Management, I believe that my perspective as a financial professional and representative of a significant shareholder on the Board would provide theBoard with practical insight and guidance in considering the Company's strategic alternatives.

I have attached information on my background in the investment management field. I strongly feel that my experience in identifying undervalued assets, along with my knowledge of financial engineering and capital allocation can make an immediate positive impact to the Board during this critical period.

I look forward to a response shortly.

Sincerely,

Ahmet H. Okumus
President
Okumus Capital LLC

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Monday, March 26, 2007

Octavian Management Discloses 5% Stake in Midwest Air Group (MEH), Would Support Higher Offer from AirTran (AAI)

In a 13D filing on Midwest Air Group Inc. (AMEX: MEH), Octavian Management, LLC disclosed a 5% stake (1.2 million shares). The firm also letter to management of the company relating to a proposal from AirTran Airways, Inc. (NYSE: AAI) to combine the two companies.

In the letter Octavian Management said, "Octavian does not currently believe that the AirTran proposal reflects the full value of Midwest. We do believe, however, that under the right terms a combination of the two companies makes enormous strategic sense, may bring material synergies, and would significantly de-risk the enterprise for its shareholders, employees, and customers." The also said, "In the event AirTran were to materially increase its offer for Midwest Airlines to a level more reflective of the company’s value, we would strongly encourage and expect the board and management team of Midwest to abide by their fiduciary duties and immediately enter into good faith negotiations to effectuate a transaction."

A Copy of the Letter:

Dear Tim,

It was very nice seeing you when you were in New York. As you are aware, investment funds managed by Octavian currently own in excess of five percent of the shares outstanding of Midwest Air Group Inc. (“Midwest”) and we note the current offer from AirTran Holdings, Inc. (“AirTran”) to combine the two companies. As we expressed to you, Octavian believes that the management team of Midwest, under your leadership, has done an extraordinary job of steering the airline through a time of unprecedented difficulty in the industry while maintaining the highest standards of service to its customers. The many awards received by Midwest and its unusually high brand loyalty are a testament to its world-class product, its outstanding corporate culture and its commitment to excellence.

Octavian does not currently believe that the AirTran proposal reflects the full value of Midwest. We do believe, however, that under the right terms a combination of the two companies makes enormous strategic sense, may bring material synergies, and would significantly de-risk the enterprise for its shareholders, employees, and customers. Octavian believes that a combined Midwest-AirTran could offer a remarkable opportunity to combine the management teams of two of the best run airlines in the country, achieve significant efficiencies, and stimulate more traffic and business in Milwaukee and other core markets. Importantly, as part of a larger company, Midwest would be less susceptible to and better able to deal with the very real threat of new competitive entrants into Milwaukee and would have the benefit of much greater stability in a volatile industry.

In the event AirTran were to materially increase its offer for Midwest Airlines to a level more reflective of the company’s value, we would strongly encourage and expect the board and management team of Midwest to abide by their fiduciary duties and immediately enter into good faith negotiations to effectuate a transaction. We believe that many other shareholders would share that expectation. In the event of a combination, we would also strongly encourage the AirTran board and management to adopt best practices for the combined Midwest-AirTran, including incorporating many of the unique features of Midwest’s product, services and brand that have been developed over the last two decades. We also believe that AirTran would be well served by taking advantage of the unusually strong insight of Midwest’s team by inviting you and other members of the Midwest board and management onto the combined board of directors.

Thank you again and I look forward to speaking with you soon.

Sincerely,


Richard Hurowitz


Chief Executive Officer

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EDGAR (EDGR) Holder Regan Partners To Drop Plans for a Proxy Fight

In an amended 13D filing on EDGAR Online Inc. (Nasdaq: EDGR), 8.52% holder Regan Partners said it has determined not to proceed with a proxy fight to nominate new directors in light of ongoing discussions concerning the potential appointment of Mr. Basil Regan, or his designee, for director, as well as two other individuals who would serve as independent directors of the company.

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BlueLine Capital Books Some Profits in Sonic Innovations (SNCI)

In an amended 13D filing after the close Friday on Sonic Innovations Inc. (Nasdaq: SNCI), BlueLine Capital disclosed a 4.6% stake (1.2 million shares) in the company. This is down from the 5.4% stake the firm disclosed in the original 13D filing in May of 2006. In the original 13D filing, BlueLine Capital showed a $4.50 per share cost basis for a majority of their position. The new filings shows they were selling in the $7 range.

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Investor Group Offers to Acquire Riviera Holdings (RIV) for $27/Share

In an amended 13D filing on Riviera Holdings (AMEX: RIV), an investing group led by Paul Kanavos, Robert Sillerman, Brett Torino and Barry Sternlicht sent a letter to the company proposing to acquire the company for $27 per share.

The group said the merger agreement has substantially the same terms as the April 5, 2006 merger agreement.

A Copy of the Letter

Dear Members of the Board:

We are pleased to advise you that the private investment group that owns RivAcquisition Holdings Inc. proposes to acquire all of the issued and outstanding stock of Riviera Holdings Corporation at a price of $27.00 per share in cash.Subject to the conditions described below, we are prepared to immediately enter into a merger agreement with Riviera on substantially the same terms as the April 5, 2006 merger agreement between our acquisition vehicles and Riviera. We believe that our proposal has the support of other large stockholders, whom we understand have contacted you directly to confirm the same. We are also prepared to quickly provide to the Board commitments for the necessary financing to complete the proposed transaction.

Our proposal represents a significant premium to Riviera's recent trading price.It also represents an even greater premium to the share price of $12.66 on February 14, 2005, the day before Riviera announced that it had hired Jefferies & Co. to explore strategic alternatives, as well as to the share price of $13.42immediately following Riviera's announcement on November 8, 2005 that it had terminated its strategic process. Our offer also represents a multiple of 13.5times 2006 EBITDA. Accordingly, our investment group believes that our offer is in the best interest of Riviera's stockholders, and we hope that the Board will see fit to accept it.

