Friday, September 28, 2007

Einhorn's Greenlight To Washington Group (WNG): Leave The Goldman 'Suits' At Home Next Time

In an amended 13D filing on Washington Group International Inc. (NYSE: WNG) today, David Einhorn's Greenlight Capital, a 10% holder, disclosed a recent letter to the Board of Directors reiterating their view that the acquisition price in the merger with URS (NYSE: URS) is inadequate.

In the past, Greenlight suggested a fair value for Washington Group is $117 per share. Washington Group is currently trading at $87.71 per share.

In the letter, Einhorn discussed the "unusual" meeting with representatives of Goldman Sachs, who prepared the fairness opinion on the deal. Einhorn also said, "Our opinion remains unchanged that Washington Group’s substantial growth prospects are not being adequately compensated in the proposed merger consideration. We continue to believe it is in the best interest of Washington Group shareholders to reject the merger, as proposed."

A Copy of the Letter:

Dear Members of the Board of Directors,

We were surprised to read about our meeting with representatives of Goldman Sachs in the S-4 first filed with the SEC on September 18, 2007.

We were pleased to meet with Goldman Sachs and to continue a dialogue with any parties to the proposed transaction. Greenlight Capital’s interest lies in the best long-term outcome for our investment in Washington Group, and we wish to make the most informed decision possible. Contrary to the description in the S-4 filings, our meeting with Goldman Sachs did not help us become more informed.

Our meeting on August 29, 2007 with Goldman Sachs was unusual. Presuming the meeting was intended to help us become better informed, we were surprised the Goldman bankers brought no documents or notes with them. They did not offer us their business cards, nor even introduced themselves with their first and last names.

The Goldman representatives began by telling us they “couldn’t understand” a number of items in our letter. We offered to walk through their questions one by one. Instead, their “questions” boiled down to accusing us of presenting earnings estimates above management’s. We indicated that management has a history of conservative forecasting for managing Wall Street and internal expectations. Goldman indicated that it understood and agreed with that history, but did not take it into account in its fairness opinion. They indicated that it was not Goldman’s job to take management forecasts and make them more aggressive.

Goldman then explained that Washington Group management is not comfortable with leverage, that our earnings estimates are higher than management’s, and that the transaction consideration is a high multiple for Washington Group. None of that information was different from the material in Goldman Sachs’s fairness opinion in the preliminary proxy. Goldman also offered no additional supporting information to help convince us of their views.

Finally, Goldman suggested that if the merger is voted down, Washington Group’s stock might fall. They appeared to be taunting us with the potential for short-term poor investment performance. We reminded them that we are long-term investors that have held this investment for half a decade. We indicated that since the deal was announced, the arbitrage spread between Washington Group shares and the value of the deal implied by URS’s shares has been consistently low. We believe this indicates the market expects either the merger consideration will be increased or the deal will be rejected, thus removing the artificial ceiling on Washington Group’s shares imposed by the thrifty price URS has offered to pay. We agreed with Goldman to disagree on this point.

We suggested that since we arrived at our forecasts of Washington Group’s earnings based on information that appears to be at odds with what management told Goldman, the best way to resolve the discrepancy might be to have a follow-up group meeting with representatives of Goldman and management to rigorously review the assumptions underlying the forecasts. Goldman agreed this might be useful and assured us they would follow-up. We have heard nothing since then.

Our opinion remains unchanged that Washington Group’s substantial growth prospects are not being adequately compensated in the proposed merger consideration. We continue to believe it is in the best interest of Washington Group shareholders to reject the merger, as proposed.

Washington Group’s Board of Directors should not presume that our meeting led to a change in Greenlight’s opinion or intentions to vote against the proposed merger.

Sincerely,
David Einhorn
President
Greenlight Capital, Inc.

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Loeb Partners Discloses 5.16% Stake in United Retail Group (URGI)

In a 13D filing this morning on United Retail Group Inc. (Nasdaq: URGI), Loeb Partners disclosed a 5.16% stake (721,669 shares) in the company.

In a pretty standard disclosure, the firm did not make any direct requests on the company, but said they will review its investment on a continuing basis and may engage in discussions with management or the Board of Directors concerning the business and future plans of the company.

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Spencer Capital Recommends Board Member for Borders (BGP)

In an amended 13D filing after the close on Borders Group (NYSE: BGP), 7.9% holder Spencer Capital disclosed that they recently suggested to the company that Glenn Tongue, Managing Partner of T2 Partners Group, LLC, be added to the Board of Directors.

From the Filing:

" As a result of conversations with various representatives of the Company, the Spencer Capital Filers concluded in late September 2007 that the Company's Board of Directors should include at least one representative of the Company's significant shareholders. The Spencer Capital Filers concluded that one or more such directors could enhance the Board's deliberations and decisions by presenting to the Board shareholder perspectives on matters under consideration and by bringing focus to Board efforts to maximize shareholder value. Accordingly, on September 25, 2007, Dr. Shubin Stein asked Glenn Tongue, Managing Partner of T2 Partners Group, LLC, whether he would be willing to serve on the Board and work with the Spencer Capital Filers to seek representation on the Board. Mr. Tongue advised Dr. Shubin Stein that he would be willing to serve on the Board and that he and the T2 Filers would work together with the Spencer Capital Filers to encourage the Company to add him to the Board. Later on September 25, 2007, in a conversation with George Jones, chief executive officer of the Company, Dr. Shubin Stein requested that the Company add Mr. Tongue to the Board."

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Thursday, September 27, 2007

FL Group Wants AMR Corporation (AMR) To Separate Frequent Flyer Program

A large AMR Corporation (NYSE: AMR) shareholder, FL Group, urged the company to immediately consider strategic alternatives that could significantly increase shareholder value. The firm said alternatives include the separation of American Airlines' frequent flyer loyalty program from the main business. The firm said their conservative analysis indicates that the unbundling of AAdvantage could lead to value creation of more than $4 billion.

A Copy of the Letter:



September 27, 2007
An FL Group Announcement


FL Group urges American Airlines to consider all options to enhance shareholder value

- Proposes spin-off of the AAdvantage Frequent Flyer program -

Reykjavik, Iceland, September 27, 2007 - FL Group, one of American Airlines' largest shareholders, wrote to the Board of Directors of AMR Corporation (NYSE: AMR) on Tuesday urging the company to immediately consider strategic alternatives that would significantly increase shareholder value. These include the separation of American Airlines' frequent flyer loyalty program, AAdvantage, the world's oldest and largest frequent flyer program, from the main business.

AMR's share price has fallen almost 50% since January 2007, costing AMR shareholders close to $5 billion. While the industry environment remains challenging for all airline companies, FL Group believes that opportunities remain to unlock shareholder value and that the AMR management team and board of directors should actively pursue all such opportunities. Simply blaming high fuel costs and investor sentiment is not a sufficient response.

AMR's structure as a fully integrated legacy carrier and the lack of detailed financial information provided by the company on its various business units mean that the profitability of each individual business unit is not clearly understood by investors. Based on publicly available information, FL Group has performed a conservative analysis of AMR's business units and believes there is significant hidden shareholder value to be unlocked. In particular, FL Group believes that unbundling AMR's AAdvantage ("AAD") Frequent Flyer program could increase shareholder value by more than $4 billion.

FL Group CEO Hannes Smárason commented: "FL Group has significant experience in the airline sector and strongly believes that there are strategic alternatives which should be considered to increase shareholder value. After taking a close look at the company over an extended period of time, our suggestions include monetizing assets, such as AAdvantage, that can be used to reduce debt or return capital to shareholders. We believe that there is no time to lose given the recent developments in the market place."

The full text of the letter is attached below.

About FL Group

FL Group is an international investment company focusing on two areas of investment. The majority of its operations are run through the Private Equity and Strategic Investment division which can take stakes in listed and private companies as well as lead private equity buy-outs. The Capital Markets division is a proprietary trading desk focused on taking short-term positions, primarily in equities, bonds and currencies.

With its head office in Reykjavik and offices in London and Copenhagen, FL Group invests in companies worldwide, with a special focus on Europe. FL Group is listed on the OMX Nordic Exchange in Reykjavik (OMX: FL). At the end of the second quarter 2007, FL Group's total assets amounted to ISK 319.6 billion (US$ 5.1 billion). Its market capitalization at the end of August 2007 was ISK 208 billion (US$ 3.4 billion). More information is available on www.flgroup.is

In the airline industry, FL Group has made a series of successful investments including the acquisition of Sterling Airlines, Scandinavia's largest low-cost airline. Sterling is now a part of Northern Travel Holding, a major Scandinavian travel group formed in January 2007 where FL Group has a 32% share. FL Group has also built a 23% stake in Finnair, the Finnish Flag Carrier. FL Group is the former sole owner of Icelandair, the Icelandic Flag Carrier, and a former owner of a 16.9% stake in easyJet, one of Europe's largest low-cost airlines.

FULL TEXT OF SEPTEMBER LETTER FROM FL GROUP TO BOARD OF DIRECTORS OF AMR/AMERICAN AIRLINES

The Board of Directors
AMR Corporation
4333 Amon Carter Boulevard
Fort Worth, TX 76155

Attention: Gerald J. Arpey
Chairman, President and CEO AMR Corporation/American Airlines


VIA EMAIL AND OVERNIGHT DELIVERY

Reykjavik, September 25, 2007

Ladies and Gentlemen,

As you are undoubtedly aware, FL Group is one of the largest shareholders of AMR Corporation, currently holding 8.25% of the company's outstanding common shares. FL Group is also a highly experienced player in the airline industry, with a strong track record of value creation in the sector through its investments in easyJet, Sterling Airlines, Icelandair and Finnair. We generally hesitate from approaching the board of directors regarding value creation strategies, preferring to speak directly with management. However, subsequent to our conversations with members of the AMR management team, we are not aware of any specific plans that management may have to enhance shareholder value. This, when taken with the company's recent disappointing and surprising earnings guidance, has meant that we now feel compelled to write to you directly.

A Time to Act

AMR's share price has dropped some 50% since January 19th 2007. Given the close to $5 billion this has cost AMR shareholders, we believe serious consideration of strategic alternatives is long overdue. Instead of blaming the company's poor share price performance on external factors such as "fuel prices" and "intense competition," we believe that it is now time for AMR to act. We therefore urge AMR's management and Board of Directors to consider all options to enhance shareholder value and outline a clear path forward for value creation.

The Problem

AMR's structure as a fully integrated legacy carrier means that the profitability of its individual business units is not easily understood by investors and analysts. AMR holds different businesses that are less cyclical and have more favorable growth prospects than a pure aviation play, but its share price remains saddled with a blended valuation multiple that fails to capture those growth prospects. The fact that AMR does not disclose detailed financial information on its various business units results in difficulty capturing individual unit value and likely exacerbates the pure play valuation discount.

AMR is an industry leader in terms of size and scale, but given the factors outlined above, and the difficult industry environment, we believe the company will find it very challenging to outperform its competitors over the long term. We strongly urge AMR's management to aggressively evaluate strategic alternatives to generate shareholder value.

The Opportunity

Significant opportunities for value creation at AMR exist that are both practical and actionable. In short, FL Group believes significant value potential can be unlocked by unbundling AMR's ancillary business units, whose revenues are currently being valued at mainline airline multiples instead of multiples that correspond with their particular business lines. In our view, the separation of AMR's business units, such as the AAdvantage Frequent Flyer program, is potentially more than just a zero-sum game. Unbundling can eliminate a valuation discount, especially in complex corporate structures such as legacy carriers, and can also lead to greater management focus and improved operational performance. In this specific case, we believe the AAdvantage Frequent Flyer program is the AMR business unit with the most value upside, although other AMR units could also unlock value.

The frequent flyer/loyalty industry is attractive due to strong profitability, stable cash flow and growth rate potential. AAdvantage's size and market position provides an excellent platform for future growth and industry leadership. Our analysis suggests a value upside of over $4 billion from unbundling AAdvantage. Given the limited financial information available to us on AAdvantage, the valuation is based on conservative assumptions taking into account available performance metrics from other frequent flyer programs. In addition, the concept of unbundling has already been proven to generate value. One need only examine Aeroplan, the loyalty program spun off by Air Canada's parent ACE, to find a successful example. Since 2004, Aeroplan has grown rapidly and analysts expect the company to grow revenue by almost 100% from 2004 to 2008. We recognize there are differences between the U.S. and Canadian airline sectors; nevertheless, we believe the case for enhanced value is clear and has already been proven. Since its IPO in June 2005, Aeroplan's stock performance has significantly outperformed the North American airline sector.

While we urge AMR to commit to a strategic review to monetize AAdvantage's value for shareholders, we happen to believe that AMR should keep effective control of AAdvantage in the short-to-medium term and that an outright sale is less advantageous at the present time. AAdvantage could instead be separately listed with a limited free float to be distributed to a mix of original and new shareholders. This type of multi-step spin-off would provide operational benefits to AMR and allow the company to fine-tune the intra-company relationship. Such a gradual process would also have the benefit of allowing AMR to capture the full value of AAdvantage as investors become more familiar with a pure "frequent flyer/loyalty" play.
Regardless of any difference of opinion over these mechanics, we should be able to agree that AMR's stock is undervalued and poorly reflects the success and growth potential of AAdvantage; and that the Board, management and shareholders should look for ways to capture that hidden value.


A Call to Action

Any realistic assessment of a spin-off, as described above, must acknowledge that there are risks involved. But leadership is about evaluating those risks and making prudent choices. A separated AAdvantage will impact AMR's performance; however, we believe that the ongoing partnership could be properly managed and that the net effect would substantially increase shareholder value. As stated above our conservative analysis indicates that the unbundling of AAdvantage could lead to value creation of more than $4 billion.

We strongly encourage you to look at the opportunity to unlock shareholder value by spinning-off AAdvantage as outlined above. At an absolute minimum, better disclosure of AAdvantage's financial results and a robust review of strategic alternatives will help convince shareholders that you view value creation as the key objective. We are more than prepared to assist AMR in any way to achieve that end.

We look forward to your prompt response demonstrating a serious evaluation of these matters.