Our investment group is led by Paul C. Kanavos and Robert Sillerman, the managing members of New York-based Flag Luxury Properties, LLC, 30-year LasVegas-based real estate developer Brett Torino and Barry Sternlicht, Chairman and CEO of Starwood Capital Group.

Our proposal is conditional upon the Board (1) amending Riviera's bylaws to provide that control share acquisition and business combination provisions of the Nevada corporate statute do not apply to further acquisitions of shares by our investment group and (2) waiving the application of the voting restrictions contained in Riviera's articles of incorporation regarding "substantial stockholders" with respect to our investment group. We will also require Riviera's cooperation in order to update our due diligence review of the company, which we last conducted in connection with the April 5, 2006 merger agreement, and which we believe can be completed expeditiously.

The conditions to closing the proposed transaction would be substantially the same as were contained in the April 5, 2006 merger agreement. These conditions include obtaining all necessary approvals from the gaming authorities in Nevada and Colorado. In order to ensure rapid completion of the merger, we are currently examining structuring alternatives that might minimize the need for gaming approval prior to closing. The principals of our investment group have already filed gaming license applications in both Nevada and Colorado, with the exception of Robert Sillerman, who will be filing the same shortly. The conditions to closing will not restrict Riviera's ability to refinance its outstanding secured notes, provided that the refinancing is made on market terms and without prepayment penalty, defeasance or premium, nor do we otherwise intend to restrict Riviera's ability to conduct its business in the ordinary course while the merger is pending. Our investment group is prepared to assist Riviera in refinancing its outstanding secured notes, and intends to redeem or otherwise repay all of Riviera's such notes or any successor notes or other indebtedness upon completion of the merger. We are also prepared to honor the salary continuation packages currently in place that have been negotiated with management as well as the change-of-control provisions in all currently outstanding stock option awards.

Our investment group believes that time is of the essence and requests that a meeting or a conference call be scheduled as soon as possible with representatives of the Board in order to discuss our proposal and set a timetable for swift execution of a merger agreement. Please respond to us by5:00 p.m. PST on March 30, 2007. If we do not receive a response by such time,we will have to assume that the Board does not wish to discuss our proposal any further.

We look forward to working together with the Board to arrive at a transaction that will substantially benefit Riviera and its stockholders.

Very truly yours,

Paul C. Kanavos

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Thursday, March 22, 2007

Will Be Out Today and Tomorrow

Hi everyone, I will be out today and tomorrow to present at a conference. I will try to update the site from the road.

I hope you are enjoying the site.

Wednesday, March 21, 2007

Loeb's Third Point LLC Raises Stake in PDL BioPharma (PDLI), Wants Four Board Seats, Retain Consulting Firm

In an amended 13D filing on PDL BioPharma Inc. (Nasdaq: PDLI), Dan Loeb's Third Point LLC disclosed an 8.8% stake (10.1 million shares) in the company. This is up from the 7.5% stake (8.6 million shares) in the original 13D filing.

Loeb also disclosed a new letter to the company's CEO, requesting four candidates be added to the Company's Board of Directors. Loeb also stated that he had been in discussions with a prominent consulting firm and that he would like the Board to retain that firm to review corporate and research and development spending. Loeb demanded, in the transmission, a definitive response from the CEO and the PDLI board, by the close of business on Thursday, March 22nd, as to whether they have agreed to add the four to the Board.

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Chapman Capital Demands Embarcadero Technologies (EMBT) Director Haroian Resign

Chapman Capital, a 9.3% holder of Embarcadero Technologies Inc. (Nasdaq: EMBT), demanded that Mr. Gary E Haroian immediately resign from the company's board of directors.

Robert Chapman said, "Mr. Haroian has been compensated into the hundred of thousand of dollars while acting out the part of a 'career director' of the board of Embarcadero, Aspen Technology, Inc., Lightbridge, Inc., Network Engines, Inc., and Phase Forward, Inc. In order to reinstate any semblance of obeying his responsibility to the owners of these public companies, Mr. Haroian should resign from whichever boards necessary to allow for this adequate attention and focus on the remaining issuers."
Chapman Capital has recently demanded that the company's Board of Directors maximize shareholder value via a change-of-control transaction. Chapman has determined to seek nominees to replace Class I directors Timothy C.K. Chou and Frank M. Polestra, and Class II directors Michael J. Roberts and Samuel T. Spadafora, should a sale of Embarcadero not be announced by March 30, 2007.

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Chapman Demands Independent Audit of eSpeed (ESPD) - Cantor Fitzgerald Agreement

Large eSpeed, Inc. (Nasdaq: ESPD) holder, Chapman Capital LLC, demanded that the company's Board of Directors retain an independent auditor, distinct from eSpeed/BGC Partners/Cantor Fitzgerald's shared financial auditor Deloitte & Touche LLP, to review the Joint Services Agreement between eSpeed and Cantor Fitzgerald-related entities.

Chapman Capital said the goal of the audit would be to confirm or invalidate the related parties' claims that the Joint Services Agreement were negotiated and have been executed in an arms-length fashion.
Commenting on a recent patent ruling, Robert L. Chapman, Jr., Managing Member of Chapman Capital, siad, "This ruling fortifies Chapman Capital's apprehension that eSpeed itself may continue to incur significant licensing and other expenses, or may relinquish significant market data and other revenues, unnecessarily or improperly for the benefit of Cantor Fitzgerald."

Chapman Capital also reiterated its demand that the value of eSpeed's Class A shares be maximized via conversion of all Class B common shares into Class A common stock, followed by the full scale auction of the Company.

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Tuesday, March 20, 2007

Note to Management: Don't Swear At Robert Chapman

Paul Kedrosky's Infectious Greed blog notes some choice comments made to Robert Chapman as disclosed in his hedge fund's amended 13D filing on Embarcadero Technologies (Nasdaq: EMBT), a company he is pushing to be sold. We noted the original 13D filing here.

The comment that is making all the commotion today is "Fuck You" - made by Embarcadero's CFO Michael Shahbazian to Chapman.
Here is what Chapman disclosed in the amended filing, "Furthermore, in response to certain comments made by Mr. Shahbazian during a conversation later that day, Mr. Chapman conveyed to Mr. Shahbazian Chapman Capital’s concern that, according to background checks directed by Chapman Capital, Mr. Shahbazian had been viewed negatively by various shareholders of Niku Corporation, ANDA Networks, Inc. and Walker Interactive, all of which in the past had employed Mr. Shahbazian in the capacity of Chief Financial Officer. Mr. Shahbazian reacted temperamentally to Mr. Chapman with the eloquent response, “Fuck you!” Mr. Chapman then forcefully informed Mr. Shahbazian that it was inappropriate and inadvisable for the Chief Financial Officer of a public company to utter such blasphemy to the advisor of a 9.3% ownership stakeholder in the Issuer."
Chapman has really stepped up his activity lately and is making headlines again. Here are some other posts on Chapman.

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Sandell Asset Management Intends to Nominate 3 To InfoSpace (INSP) Board

Sandell Asset Management announced this morning that it notified InfoSpace, Inc. (Nasdaq: INSP) of its intention to nominate three highly qualified independent candidates for election to the board of directors at the 2007 annual meeting of stockholders.

Sandell's said the notification follows a letter to the company earlier this week expressing concern over the lack of capital return to shareholders from InfoSpace's large cash balance and complacency over cost controls. Specifically, Sandell asked the Company to immediately return $300 million of cash in the form of a $200 million Dutch tender offer at a premium to the current share price and a $100 million special dividend. Sandell also asked the Company to cut an additional $15 million of costs to improve the profitability of its remaining operations after the restructuring of its mobile division. Further, Sandell has suggested that the Company engage a financial advisor to evaluate the potential sale of the Company in whole or in part.

Sandell Asset Management recently disclosed an 8.8% stake in InfoSpace.

InfoSpace commented on the announcement by Sandell Asset Management and said it will present recommendations regarding its nominees for directors in the Company's definitive proxy statement, which will be filed with the SEC and mailed to all shareholders eligible to vote at its 2007 annual shareholders meeting.

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Blum Capital Accumulates 6.6% Stake in Websense (WBSN)

In a 13D filing after the close on Websense Inc. (Nasdaq: WBSN), Blum Capital disclosed a 6.6% stake (2.95 million shares) in the company. The firm did not show a stake in Websense for the quarter ended December 31, 2006.

In a pretty standard disclosure, Blum Capital said it may engage in communications with one or more shareholders of the Issuer, one or more officers of the Issuer and/or one or more members of the board of directors of the Issuer and/or one or more representatives of the Issuer regarding the Issuer, including but not limited to its operations.

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SAC Capital Boosts Stake in WCI to 9.5%, May Engage in Discussions with Management

In a 13D filing on WCI Communities, Inc. (NYSE: WCI), SAC Capital disclosed a 9.5% stake (4 million shares). This is up from the 3.25 million shares stake the firm disclosed for the quarter ended Dec 31, 2006. SAC changed its filing status from 13G (passive) to 13D reflecting its more activist role in the investment.

In the filing, SAC said, "The Reporting Persons have reviewed public information regarding the potential proxy contest and unsolicited tender offer by Icahn Partners LP and others, and regarding the Issuer’s process of reviewing financial, strategic and operational alternatives (including a potential sale of the Issuer). The Reporting Persons intend to review their investment in the Issuer on a continuing basis and may engage in discussions with management, the Board of Directors, other shareholders of the Issuer and other relevant parties concerning these matters and potentially concerning other matters with respect to the Reporting Persons’ investment in the Common Stock, including, without limitation, the business, operations, governance, management, strategy and future plans of the Issuer."

WCI Communities is currently reviewing strategic options and Carl Ichan recently announced an unsolicited tender offer to acquire any and all of WCI's outstanding common stock for $22.00 per share.

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Monday, March 19, 2007

Usual Suspects Not Seen For BEA System (BEAS) Activism

According to the Barron's Tech Trader Blog, in her upgrade of BEA Systems (Nasdaq: BEAS) to Buy today, UBS analyst Heather Bellini said the company, "could be ripe for shareholders activism (as was Siebel) and even M&A/LBO activity."

Looking through the list of holders, we see no "usual suspects" of the activist-persuasion holding a large stake in BEAS.

Recently, mega-hedge fund SAC Capital, which has been involved in a few activist situations, raised its stake in BEAS from 1.1 million to 1.75 million shares (less than 0.5%). Even with its recent tag-team move to overthrow the Take-Two Interactive (Nasdaq: TTWO) board of directors, most will not consider SAC an activist fund since a majority of their stocks they hold passively. Interestingly, D.E. Shaw, one of the firms SAC is grouping with to attack TTWO, is a 1% holder of BEAS. But D.E. Shaw has been heavily cutting their stake in TTWO recently, which would make the odds of another tag-team low.
We've seen an increasing trend were mutual funds, which normaly treat their investments passively, are stepping up to put pressure on companies. T.Rowe Price is one that has made headlines lately, opposing Diversa's (Nasdaq: DVSA) merger with Celunol and opposing the takeover of Laureate Education (Nasdaq: LAUR). Could this be the case for BEAS?
According to the latest data, Fidelity owns a 10.5% stake in BEAS, but has been cutting its stake; Private Capital Management owns a 6.7% stake, but it too has been cutting its stake; Warburg Pincus owns 6.4%, but was one of the original investors in BEAS; Amvescap owns 5.6%; Friess Associates owns 4.8%; and Calamos Advisors owns 3.9%.
We don't see the activist situation that the UBS analyst mentioned today developing in BEAS any time soon, but with the wealth of hedge fund money today there could be "usual suspects" building massive stakes in BEAS as we speak.