Yours sincerely,
Hannes Smárason
CEO
FL Group

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Wednesday, September 26, 2007

Highland Capital Joins Loeb In Calling For a Sale of PDL BioPharma (PDLI)

Highland Capital Management has joined Dan Loeb's Third Point LLC in calling for a sale of PDL BioPharma, Inc. (NASDAQ: PDLI).

Highland Capital, which hold approximately 4.7% of the common shares outstanding of PDL, delivered a letter to the company's Board of Directors urging the Board to proactively pursue a sale of the entire company and called for the immediate resignations of Dr. Patrick Gage as Chairman and Mark McDade as chief executive officer.

A Copy of Highland Capital's Letter:

Ladies and Gentlemen:

As you know, through its affiliates and managed accounts, Highland Capital Management, L.P. owns approximately 4.7% of the common stock of PDL Biopharma, Inc. ("PDL").

Over the past three weeks we have contacted each of you to express our displeasure with the ambiguous message conveyed on the August 28th conference call, to voice additional concerns, and to offer recommendations that we believe will maximize the value of PDL's substantial assets. We have concurrently consulted various advisors, Wall Street and other shareholders that have provided additional perspective into PDL's current situation. We applaud the efforts that you have made to investigate Mr. McDade's questionable acts and to identify new leadership to guide PDL toward the maximization of shareholder value. Unfortunately, we believe this process has stalled.

After carefully evaluating the information we have gathered and considering the recent resignation of Dr. Samuel Broder from PDL's Board of Directors, we insist the Board move rapidly to undertake deliberate action to maximize shareholder value and to mitigate the franchise deterioration that occurs when direction is unclear and alternatives are unexplored. We strongly recommend the following actions:

-- The Board should seek additional expertise in evaluating the complex alternatives available for the royalty stream.

-- The Board should proactively pursue selling the entire company, either in a single or multiple transactions. Given PDL's lackluster R&D track record, we adamantly oppose anyeffort to reconfigure PDL into an early stage developmental company.

-- PDL should clearly communicate to the market that it is proactively working to sell the entire company.

-- Dr. Patrick Gage should promptly resign as Chairman of PDL's Board of Directors.

-- Dr. Laurence Korn should take over the role of Chairman.

-- Mark McDade should immediately resign as CEO and depart the company entirely. We view Mr. McDade as an impediment to the strategic review process.

-- An independent Board member should be added to fill the vacancy left by Dr. Broder. This individual should possess a thorough understanding of his role as a shareholder advocate as well as experience in biopharmaceutical M&A.

Public Market Valuation Remains Well Below Private-Market Value of Assets

Bluntly, we have lost confidence in the current leadership's ability to maximize the value of PDL's shares. Our views were confirmed by the multiple sell-side research analyst downgrades and the 20% one-day decline in the share price subsequent to the perplexing August 28th conference call. While the share price has modestly recovered from the sizeable one-day decline, management's inability to clearly articulate a plan to maximize shareholder value gives us little confidence that the current regime is capable of pursuing the steps necessary to realize the significant intrinsic value of PDL's substantial assets.

Following the recent decline, shares are trading at a sizeable discount to the private-market value of the underlying assets, which we conclude is driven by investor confusion regarding the company's strategy, poor understanding of the royalty stream's value, and trepidation that current management will further erode value. Strikingly, we estimate that shares of PDL are currently priced at a value ranging from a modest premium to a slight discount to the private-market value of the company's royalty stream, an asset that current leadership had little role in developing.

Subsequent to our conversations we have concluded that few Board members fully comprehend the value of the company's royalty stream, let alone the complex financial alternatives that are available to realize the value of this unique asset. We were particularly surprised by Dr. Gage's preconceived notion that alternatives available to monetize single-drug royalties were not appropriate for the company's large and diverse cash flow stream. As active participants in the pharmaceutical royalty monetization market we strongly disagree with Dr. Gage's misinformed opinion and, conversely, believe the diversification and size are precisely why the asset is so desirable. In fact, we believe the royalty stream's unique features may permit the use of several additional financial structures not available to smaller, single-drug royalty streams. Given the obvious confusion surrounding the company's largest and most valuable asset, we encourage the Board to seek additional expertise in evaluating the available options. We have made each of you aware of a third party that possesses an extensive track record of successful pharmaceutical royalty transactions and recommend that this third party is permitted to present to the full Board as soon as possible.

Additionally, we encourage PDL to make publicly available as much information as contractually permitted regarding the various agreements constituting the company's royalty stream. While several parties have valued the cumulative royalty stream at approximately $2.0 billion, we believe this estimate is most valid for the eight existing royalties as well as potential flows from publicly disclosed molecules that are currently in clinical development. Of course, these royalties are the result of the company's Queen Patents and will cease when the patents expire in 2014. Additionally, we understand PDL may receive potentially sizeable cash flows associated with agreements that govern antibodies humanized by PDL. We understand that these agreements call for a royalty rate that is slightly higher than the rate on current royalties, and lasting 10 to 15 years post-commercialization. We are confident that the investing community is not currently considering this potentially valuable optionality. We believe data surrounding these agreements was publicly discussed by prior leadership and we are mystified that current management has not described these potentially lucrative arrangements to investors. The failure to clearly communicate as much information as possible about the various agreements increases our skepticism that the current regime fully grasps the value of its most prized asset.

Board Should End Confusion and Clearly Articulate a Desire to Sell PDL

"Due to insufficient efficacy and an inferior safety profile observed in a recent data monitoring committee evaluation of the RESTORE 1 trial evaluating Nuvion in steroid-refractory ulcerative colitis, PDLI has decided to terminate the Nuvion Phase 3 program. Given the challenges facing development of this agent over the past six years we have been following the company, we highly doubt this antibody will ever reach the market for treatment of any indication. In our view, this major blow calls into question PDLI's capability to ever bring a product to the market and significantly changes Street perception of PDLI as a clinical development enterprise."

Given these concerns we strongly oppose any attempt to reconfigure PDL into an early-stage biopharmaceutical company, and instead advocate the immediate sale of the company, in full or in multiple transactions, to entities that are more capable of exploiting the various assets. We believe numerous buyers exist for each of the company's individual assets and are encouraged by management's initial decision to divest the company's commercial products. That said, multiple parties may have the desire and ability to acquire the entire company, and we trust the Board and its advisors will proactively pursue the full range of alternatives in order to maximize shareholder value.

Furthermore, in order to repair the damage done by the August 28th conference call, we recommend that PDL issue a press release that lucidly communicates to the investing public that it is diligently and expeditiously working to sell the entire company. If the message is clearly conveyed and earnestly pursued, we believe the majority of shareholders will provide the Board with sufficient breathing room to consummate a transaction. And, given the scarcity value of PDL's antibody platform as well as the burgeoning market for pharmaceutical royalty streams, the demand for these assets will only increase.

Dr. Korn Should Be Named Chairman of the Board; Additional Qualified Board Member Should be Added; McDade Should Resign Immediately

Following substantial due diligence and internal debate we have concluded that Dr. Patrick Gage lacks the experience, skills, and pragmatism to maximize the value of the company's diverse assets. We concede that Dr. Gage's scientific credentials are noteworthy, however, we strongly disagree that his time at Wyeth or his current position as Chairman of micro-cap Neose Technologies qualifies him to lead the assessment of the complex alternatives currently being evaluated by the Board. By his own admission, Dr. Gage volunteered that his strongest skills were scientific in nature and indicated that other Board members were more capable of discussing PDL's prized royalty stream. We find it inconceivable that an individual who admittedly does not posses a thorough comprehension of the company's most valuable asset is chairing the Board at this juncture.