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Barington Capital Discloses 5.2% Stake in Lancaster Colony (LANC), Request Divestitures and $300M Buyback

In a 13D filing on Lancaster Colony Corp. (Nasdaq: LANC), Barington Capital and related parties disclosed a 5.2% stake in the company. The firm also said the company should implement a number of measures to improve profitability and share price performance.

The measures the firm recommended include: 1. the divestiture of the Company's Automotive segment and Glassware and Candles segment; 2. reduction in corporate level expenses resulting from Lancaster Colony's "holding-company" structure; 3. implementation of initiatives to return the Specialty Foods segment to historical levels of profitability with an operating income margin of at least 20%; and a debt-financed self-tender offer to repurchase at least $300 million of the Company's outstanding common stock.

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UPDATE: Constellation Software Said Raised Offer for Manatron (MANA) Rejected, Lowers Stake

In an amended 13D filing on Manatron Inc. (Nasdaq: MANA), Constellation Software disclosed a raised offer for the company from $9 to $10. The firm said the proposal was rejected by the Board of Directors of the Issue on March 8, 2007.

Constellation Software also disclosed they lowered their stake in MANA to 4.02% from 5.45%

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Activist Updates: ABN AMRO (ABN) and Take-Two Interactive (TTWO)

Updates on a couple of activist situations:

ABN AMRO Holding (NYSE: ABN) is higher today on reports from the Times of London that Barclays PLC has hired advisors in an attempt to buy the rival bank. ABN AMRO is an activst target of The Children's Investment Fund, which recently urged the company to actively pursue the potential break up, spin-off, sale or merger of its various businesses (or as a whole).

Take-Two Interactive Software, Inc. (NASDAQ: TTWO) is higher after the company said it postponed its annual meeting, saying it needs additional time to review the proposed actions of an activist shareholder group and also to evaluate alternative courses of actions that could potentially be presented to the shareholders, including a possible sale of the Company. Recently, the shareholder group of SAC Capital, OppenheimerFunds, D. E. Shaw and Tudor Investment said they will vote to elect six members to the board of directors and vote to reduce the size of the Board from nine to six.

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Tennenbaum Capital Liquidates Large Jo-Ann Stores (JAS) Stake

In an amended 13D filing on Jo-Ann Stores (NYSE: JAS) after the close Friday, Tennenbaum Capital Partners disclosed a 0% stake in the company. This is down from the 2.84 million share stake the firm disclosed for the quarter ended December 31, 2006.

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MMI Investments Raises Stake in Unisys (UIS) to 7.1%

In an amended 13D filing on Unisys Corporation (NYSE: UIS) after the close Friday, MMI Investments disclosed a 7.1% stake (24.35 million shares) in the company. This is up from the 21.66 million share stake the firm disclosed for the quarter ended February 14, 2007.

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Friday, March 16, 2007

Large TLC Vision (TLCV) Holder Glenhill Advisors Concerned About Underperformance

In a 13D filing on TLC Vision Corporation (Nasdaq: TLCV), Glenhill Advisors discloses a 13.9% stake (9.6 million shares) and disclosed a letter to the Chairman of the Board of Directors of the Company expressing, among other things, concern regarding the performance of the Company. The firm changed their filing status from 13G to 13D, indicating their more "active" stance with the investment.

In the letter the firm said, "We are concerned that TLC Vision is currently underperforming in a variety of respects and that if it continues on its current course, TLC Vision’s business and financial prospects may be significantly negatively impacted, and the availability of any viable strategic alternatives may be significantly limited, as a result."

Glenhill said, "Although we have no intention at this time to take any particular action ... we are exploring all of our options."

A Copy of the Letter:

Dear Mr. Vamvakas:

As you are aware, Glenhill Advisors, LLC and certain of its affiliates beneficially own, in the aggregate, approximately 13.9% of the outstanding common stock of TLC Vision Corporation.

As we do with each of our portfolio companies, we are carefully monitoring the business, operations and financial performance of TLC Vision. We are concerned that TLC Vision is currently underperforming in a variety of respects and that if it continues on its current course, TLC Vision’s business and financial prospects may be significantly negatively impacted, and the availability of any viable strategic alternatives may be significantly limited, as a result.

Therefore, we intend to continue to review carefully our investment in TLC Vision and in the near term may seek to engage in discussions with TLC Vision’s management and Board of Directors with respect to TLC Vision’s business, operations, financial condition and prospects, and the potential to increase shareholder value through improved operations and strategies, which may include potential strategic alternatives. Although we have no intention at this time to take any particular action, in the course of monitoring our investment we are exploring all of our options, including with respect to corporate governance and management and Board composition. In connection with the foregoing, we may also seek to engage in discussions with other stockholders of TLC Vision and other relevant parties concerning the business, operations, strategy and future plans of TLC Vision.

Sincerely,
Glenn J. Krevlin

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RLR Capital Raises Hypercom (HYC) Stake to 5.1%, Wants Repurchase, Curtail of Acquisition Plans and Possible Sale

In a 13D filing on Hypercom Corporation (NYSE: HYC), RLR Capital Partners disclosed a 5.1% stake (2.7 million shares) in the company. This is up from the 539K share stake the firm disclosed for the quarter ended December 31, 2006.

The firm also disclosed a letter to the company urging the company to repurchase up to 18 million of its outstanding Shares, curtail acquisition plans until improvements are seen in the core business and, if operational improvements fail to show progress in 2007, commence a review of strategic alternatives, including a possible sale.

A Copy of the Letter:

Dear Messrs. Diethelm and Keiper:

RLR Capital Partners and RLR Focus Fund, L.P., are shareholders of Hypercom Corporation, owning 2,709,745 shares, which approximates 5.1% of shares outstanding. We became owners of Hypercom during 2006.

RLR established its initial position in Hypercom because we felt the company's prospects were not being adequately valued by the markets. We were attracted by your meaningful market share of POS products, your new product pipeline, the strong macro trends in the industry, your promising relationship with both Symbol Technologies and Motorola, the energy of new members of your senior management team, the opportunity for meaningful gross profit and operating margin improvements and your share repurchase history. The dialogue that we have had with senior management, both at the company's headquarters in Phoenix and in numerous phone conversations, as well as our own industry research, have increased our conviction that there is significant value resident in Hypercom. Further, we believe that the strategy that management was pursuing in late 2006,of focused product-oriented top-line expansion, cost cutting through manufacturing and operational efficiencies, and the use of cash for share repurchases, was the correct plan for unlocking that value.