During the same conversation we were dismayed to hear that Dr. Gage has no interest in proactively seeking potential suitors for the company, although indicated that he would talk to an interested party if he were contacted. We view this commentary as well as Dr. Gage's ambiguous statements on the August 28th conference call as demonstrating an apathetic stance towards the owners of PDL. Given Dr. Gage's refusal to proactively pursue shareholder friendly actions, we request that he promptly resign as Chairman of the company.

We request that Dr. Laurence Korn be named to replace Dr. Gage as Chairman of PDL. Dr. Korn presided over the company when the majority of intellectual property and antibody humanization agreements were consummated, thus he likely possesses an intimate knowledge of the true value of the company's royalty stream. Additionally, his keen familiarity with the company's various partnership agreements makes him the logical candidate to proactively court potential suitors and achieve the highest possible bid for the company.

Furthermore, we recommend that the vacancy left by Dr. Samuel Broder be filled promptly by an acceptable candidate. During our due diligence, several parties described Dr. Broder as a rational individual with a thorough appreciation for his role as a shareholder advocate. As such, we view his abrupt departure with concern and therefore insist that the Board rapidly identify a replacement, who will appropriately represent the company's owners as discussions are held with potential suitors. This individual should have demonstrated expertise in biopharmaceutical M&A.

Finally, we believe Mark McDade should immediately resign as CEO and leave the company entirely. Sufficient demand exists for the company's commercial assets and we do not believe his "expertise" is needed to achieve the asset's maximum value. Furthermore, we believe Mr. McDade is an impediment to the strategic review process and his lingering with the company pending the effectiveness of resignation only exacerbates the uncertain direction of the company. He has caused enough shareholder angst and should not be permitted to continue his destruction of shareholder value.

We have attempted to, and will remain available to, discuss the recommendations put forth in this letter. That said, we believe the time for dialogue has ended and encourage each of you to honor your fiduciary obligations to the company and its shareholders by expeditiously implementing our recommendations in order to protect shareholder value. Rest assured Highland Capital Management will proactively pursue all available avenues and remedies to maximize shareholder value and protect the return of our investors.

Sincerely,
Jim Dondero
President and CEO
Highland Capital Management

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Tuesday, September 25, 2007

Twin Disc (TWIN) Holder Clarus Capital Said Co Released Misleading Statements, Again Urges Co To Hire Banker for a Sale

In an amended 13D filing on Twin Disc (Nasdaq: TWIN), 5.1% holder Clarus Capital disclosed a new letter to the Board of Directors saying recent statements in a press release from the company are "highly misleading", and any implication that their investment is short-term oriented is unfounded. Clarus again urged the company to hire an investment bank, saying there are parties who are interested in acquiring the company at a significant premium to its current price.

From the filing:

"On September 24, 2007, Clarus sent a letter to the Chairman of the Board of the the Issuer which is briefly summarized below. The letter states that the press release issued by the Issuer on September 12, 2007 contained certain statements which Clarus believes are highly misleading and appear to be an attempt to distract shareholders from concerns that the Issuer is not being run in the best long-term interests of its shareholders. Clarus notes that it has been an investor in the Issuer for over three years so any implication that it is short-term oriented is unfounded. Clarus suggests the company utilize a more appropriate amount of debt and repurchase additional shares since it would provide long-term benefits to shareholders in the form of E.P.S. accretion and points out that over the past three months Clarus has been a net buyer, not seller of Common Stock, unlike certain Board Members who have been selling their Common Stock. Considering these Board Members continue to sell their already limited ownership of Common Stock, Clarus wonders if these directors are truly motivated to act in the best interests of all shareholders. Clarus also notes that the Issuer’s stock price is currently trading almost 15% lower than it was when the Board announced a stock buyback on the morning of July 31, 2007. As a result, Clarus wonders if the Board believes the Issuer’s stock is even more undervalued today than it was in July 2007. Clarus also notes that some observers question the desire of the company’s CEO to truly maximize shareholder value. These observers suspect that since he has already amassed significant personal wealth that the CEO may be more interested in keeping the Issuer as a family run business with the hope that his son, who is a company employee and Board Member, will some day run the company. Clarus is asking the Board to seek the advice of a reputable investment bank on how to enhance shareholder value because Clarus believes the Common Stock has been undervalued for some time and that there are parties who are interested in acquiring the Issuer at a significant premium to its current price. Considering such advice can be obtained without disrupting the company’s operations and at a relatively minimal expense, Clarus wonders why the Board would hesitate to obtain such advice from an unbiased party. Clarus points out that it is the Issuer’s third largest shareholder, and that it has been a shareholder for several years and it owns significantly more stock than do all of the company’s independent Board directors combined. Clarus points out that it does not have any relatives working at the company, so it should be clear that Clarus, more than virtually anyone else, is incentivized to ensure that the Issuer is being operated in the best long-term interests of all shareholders."

A Copy of the Letter:

Dear Mike: (CEO)

Your press release dated September 12, 2007 contained certain statements which we believe are highly misleading and appear to be an attempt to distract shareholders from our concerns that Twin Disc, Inc. (“Twin”) is not being run in the best long-term interests of its shareholders. Specifically:

Your release states that Twin does not want to incur debt “in order to satisfy the short-term objectives of certain investors.....” We are not sure which investors you are referring to because, as you are well aware, Clarus has been an investor in Twin for over 3 years, so any implication that we are short-term oriented is unfounded and ridiculous. On many occasions we have expressed our concern about Twin’s suboptimal balance sheet. In order to solve this problem, we have suggested that the company incur a more appropriate amount of debt and use the proceeds to repurchase its shares. Such a transaction would provide long-term benefits to shareholders in the form of E.P.S. accretion and a more tax efficient capital structure. There is an appropriate amount of debt that every industrial company should utilize and we believe you are doing a major disservice to Twin shareholders by having such an underlevered balance sheet.

2) Your release states that under Clarus’ proposed buyback, Twin would “purchase additional shares of its stock – purchases that Mr. Fields previously suggested should come from significant shareholders such as Clarus Capital.” Your implication that Clarus is currently interested in selling shares is incorrect. As our 13D clearly indicated, over the past three months (which covers the period during which Twin has initiated its buybacks) Clarus has been buying, not selling, shares of Twin. Sadly, the same cannot be said for certain members of your Board of Directors (the “Board”) who have been selling their shares of Twin.

It appears your Board has rejected our proposal to hire an investment bank to explore alternatives to enhance shareholder value. We find it ironic that members of the same Board who rejected our proposal (presumably in favor of your value creation plan) are themselves selling shares of Twin. Twin’s Board is currently contemplating issues that are critical to shareholders. With some of these Board directors continuing to reduce their already limited ownership of Twin stock, one might wonder whether these directors are truly motivated to make decisions that are in the best interests of all shareholders.

3) Your release notes that Twin’s stock appreciated significantly in the past year. While this is factually correct, it is frankly irrelevant. The issue that the Board must address is whether today Twin remains significantly undervalued and if so, what should be done to maximize shareholder value.