We are now troubled, however, by management's new strategy, as detailed on Hypercom's March 7th, 2007 earnings call. Specifically, management talked about the company's intention to use its cash position, plus cash generated from the monetization of low-return assets such as the company's headquarters building and land in Phoenix, to grow through acquisition in the terminal services market. Further, you stated that, "while tempting", the company would not use cash to repurchase shares.

We believe that such an open-ended acquisition strategy is the wrong use of cash for the company today. Rather than burden your shareholders with the execution and integration risks attendant with acquiring potential growth outside of the company's core competencies, we believe that there is no better investment that the company could make right now than repurchasing its own shares. Indeed, with shares currently trading at 4.5xEV/EBITDA (2007E), a significant discount to comparable industry multiples (detailed below), your shares represent the most attractive investment opportunity in the electronic payment terminal industry. What better opportunities could there be? We urge you and the other members of the Board of Directors to have the company pursue an immediate repurchase of one-third of its outstanding shares. Such a transaction could be financed entirely by the cash and short-term investments on the company's balance sheet(using approximately $61 million of the $81.4 million as of December 31, 2006,and leaving $20 million for working capital purposes) and the after-tax proceeds from the sale of the building and land in Phoenix (approximately $25 million, which could immediately be accessed by borrowing against the value of the real estate). With this $86 million, you could repurchase nearly 18 million shares, out of approximately 53 million outstanding, based on the average closing price since the March 7th call.

In addition to the use of cash required for such an acquisition strategy, we are also concerned about the use of management's time and focus, when there is still so much work to do improving the core business. The company has made important strides in taking costs out of the business, both in the cost of goods sold and in operating expenses. But management must continue to focus on product development, certification and sales in order to grow revenue and truly demonstrate the operating leverage in the company's business model. Further, while Hypercom's operating margins should approach or exceed 10% this year, after several years of low-to-mid single digit margins, these margins still significantly trail the industry. While scale advantages may explain why competitor VeriFone Holdings, Inc. has margins exceeding 20%, Lipman Electronic Engineering (see more below) also had operating margins approaching 20% on a very similar revenue base to Hypercom's, prior to Lipman's acquisition by VeriFone. The company's efforts in the sales and margin areas are too important to have management's attention diverted away from them. To put this opportunity into perspective, based on our projected 2008 revenue for Hypercom of at least$340 million, each incremental 100 basis points of margin improvement yields approximately $0.10 of incremental EBITDA/share, giving effect for the reduced share count from the buyback described above. Using a range of EBITDA multiples of 8-12 times (described further below), each incremental $0.10 of EBITDA/shareis worth $0.80-1.20/share in valuation, which is significant given your current share price. If Hypercom can achieve margins similar to those of Lipman when it was acquired (i.e., 20% in 2008 vs. projected 10% in 2007), then the incremental1000 basis points of margin improvement would yield an additional $1.00/share of EBITDA, which would be worth $8.00-12.00/share, or $280-420 million in total.You would be hard-pressed to make a case that you could achieve similar value creation using the $86 million described above for an acquisition strategy that is fraught with risk and management distraction, particularly when the two levers needed to create significant value, share repurchases and continued margin improvement, are largely under your control.

Lastly, if the company is not able to achieve its targets of mid-teens sales growth and low double digit operating margins in 2007, we believe the Board should conduct a review of strategic alternatives for the company, including a possible sale. There is a history of successful acquisitions in your industry,both by large equipment manufacturers and private equity firms, and a brief look at industry valuations will show why this tack could unlock value for Hypercom.In April 2006, VeriFone Holdings, Inc. entered into a definitive agreement to acquire Lipman Electronic Engineering for approximately $793 million; that deal closed on November 1, 2006. This transaction combined the #2 and #3 players in the electronic payment terminal industry, by market share and revenue, to create a new #1 player, VeriFone. When Lipman was acquired, it had approximately $270million in revenue, and was acquired for approximately 12 times current year(2006) EBITDA and 10 times forward year (2007) EBITDA. In 2007, Hypercom should generate more than $280 million in revenue, or slightly more than Lipman had when it was acquired, and should be able to generate $35 million in EBITDA, as the operating leverage inherent in the company's business model becomes more evident in the second half of 2007. Further, in 2008, we believe that Hypercom could generate at least $340 million in revenue and $45 million in EBITDA. Basedon the Lipman acquisition multiples, and using the lower Hypercom share count of35 million, Hypercom would have a value of $420-450 million, or approximately$12-13 per share. In addition to these values, of course, would be the incremental free cash flow that the company will generate in 2007 and 2008,which could be $30 million, or nearly another $1.00 per share of value.(Further, Lipman was purchased for three times current year revenue; such a multiple would imply a value of $24 per share for Hypercom!). The current #2 player in the industry, Ingenico, trades at over 10times 2007 EBITDA and over 8 times 2008 EBITDA. At these lower multiples,Hypercom would be worth at least $350 million, or $10 per share (again before the free cash flow benefit). These values are significantly in excess of the current share price. Further, we believe that there are over $20 million of costs that an acquirer could take out of Hypercom's cost structure, which at a comparable multiple to those described above, would alone be worth your entire current enterprise value. Surely the value of nearly $300 million of revenue and the intellectual property surrounding the next generation of products in development are additive to this value.

Let's summarize our suggestions:

1. Immediately commence a buyback or tender offer for up to 18 million shares.
2. Curtail your acquisition plans until improvements are seen in the core business.
3. Should operational improvements fail to show progress in 2007, commence a review of strategic alternatives including a possible sale of the company.

It is our intention to continue to discuss our ideas with management and hope to expand our dialogue to include the board as well. We also intend to speak to other shareholders and build a strong consensus of opinion in support of our value creating ideas.

Very truly yours,

Robert L. Rosen
Managing Partner

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Barington Suggests Spin-Off or Sale of Griffon (GFF) Telephonics Subsidiary and Buyback

In an amended 13D filing on Griffon Corporation (NYSE: GFF), 5.24% holder Barington Capital disclosed a letter sent to the company's Chairman and CEO Harvey R. Blau outlining a number of measures that Barington believes will improve shareholder value for the benefit of all of the Company's stockholders. Barington said it sent the letter because Mr. Blau has not returned their phone calls.

In the letter the firm said, "We believe that Griffon's current stock price does not reflect the intrinsic value of the Company's operating divisions. In particular, it is our belief that the market has been undervaluing the Company's Telephonics subsidiary as well as what we view to be Griffon's core businesses - Garage Doors and Specialty Plastic Films."

Barington said, "we believe that the Company's Telephonics subsidiary should be valued at 9-12 times its Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), or approximately $400 - $550 million." Barington suggested a initial public offering, a tax-free spin-off or an outright sale ofthe subsidiary.

Barington also encouraged the Company to incur additional indebtedness and use the proceeds to repurchase stock, saying the company is under leveraged. The company said with debt and excess cash they could repurchase 15-20% of the Company's outstanding shares.

Barington also recommended cost reduction initiatives, divestiture of installation services and improved corporate governance.

A Copy of the Letter:

Dear Mr. Blau:

As you know, Barington Companies Equity Partners, L.P. and certain of its affiliates currently own over 5% of the outstanding common stock of Griffon Corporation.

We believe that Griffon's current stock price does not reflect the intrinsic value of the Company's operating divisions. In particular, it is our belief that the market has been undervaluing the Company's Telephonics subsidiary as well as what we view to be Griffon's core businesses - Garage Doors and Specialty Plastic Films.

As I am sure you are aware, Griffon's shares have been range-bound during the Company's last three calendar years (trading between approximately $18.50 and$28.50 per share) despite the strong performance of the stock market during this time period. For example, while the Russell 2000 Index increased 44.5% from January 1, 2004 through the close of trading on Wednesday, March 14, 2007, Griffon's stock price rose by only 18.2%(1).

As we disclosed in our Schedule 13D filing made last month, we are interested in discussing with you a number of measures that we believe will improve shareholder value for the benefit of all Griffon stockholders. We have therefore been disappointed that you have not returned our telephone calls to you seeking to schedule a mutually convenient time to discuss these measures in detail, which we have summarized for you below.

Unlock the Value of Telephonics

Based upon our analysis of publicly traded defense electronics companies as well as recent M&A activity in the industry, we believe that the Company's Telephonics subsidiary should be valued at 9-12 times its Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), or approximately $400 -$550 million. Unfortunately, the market has not given the Company full credit for the value of this business, currently valuing Griffon as a whole at anEV/EBITDA multiple of approximately 7.0x.

According to public statements by Griffon's management team, it appears that the Company recognizes this disconnect. For example, during the Company's August 3,2006 earnings call, management responded to a question about Telephonics by saying:

"... are we getting full value for it from a public perspective? Probably not."

It is our hope that you will take action to address the "conglomerate discount"that is impacting this business. It is our recommendation that the Company pursue an initial public offering, a tax-free spin-off or an outright sale of the subsidiary so that the Company and its stockholders can more fully realize the value of Telephonics.

Increase Share Repurchases

While the Company has a history of repurchasing its common stock, in light of the current trading range of the Company's shares, we believe that now is the time for the Company to be aggressively repurchasing its stock.

We encourage the Company to incur additional indebtedness and use the proceeds to repurchase stock, similar to the $50 million repurchase of shares that the Company consummated in July 2003 in connection with the issuance of $130 million of 4% Contingent Convertible Subordinated Notes due 2023. With a Net Debt/Trailing Twelve Months EBITDA multiple of approximately 1.4x, we believe that the Company is under leveraged. This is even more pronounced if one believes that the 4% EBIT margin realized in Specialty Plastic Films in Fiscal 2006 can improve and that the Garage Door segment can return to historical levels of growth and profitability.

If the Company increases its leverage to what we view to be a more reasonable level (a Net Debt/TTM EBITDA multiple of approximately 2.5x), we believe that it could raise approximately $110 million in new indebtedness. It is our belief that such debt, along with approximately $20 million of excess cash, would be sufficient to repurchase 15-20% of the Company's outstanding shares. Our analysis indicates that such a buyback (at a meaningful premium to the Company's recent stock price) would be accretive to the Company's earnings per share.

Pursue Cost Reduction Initiatives

While we applaud the reduction of the Specialty Plastic Films' workforce in Fiscal 2006 that is expected to result in approximately $5 million of annual cost savings, we believe that further reductions in the Company's cost structure are necessary. Given that Garage Doors has recently experienced pressure on both revenues and earnings, we believe that the Company should particularly focus on reducing expenses in this business.

Divest Installation Services

While Griffon's main operating divisions are primarily composed of higher market share, higher margin businesses, the Company's Installation Services business is an exception, with lower margins and market share than those enjoyed by most of the Company's other operating divisions. Furthermore, as the performance of this business is tied to new residential construction, it is exposed to the volatility of the housing markets. Given that this segment represents only 8.8%of Griffon's 2006 Operating Income (before unallocated amounts), we believe that the Installation Services Business should be divested.

Improve Corporate Governance

It is our belief that the Company needs to improve its corporate governance in a number of areas, including by declassifying the Company's Board of Directors and separating the Chairman and CEO positions. It is our recommendation that the Company seriously consider these and other initiatives to improve its record in this area.

Barington has a long track record of successfully working with the management teams and boards of directors of publicly traded companies to develop plans to create or improve shareholder value. As a stockholder in the Company since April2005, we strongly believe in the long-term value of Griffon's core businesses and hope that we can work together to improve the Company's profitability and share price performance. To that end, we reiterate our desire to meet with you and your management team, as well as independent members of the Company's Board of Directors, to discuss our suggestions in further detail.