On July 30, 2007, Twin’s stock price closed at $64.60 per share. The following morning Twin announced a stock buyback. In announcing the buyback you stated that repurchasing stock “is an excellent use of our capital.” Considering Twin’s stock price is now almost 15% lower than it was when you announced this first buyback, isn’t buying back additional shares now (as we are suggesting) an even better use of Twin’s capital than it was in July?

Furthermore, we assume the Board authorized the buyback because it felt the company’s stock was undervalued at $64.60 per share. With the stock now down significantly in the ensuing eight weeks (a period during which most U.S. stock indices have appreciated) with no major change in the company’s underlying business, isn’t it logical to assume that the company’s stock is even more undervalued today than it was in July? If so, one should question whether, regardless of its performance, Twin will ever receive an appropriate valuation in the public markets considering the company’s small market capitalization, illiquid stock and lack of analyst coverage. We are skeptical of the company’s ability to achieve an appropriate valuation in the public markets, which is why we suggested you hire advisors to evaluate a possible sale of the company. While we understand you are trying to create shareholder value by increasing the company’s awareness in the investment community, you have been CEO of Twin for over 20 years and to date have made little progress in this area. Furthermore, we doubt that whatever value you may be able to create through increased public awareness would equal the value created for Twin’s shareholders by selling the entire company today.

Some observers question your desire to truly maximize shareholder value. They suspect that you, who have already amassed significant personal wealth, may be more interested in keeping Twin as a family run business so that your son, who is currently an employee of the company and a Board member, can one day run the company. Furthermore, some observers wonder why Twin remains publicly traded (and continues to incur significant public company costs at the expense of its shareholders) since it is unlikely to need additional equity, has a limited public float, and has limited analyst coverage. We are reserving judgment on your true motives for now, but we hope that in the very near future you will prove these observers wrong and take the appropriate steps necessary to fully maximize shareholder value.

We are Twin’s third largest shareholder, we have been shareholders for several years and we own significantly more stock than do all of the company’s independent Board directors combined. We also do not have any relatives working at the company, so it should be clear that we, more than virtually anyone else, are incentivized to ensure that Twin is being operated in the best long-term interests of all shareholders.

Your release seemed designed, in part, to discredit our firm; however, we are sure Twin shareholders would much prefer that you focus on your primary responsibility of enhancing shareholder value. We believe Twin’s stock has been significantly undervalued for some time. Presumably you agree since its stock is currently trading well below the price at which it was trading when you announced a stock buyback last July. Perhaps this means your plan to create shareholder value through increased public awareness has not been successful. Perhaps, as we have suggested, Twin will never achieve an appropriate valuation in the public markets. We are asking the Board to seek the advice of an investment bank regarding how to maximize shareholder value because of the continuing undervaluation of Twin's stock and because we believe there are parties who are interested in acquiring Twin at a significant premium to its current stock price. Such advice could be obtained without disrupting the company’s operations and at relatively minimal expense. An investment bank would either suggest that the Board sell all or part of the company (as we are advocating) or that the company should remain as is (as you, and presumably your son, are advocating). Either way, Twin shareholders would benefit from knowing that a sophisticated and unbiased party was advising the Board as to how shareholders would best be served. Given the importance of such a decision and your publicly stated commitment to maximize shareholder value, your shareholders deserve an answer as to why the Board would hesitate to get such advice. We remain committed to looking after the best interests of all Twin shareholders. If you would like to discuss this in further detail, I can be reached at (212) 808-XXXX.

Sincerely,
Ephraim Fields

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Citadel LP Bumps Its Stake in Breeden Activist Target Zale (ZLC)

Things heating up at Zale Corporation (NYSE: ZLC)?

From the 13G section of our main site:

"In a 13G filing this morning on Zale Corporation (NYSE: ZLC), Ken Griffin's Citadel LP disclosed a 5.31% stake (2,605,739 shares) in the company. The firm held 830,091 shares of ZLC at the quarter ended June 30, 2007. A 13G indicates a 'passive investment'.

Interestingly, two other notable hedge funds, SAC Capital and Breeden Capital, recently disclosed new 5%+ stakes in the jewelry retailer. Mega-hedge fund SAC, which is run by Steve Cohen, disclosed a 5.1% 'passive' stake in ZLC on 09/17. Breeden Capital, run by former SEC chief Richard Breeden, disclosed a 7.72% 'active' stake on 09/17. Breeden noted past talks with management and said they may conduct future talks.

According to Stockpickr.com, Citadel Investment Group is a $20 billion dollar Chicago-based hedge fund founded by billionaire trader Kenneth C. Griffin, and is one of the world's largest hedge funds. The firm is known for its daily trading volume, which amounts to 1-2% of daily trading activity in New York and Tokyo. Link to Citadel Portfolio"

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Monday, September 24, 2007

Large Rural Metro (RURL) Holder Stadium Capital Expresses Dissatisfaction With the Company

In a 13D filing on Rural Metro Corporation (Nasdaq: RURL), 11.4% holder Stadium Capital Management, LLC disclosed a letter to the board of directors expressing their dissatisfaction with RURL's delayed securities filings, inadequate investor communication by RURL's management and the inappropriate delay of the 2007 annual meeting of stockholders until February 2008. The firm urges the members of the Board to restore shareholder confidence by either explaining how RURL's existing management has addressed SCM's concerns, bringing in new management or pursuing a sale of RURL.

The firm changed their filing status from 13G 'passive' to 13D 'active' to indicate their more active role with the investment.

From the filing, "We have been patient, long-term investors, but you have lost our confidence. Our primary research continues to suggest that RURL has strong relationships in the communities in which it operates and highly regarded field personnel. We believe that there is value well in excess of the current share price, but repeated financial reporting, operational and communication blunders have both masked and potentially eroded this value. The board must restore shareholder confidence, by either convincing shareholders that present management has addressed these fundamental issues, bringing in new management, or pursuing a sale of the company. One way or another, we hope that you will take timely and decisive action to restore our confidence."

Copy of the Letter:

To The Directors of Rural Metro Corporation:

Stadium Capital Management, LLC ("SCM"), through its clients, Stadium Capital Partners, L.P., and Stadium Separate I, L.P., is a significant shareholder of Rural Metro Corporation ("RURL") with current ownership of 11.4%. We have been shareholders for over two years. Our approach to investing is to identify businesses that generate strong cash flows, conduct deep fundamental research, develop a view of long-term value and invest with a multi-year horizon. We enjoy being interactive with management teams, we try to be helpful when and if it is appropriate, and we are typically passive investors. Our investment in RURL, to this point, has been no exception to this pattern. However, given events of the past year, we feel compelled to voice our distress with RURL's current state of financial reporting, operational management and investor communication.

RURL's press release of September 14 announced, somewhat amazingly, its second delayed filing and associated restatement in the last three quarters. Aside from the fact that repeated restatements make a long-term analysis of any business virtually impossible, such a pattern suggests a fundamental lack of financial oversight at the management and board level. Additionally, while two missed filings in the span of three quarters is never excusable, in this credit environment it has the potential to be especially debilitating. We believe that the recent delays and restatements have led to meaningful destruction of shareholder value and must be addressed by the board.