We look forward to hearing from you.

Sincerely,
James A. Mitarotonda

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Thursday, March 15, 2007

Clinton Group Expresses Disappointment with Lenox (LNX), Wants to Help With Turnaround

In an amended 13D filing on Lenox Group Inc. (NYSE: LNX), Clinton Group showed they bumped their stake in the company to 10.9% from 9.6%. The firm also disclosed a letter to the board of directors citing shareholder disappointment with previous management and the board's performance in guiding the company.

The firm urged the company to consult shareholders on, modification of the engagement of Carl Marks Advisory Group; offers of employment for senior management positions; capital structure and financing issues; and strategic transactions.

The firm said it would welcome an opportunity to help facilitate the company's turnaround and exploration of strategic ideas by providing three director candidates for shareholder consideration.

A Copy of the Letter:

Mr. Kasen:

We have the utmost respect for the Carl Marks Advisory Group and are comfortable that they will address the short-term issues facing Lenox Group Inc.(the "Company") in a timely matter. Overall, as reflected in the decline in your stock price as well as the apparent turnover of your ownership base ,shareholders are clearly disappointed with both previous management and the board's performance in guiding the Company.

We would hope that material changes will be forthcoming at the Company. However, we urge that the decision on such changes not be made by the Board in a vacuum without first consulting with the Company's owners - its shareholders -at least with respect to the following matters:

* Extension, termination or change in scope regarding the engagement or agreement with Carl Marks;

* Offers of employment for senior management positions;

* Any capital structure and/or financing related issues; and

* Any strategic transaction(s) potentially being contemplated.

To the extent such information sharing requires a non-disclosure agreement, we, as the Company's second largest shareholder, would be willing to entertain reasonable confidentiality restrictions.

Additionally, we do not expect and would be opposed to any negative changes in corporate governance, including the renewal of the soon to expire poison pill.

Your annual meeting date has not yet been announced. We would welcome an opportunity to help facilitate the Company's turnaround and exploration of strategic ideas as a significant voice on the board of directors. We believe that your shareholders should be represented by directors who have a meaningfuleconomic interest in the Company. We are unaware of existing board members' plans regarding the upcoming meeting, but to the extent certain members are contemplating stepping down, we would welcome the opportunity to provide three director candidates for shareholder consideration.

Please feel free to contact me at (212) XXX-XXXX regarding the above-mentioned matters at your convenience.

CLINTON GROUP INC.
Conrad L. Bringsjord
Managing Director

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Peltz Makes Quick Work of Cadbury Schweppes (CSG)

Nelson Peltz activist target, Cadbury Schweppes (NYSE: CSG), announced today they intend to separate its confectionery and Americas Beverages businesses. Many now expect the Americas Beverages, which includes Dr Pepper and 7Up, to be sold.
On Tuesday, Cadbury Schweppes noted that Peltz and his affiliates amassed a nearly 3% stake in the company.
Wow - that was fast!

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Wednesday, March 14, 2007

Chapman Capital Demands Sale of eSpeed (ESPD)

In a 13D filing on eSpeed, Inc. (Nasdaq: ESPD), Chapman Capital disclosed a 9.3% stake and announced its demand that eSpeed's Board of Directors maximize shareholder value via a change-of-control transaction.

Chapman said as a result of potential conflicts of interest that may exist due to cross-management roles between eSpeed, BGC Partners, L.P. and Cantor Fitzgerald, L.P., they believe that it is the fiduciary duty of eSpeed's Board of Directors to compel the conversion of all Class B common shares into Class A common stock.
Citing weak results and incongruous granting of free stock options to Howard W. Lutnick, Robert Chapman said, "the Company's ownership base has conveyed a nearly uniform desire for eSpeed's Class A shares to be maximized through a change-of-control transaction."

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Glenhill Advisors Wants Tekelec (TKLC) To Embark on an Aggressive Share Repurchase Program

In an amended 13D filing on Tekelec (Nasdaq: TKLC), 12.9% Glenhill Advisors disclosed a letter to the President and Chief Executive Officer of the Company expressing, among other things, the suggestion that the Company consider embarking on an aggressive share repurchase program.

The firm said, "At an enterprise value of $550 million, $425 million of cash, and having core operations (pre overhead) that produced $145 million and $112 million of EBIT in 2006 and 2005, respectively, valuation is exceptionally attractive. It appears clear that the marketplace fails to understand and appropriately value the magnitude of operating performance improvement in 2008 versus 2007 as a result of the pending resolution to the switching business. Additionally, we believe that the company has the ability to grow revenue double digits in 2008 (and beyond) and achieve operating margins near 20% longer term. In fact, if one were to make two reasonable assumptions: 1) that switching losses disappear entirely in 2008, and 2) that 2008 segment ebit will be equal to or greater than 2006, the company would generate $1.10 per share in free cash flow and roughly $0.95 per share in pre stock comp earnings. We estimate using $200 million to repurchase shares would increase both earnings per share and free cash flow per share by approximately $0.20, making the decision highly accretive and would create shareholder value."
A Copy of the Letter:

First and foremost we would like to congratulate you and your team on the excellent job you have done over the past year rationalizing the company’s operations, restating financials, and now resolving all major outstanding litigation. With the Bouygues lawsuit behind us, we believe now is the time to call a special board meeting and get authorization to begin an aggressive share repurchase program.

At an enterprise value of $550 million, $425 million of cash, and having core operations (pre overhead) that produced $145 million and $112 million of EBIT in 2006 and 2005, respectively, valuation is exceptionally attractive. It appears clear that the marketplace fails to understand and appropriately value the magnitude of operating performance improvement in 2008 versus 2007 as a result of the pending resolution to the switching business. Additionally, we believe that the company has the ability to grow revenue double digits in 2008 (and beyond) and achieve operating margins near 20% longer term. In fact, if one were to make two reasonable assumptions: 1) that switching losses disappear entirely in 2008, and 2) that 2008 segment ebit will be equal to or greater than 2006, the company would generate $1.10 per share in free cash flow and roughly $0.95 per share in pre stock comp earnings. We estimate using $200 million to repurchase shares would increase both earnings per share and free cash flow per share by approximately $0.20, making the decision highly accretive and would create shareholder value.