Operationally, RURL's communication of its problems regarding uncompensated care has been equally unnerving. In RURL's third and fourth quarter 2006 press releases, management attributed increases in this metric (beyond the expected effects from rate hikes and higher transport volumes) to billing center consolidation and a specific slowing of collections from Arizona Medicaid and certain Medicare Advantage payers. To us and probably many other investors, these issues initially seemed both isolated and temporary. Recent communication has suggested that this is not the case. RURL has needed to re-engineer its collections process in every region in which it operates and address far-ranging issues such as staffing levels and location, contracting practices and technology requirements. We hope that these are the correct actions. Nevertheless, we can not help but conclude that management's initial communication of the uncompensated care issue reflected either a woefully inadequate understanding of the problem (and required solution) or a total misrepresentation (deliberate or otherwise) of the issue. Either answer destroys shareholder value and should be addressed by the board.

Finally, despite the confusion and frustration caused by RURL's repeated delays/restatements and weak financial performance, RURL has refused to provide investors with any guideposts to judge future financial performance. We are not suggesting that RURL issue quarterly guidance. Investors, however, should know management's medium and long-term goals for operating profitability and timetables for achieving them. With this, existing and prospective investors can value RURL's shares and the shareholders, and you as their representatives, will have tangible goals by which to evaluate management

We have been patient, long-term investors, but you have lost our confidence. Our primary research continues to suggest that RURL has strong relationships in the communities in which it operates and highly regarded field personnel. We believe that there is value well in excess of the current share price, but repeated financial reporting, operational and communication blunders have both masked and potentially eroded this value. The board must restore shareholder confidence, by either convincing shareholders that present management has addressed these fundamental issues, bringing in new management, or pursuing a sale of the company. One way or another, we hope that you will take timely and decisive action to restore our confidence.

On September 19, RURL issued a press release announcing the date of its 2007 annual meeting and that the board is planning to propose an "equity-based compensation plan" for a shareholder vote. The press release also disclosed that the board plans to meet with Accipiter Capital Management, LLC during its December board meeting. The press release was not detailed and therefore we cannot address the issues it raises in great length. We do, however, have the following general reaction to its contents.

First, given the company's performance, we are not inclined to support an "equity-based compensation plan" to "align the Company and its stockholders". The company has performed poorly. By proposing such a plan, we can only infer that the board believes that at least part of this poor performance is because the management team did not have enough incentive to perform well and this plan is designed to correct that problem. Put another way, the board must believe that the management team would be motivated to improve its performance if they just had some more of our ownership. Perhaps not surprisingly, we feel that the management team should have been performing at their maximum competence and effort level already and should continue to do so. If they have not, or do not intend to in the future without more of our equity, then we feel that they should be replaced.

Second, we are delighted that the board has invited Accipiter to meet with them. We have no window into the board or management team's relationship with Accipiter, but as Accipiter is a significant owner, we would hope that the board makes an effort to hear their input whenever it is reasonably possible. You may not agree with them, and we may not agree with them, but as their representatives, you absolutely must give them access. As our representatives, we request that you do.

Finally, we see no reason to wait until February 28, 2008 to have the 2007 Annual Meeting of Stockholders. You and we know that there are significant issues that need to be discussed and we would prefer to get that done as soon as possible. Obviously, given our point of view expressed above, there is no reason to wait for an "equity based compensation plan" proposal (you can propose that for a vote later if you must). We request that you set a date earlier and if necessary move up your meeting with Accipiter (assuming they can make themselves available), and any other significant shareholder, so that you can, if necessary, incorporate their input into your proposals.

Thank you for your attention.

Sincerely,
Stadium Capital Management, LLC

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Friday, September 21, 2007

Barington Nominates Three To Lancaster Colony (LANC) Board

In an amended 13D filing, large Lancaster Colony Corporation (Nasdaq: LANC) shareholder, Barington Capital, disclosed a letter notifying the company of its intention to nominate three persons for election to the Board of Directors of the Company at the Company’s 2007 Annual Meeting of Shareholders, which is scheduled to be held on Monday, November 19, 2007.

Barington said it, "has been disappointed with the performance of the Board and lacks confidence in the ability of the current directors, a majority of whom have been in office for 16 years or more, to improve shareholder value for the Company’s public shareholders."
Barington nominated:
Nick White - President and CEO of management consulting firm White & Associates and former executive at Wal-Mart.
Stuart Oran - Managing Member of merchant banking firm Roxbury Capital Group and former executive at UAL Corporation.
James A. Mitarotonda - President and CEO of Barington Capital.

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Thursday, September 20, 2007

Icahn Ups Stake in BEA Systems (BEAS). Is It Time To Give Larry A Call?

In an amended 13D filing on BEA Systems (NASDAQ: BEAS) , Carl Icahn disclosed he raised his stake in the company to 9.88%. This is up from the 8.53% stake he disclosed on Friday.

Icahn did not update the 'Purpose of Transaction' section of the filing, which in the original filing, stated that Mr. Icahn believes that a sale of the company to a strategic acquirer will maximize the price of the shares. Icahn also said he was seeking talks with management to discuss possibilities of a deal and said he may seek to nominate members for election to the Board of Directors.

Some on Wall Street don't have faith that Icahn can get a deal done with BEA and recently BEA executives have said in the media that they are not for sale. This from a company that has been rumored takeover bait for as long as I can remember.

Maybe Carl should call up Oracle's (Nasdaq: ORCL) Larry Ellison -- which by the way reported a nice quarter after the close. Larry hasn't made too many headlines lately. It would be good for Larry's ego - which is already near-bubble levels - to get a deal done with the we're-not-for-sale (wink wink) software maker and make a few headlines. It's all about ego anyway - Isn't it?

(The above pic is Ellison's yacht. Maybe he can trade it for BEAS. LOL)

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Lichtenstein's Steel Partners II Boosts Stake in Conseco (CNO) to 5.9%

In a 13D filing after the close on Conseco Inc. (NYSE: CNO), Warren Lichtenstein's Steel Partners II disclosed a 5.9% stake (11,143,501 shares, including 40K short put options) in the company. The firm held 5,303,332 shares at the quarter ended June 30, 2007.

The aggregate purchase price of the 11,103,501 shares (excluding 40Kshort put options) was approximately $193,467,190.

In a pretty standard disclosure, the firm did not make any direct requests on the company, but said they will monitor their investment and said they plan to engage in discussions with management and the Board of Directors of the Issuer concerning the business, operations and future plans.

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ValueAct Capital Bottom-Fishes Omnicare (OCR)

In a 13D filing after the close on Omnicare, Inc. (NYSE: OCR), ValueAct Capital disclosed a 6.5% stake (7,942,925 shares) in the company. This up from the 1,288,800 share stake the firm held at the quarter ended June 30, 2007.

In a pretty standard disclosure, the firm did not make any direct requests on the company, but said they will monitor their investment and may enter discussions with management, the Board of Directors or others.

The firm paid on average about $27 per share for the stock. The current stock price is $30.24.

Shares of OCR are near a 52-week low ($29.11)

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Wednesday, September 19, 2007

Sun Capital Steps Up With a Bid For All of Kellwood (KWD)

SCSF Equities (Sun Capital) decided that its 9.9% stake in Kellwood Co. (NYSE: KWD) was not enough, and today the firm offered to acquire all the remaining shares that they don't own for $21.00 per share - which represents a premium of 38% to yesterday's closing price.