As the single largest shareholder in the company we are optimistic that management will request, and the board will approve, a substantial share buyback.


Yours truly,


Glenn J. Krevlin

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Sandell Asset Management Backs Icahn on WCI

In a 13D filing on WCI Communities Inc. (NYSE: WCI), 9.8% holder Sandell Asset Management disclosed a letter to the company supporting Carl Icahn. The firm belives that a sale of the WCI is the best and possibly only route to value creation for shareholders.

In the letter, Sandell said, "We support Carl Icahn's efforts to create change at WCI by nominating and electing an alternative slate of directors at the WCI annual meeting, and see his recent tender offer as a positive step in value maximization at WCI. The onus is clearly on WCI's management, board of directors and financial advisors at this point to step up their efforts to achieve the best possible result of the strategic review process. If that process does not yield a higher value, we encourage the board to work with Mr. Icahn toward a negotiated deal rather than attempt to hide behind the recently adopted poison pill. In the absence of a higher bid, the shareholders may have little choice in the decision of selling to Mr. Icahn or leaving the company in current management's hands and risking further value destruction."
Yesterday, Icahn announced plans to initiate a $22 per share "any and all" tender offer for WCI shares.

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Crescendo's Ajdler Calls Board Moves at Topps (TOPP) "A New Low in Corporate Governance"

In an amended 13D filing on takeover target Topps Co. Inc. (Nasdaq: TOPP), 6.6% shareholder Crescendo Partners and its representative on the Board, Arnaud Ajdler, delivered a new letter to the other members of the Board saying they've "set a new low in corporate governance" following their recent action to take power away from the Ad Hoc Committee. Ajdler said one day a Havard Business School case study will use the board's actions as an illustration of poor corporate governance.

Ajdler, who is against the $9.75 per share merger transaction with Michael Eisner's The Tornante Company and Madison Dearborn Partners, noted that Topps' board said the Ad Hoc Committee, of which Ajdler and Mr. Brog are members, no longer has the authority to monitor day-to-day developments during the go-shop period. The board appoined Allan Feder and Stephen Greenberg to monitor the go-shop period developmets. The board said Ajdler and Brog could not adequately represent the best interests of the Company's shareholders given their publicly stated opposition to the Merger Agreement.
Ajdler is also against the formation of an Executive Committee consisting of Messrs. Feder, Greenberg, Mauer, Nussbaum and Shorin. Ajdler said, "The creation of the Executive Committee is a blatant step to delegate virtually all actions of the Board to these five members, in repudiation and total disregard of the wishes of the majority of Topps' shareholders at a time when they most need full representation of their best interests in the boardroom."

Ajdler concluded, "I strongly urge the Company to reconstitute the Ad Hoc Committee, to disband the Executive Committee and to make corrective disclosure. Topps continues to ignore the will of its shareholders and continues to be run as a private club. This must stop."

Image from BBC

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Sun Capital Boosts Stake in Pier 1 Imports (PIR) to 5.1%

In a 13D filing on Pier 1 Imports, Inc. (NYSE: PIR), SCSF Equities (Sun Capital) disclosed a 5.1% stake (4.47 million shares) in the company. The firm disclosed a 2.89 million shares stake in PIR for the quarter ended December 31, 2006.
In a pretty standard disclosure, the firm said it has no present plans or proposals that relate to or that would result in any of the actions specified in clauses (a) through (j) of Item 4 of Schedule 13D.

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Metro One Telecom (INFO) Holder Strategic Turnaround Equity Wants Seat on Board, Pursuit of Strategic Alternatives

In a 13D filing this morning on Metro One Telecommunications (Nasdaq: INFO), Strategic Turnaround Equity Partners, LP disclosed a 9.17% stake (571K shares) in the company, noting they changed their filing status from 13G (passive) to 13D (active). The firm disclosed a letter to the company indicating their concern over the current management and direction of the Company. The letter also asked for a nominee to the Board of Directors and for the Board to pursue strategic alternatives.

In the letter the firm said, "Last week we read the 13D filing by Everest Special Situations Fund, LP and their demands to the Company’s board of directors and chairman. STEP agrees and concurs with many of the views expressed by Everest and agrees that changes need to be made within the Company in order to maximize shareholder value, including an executive experienced in corporate restructurings." The firm also said, "Furthermore, we would like a representative chosen by STEP elected to the board of directors as soon as practicable."

A Copy of the Letter:

Dear Members of the Board:

As you may know, Strategic Turnaround Equity Partners, LP (Cayman) ("STEP") is one of the largest shareholders in Metro One Telecommunications, Inc. ("Metro One” or the "Company"). STEP currently owns over 9% of the Company’s outstanding common shares.

Over the past year STEP has been supportive of the Company’s management and its efforts to lower the Company’s operating cost structure and respond to the loss of significant contracts. However, STEP believes that the Company’s board of directors and management now need to be more responsive to these challenges and develop an efficient and effective plan to realize the Company’s growth potential over the next year.

Last week we read the 13D filing by Everest Special Situations Fund, LP (“Everest”) and their demands to the Company’s board of directors and chairman. STEP agrees and concurs with many of the views expressed by Everest and agrees that changes need to be made within the Company in order to maximize shareholder value, including an executive experienced in corporate restructurings.

Furthermore, we would like a representative chosen by STEP elected to the board of directors as soon as practicable. We strongly believe that the board has an obligation to promptly honor this request since we are one of the Company’s largest shareholders and our experience as investors in turnaround situations can benefit the Company and its shareholders.

We are available to meet or speak with the Company’s board of directors and management at their earliest convenience.

Sincerely

Gary Herman

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