Sun Capital has been a shareholder of the Company since May 2007, and filed their original 13D in June. Due to disappointing financial performance shares of Kellwood have been cut in half this year, with a significant drop occurring since July.

Sun Capital said the steps necessary to maximize shareholder value will require more aggressive action than has currently been undertaken, will take time to implement and will be extremely difficult to execute in a public company context.

Sun Capital said they believe Kellwood has a fundamentally attractive collection of assets, which, over time, could potentially generate higher levels of profitability and growth.

A Copy of the Offer Letter:

Members of the Board:

Sun Capital Securities Group, LLC and its assigns (“Sun Capital”) is pleased to submit this non-binding proposal to acquire 100% of the capital stock of Kellwood Company (“Kellwood” or the “Company”) for $21.00 per share in cash. Our proposal represents a premium of 38% to the most recent closing price of $15.17.

Sun Capital will require 30 days of financial and legal diligence to finalize its proposal. We are prepared to bridge the entire purchase price from our own capital, and there will be no financing contingency in the definitive purchase and sale agreement. Our strong preference is for management to retain their leadership roles going forward, although our proposal is not contingent or otherwise predicated on management’s participation.

This letter represents only the intent of Sun Capital, does not constitute a contract or agreement, is not binding, and shall not be enforceable against Sun Capital.

Background and Rationale for Proposal

As you know, Sun Capital has been a shareholder of the Company since May 2007. We currently hold 2.56 million shares representing approximately a 9.9% ownership position on a fully diluted basis, which we believe makes Sun Capital the Company’s second largest shareholder.

As a significant shareholder, we want to thank management for the time they have spent with us over the past six months explaining their business strategy and listening to some of our ideas on how to maximize value for all shareholders. We too believe that Kellwood has a fundamentally attractive collection of assets, which, over time, could potentially generate higher levels of profitability and growth. In this regard, we greatly appreciate management’s efforts to drive the business and create shareholder value.

However, even before the disappointing financial results reported on September 6th, we have been troubled by the Company’s inconsistent financial performance. The Company’s stock price performance has also materially underperformed over the past several years on an absolute basis as well as relative to its peers. Such absolute and relative underperformance has sharply accelerated in the run up to and aftermath of the Company’s earnings announcement on September 6th. Furthermore, we do not see any visibility on a material and sustained recovery in shareholder value in the near to intermediate term absent a change in strategy.

Sun Capital believes that management has made a strong effort given the challenges the industry and the Company face, and the constraints Kellwood is under as a public company. Our fundamental concern is that, while the Company’s core assets may be attractive, those assets are not configured in a manner to maximize value for shareholders in both the near and long term. We believe that the steps necessary to maximize shareholder value will require more aggressive action than has currently been undertaken, will take time to implement and will be extremely difficult to execute in a public company context.

In conversations with management, we discussed these issues and, in that context, the potential benefits to all shareholders of a sale of the Company. Management suggested that we submit a specific proposal for review by the full Board to the extent we desire to pursue this course.

Timing and Alternatives

Sun Capital has a long history of completing transactions quickly and efficiently. We are prepared to move forward on an expedited basis to reach a definitive agreement and consummate a transaction. At the same time, as a large shareholder of the Company, we are open to other alternatives that could generate more value, on a risk and time adjusted basis, for all shareholders. Accordingly, we would not object to the Company evaluating other potential alternatives in parallel with working with Sun Capital to finalize a transaction.

Please note that, while Sun Capital is open to other potential alternatives, we do not believe that time is on the Company’s side. We are concerned that a drawn out process to explore strategic alternatives, or waiting until the business or markets improve, holds a material risk of leading to a further diminution in shareholder value. Therefore, we hope that the Company does not hesitate in engaging in a process with Sun Capital, and we encourage the Company to explore in parallel only those alternatives which are credibly actionable in a reasonable time frame.

Overview of Sun Capital

Sun Capital (www.SunCapPart.com), based in Boca Raton, Florida with offices in New York and Los Angeles, and with affiliate offices in London, Tokyo and Shenzhen, is a leading private investment firm focused on leveraged buyouts and investments in market leading companies. Sun Capital focuses on niche opportunities of corporate divestitures, turnarounds, underperformers and special situations that can benefit from our in-house operating professionals and experience. Sun Capital invests in companies with a leading position in their industry, long-term competitive advantages, and significant barriers to entry.

Sun Capital has nearly $10 billion of equity capital under management. With a team of over 150 people possessing significant operational and transactional experience, Sun Capital affiliates have invested in more than 165 companies, with aggregate sales in excess of $35 billion, since the firm’s inception in 1995.

Sun Capital has been the most acquisitive private investment firm in the U.S. over the past four years, closing 107 transactions from 2002-2006, including 30 acquisitions in 2005 and 33 transactions in 2006 and 27 transactions to date in 2007, and was recently listed in a leading M&A trade publication as the fifth most acquisitive company of any kind in the United States. Sun Capital has received numerous accolades over the years, including being named the Private Equity Firm of the Year for both 2003 and 2004 by the M&A Advisor, a leading periodical for the M&A industry. In addition, we have been highly acquisitive on a global basis, completing 23 international transactions since 2002, including 15 platforms.

Next Steps

Thank you very much for your consideration, and we look forward to hearing from you soon. Sun Capital will be available to discuss our proposal with representatives of the Board at your convenience. In order to comply with its disclosure obligations, Sun Capital intends to amend its 13-D by Tuesday, September 18th to reflect our interest in acquiring the Company, at which time this letter will become public.

Kind Regards,
Jason G. Bernzweig
Vice President
Sun Capital Securities Group, LLC

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Tuesday, September 18, 2007

Orient-Express (OEH) To India-Based Hotel Group: Thanks, But Not Thanks

In a press statement today, Orient-Express Hotels Ltd. (NYSE: OEH) said it is not in talks with The Indian Hotels Company Limited (IHLC), following a recent letter from the India-based group inviting the company to discuss a possible combination.

Orient-Express said it responded to IHCL stating that it does not wish to pursue the proposals for discussion contained in their letter.

In its recent 13D filing, IHCL disclosed a 10% ownership in Orient-Express and disclosed the letter.

Copy of the Letter IHCL Sent to Orient-Express:

Dear Mr. Hurlock,

Our Company, The Indian Hotels Company Limited (IHCL), on which I have given some details below, has been pursuing global expansion in recent years. This expansion phase included establishing alliances and relationships with leading hotel groups that have not yet set up a presence in India, but have secured leadership positions in different geographies. In the course of our quest, I had the pleasure of meeting with Mr. James Sherwood a few weeks back to seriously explore opportunities for working together in the United States and possibly more widely in a unique business combination arrangement which would work to the advantage of both Orient-Express and IHCL. I might mention that out of a total of 84 hotels the Taj has 15 hotels outside India.

2. IHCL was incorporated in the year 1902 in India, that is over 104 years ago, and since then it has steadily expanded its operations establishing ultra luxury and luxury hotels in different parts of the world. The Taj brand, which we own, has been distinguished for many of its properties, including heritage palaces in India, which have been converted into celebrated luxury hotels. These include the Lake Palace hotel in Udaipur, Rambagh Palace in Jaipur, Umaid Bhavan Palace in Jodhpur and the Falaknuma Palace in Hyderabad, presently under refurbishment. As you know, we have also recently acquired the lease of The Pierre Hotel in Manhattan, New York and completed the outright purchase of The Ritz Carlton in Boston (now renamed Taj Boston) and The Campton Place Hotel in San Francisco. We own or operate luxury resorts in Maldives, Mauritius and Sri Lanka, among other locations. Our new hotels have been or are being built in Phuket, Lankawi, Dubai, South Africa and other locations.

3. We have always recognized Orient-Express for its admirable range of ultra luxury hotels and resorts distinguished for their uniqueness and standards of excellence. A possible association between our two companies would bring unique competitive advantages to both companies. The combination of our international properties with Orient-Express’ hotels would result in a geographically balanced presence with synergies in several complementary destinations. Orient-Express would have a strong ally in the exploding Indian market as well. The combination could also result in generating operating synergies in the areas of marketing, strategic sourcing etc.

4. In this context, therefore, I would appreciate an opportunity to have a meeting with yourself, and with the Board of your company, to discuss this matter further, and to also discuss the possibility of a wider association between our two companies.

5. Meanwhile, I would like to bring to your notice that as a reflection of our strong commitment to the possibility of working together, we have acquired approximately 10% of class A common shares in Orient-Express as of today, which position we would be happy to strengthen in the near future. We will be making the necessary public filings in the United States in due course.

6. As mentioned above, we would like to assure you that our desire is to work together and hope that it will be possible to develop a mutually beneficial relationship whereby we could forge what would truly be a combination of two of the world’s leading ultra luxury hotel groups.

7. In conclusion, we look forward to hearing from you, and hope that we may arrange an early meeting.

With kind regards,

Yours sincerely,
R.K. Krishna Kumar
Vice Chairman

The Indian Hotels Company Limited

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Breeden Capital Targets Zale Corp (ZLC)

In a 13D filing after the close on Zale Corporation (NYSE: ZLC), Breeden Capital disclosed a 7.72% stake (3,784,639 shares) in the company. The firm noted past talks with management and said they may conduct future talks
Breeden Capital is run by former SEC cheif Richard Breeden. The firm has pushed for changes at Applebee's (Nasdaq: APPB) and H&R Block (NYSE: HRB), winning board seats at both companies.
From the filing:
"Representatives of the Reporting Persons have had conversations with the Company's management. The Reporting Persons intend to continue to pursue ongoing discussions with the Company’s management and potentially with members of the Company’s board of directors. Discussions to date have related primarily to the business, financial performance, operations, strategic plans and disclosure practices of the Company. As a result of the Reporting Persons’ ongoing review and evaluation of the business, they may also communicate with the board of directors and/or other shareholders from time to time with respect to operational, strategic, financial or governance matters, or otherwise encourage actions that the Reporting Persons believe in their discretion will enhance shareholder value."

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Monday, September 17, 2007

East Peak Partners Discloses 7.63% Stake in GateHouse Media (GHS), Notes Past Discussions With Mgmnt

In a 13D filing on GateHouse Media, Inc (NYSE: GHS), East Peak Partners disclosed a 7.63% stake (4,415,540 shares) in the company. The firm noted they have had, and may have in the future, discussions with management and may make suggestions concerning the company's operations, prospects, business and financial strategies, assets and liabilities, business and financing alternatives

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Karsch Capital To CSK Auto (CAO): The Turnaround Plan Is Great, But We Still Want a Sale

In an amended 13D filing after the close Friday on CSK Auto Corp. (NYSE: CAO), 9.32% holder Karsch Capital said they are encouraged by the Company's recent announced that is has commenced a comprehensive, strategic review aimed at improving profitability and restoring top line growth. Karsch said the company should concurrently conduct a thorough review of strategic alternatives, including a sale of the Company. The firm said, "This would enable the Board to weigh the relative merits of selling the Company versus allowing the new management team time to turn the Company around." The firm said they will continue to activities of the Company and the Board very closely.

A Copy of the Letter:

The Board of Directors of CSK Auto Corporation ("CSK Auto" or the "Company"):

Karsch Capital Management, LP(1), as a holder of 9.32% of the outstanding common stock of CSK Auto's common stock, continues to monitor developments at the Company very closely. To this end, we are encouraged by the Company's announcement on September 5, 2007, that it has commenced a comprehensive,strategic review aimed at improving profitability and restoring top line growth. However, as we have stated previously, we believe that the CSK Auto Board of Directors should demonstrate a genuine commitment to enhancing shareholder value by concurrently conducting a thorough review of strategic alternatives, including a sale of the Company. This would enable the Board to weigh the relative merits of selling the Company versus allowing the new management team time to turn the Company around.

We continue to believe that a turnaround at CSK Auto should be very achievable because of the tremendous opportunity to improve the Company's severely depressed operating margins. Indeed, if management's plans to reduce pre-tax costs by $34 million in fiscal 2008 prove successful, that alone could improve EBITDA by over 20%, thereby enhancing shareholder value significantly.

Given the Board's poor track record overseeing CSK Auto, we remain skeptical about the Company's ability to achieve a successful turnaround. We believe it is imperative for the Company to provide the investment community with additional details about its turnaround plan - including specific objectives,clear benchmarks and a defined timetable for implementation and completion - in the near future. In particular, we expect to receive more details about the proposed cost cuts and other margin improvement initiatives, to help us and other shareholders better determine the achievability of these efforts and over what time frame.

We are pleased that the Board has met our request to modify the deadline for submission of stockholder proposals and/or director nominations prior to the Company's annual meeting. We will continue to monitor the activities of the Company and the Board very closely and will continue to carefully consider all options that could maximize the value of our significant investment in CSK Auto, including engaging in a proxy contest to replace some or all members of the Board of Directors.

Sincerely,

Michael A. Karsch

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Highland Capital Boosts TLC Vision (TLCV) Stake By 3M Shares to 12.9%

In a 13D filing after the close Friday on TLC Vision Corporation (Nasdaq: TLCV), Highland Capital Management disclosed a 12.9% stake (6,437,490 shares) in the company. This is up from the 3,415,866 share stake the firm held at the quarter ended June 30, 2007.

Highland Capital said they continue to review their investment in the company. The firm said they have in the past and may continue in the future to engage in discussions with management, the board of directors, and others concerning the business, operations, board composition, management, strategy and future plans of the company.

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Large Conns (CONN) Holder May Consider Going Private Transaction

Conns Inc. (Nasdaq: CONN) is 12% higher today following a 13D filing from SF Holding, a collection of trusts controlling 50.1% of the company, which said they may consider a going private transaction in the form of the acquisition of all outstanding shares of Common Stock not currently owned.

From the filing:

"The reporting persons regularly review, and evaluate strategies with respect to, their various investments, including their investment in the Issuer. As a consequence of such review, evaluation and other factors that the reporting persons deem relevant, they are presently considering various alternatives which may ultimately lead to one or more possible transactions with respect to their investment in the Issuer. In the course of such consideration, the reporting persons may discuss internally and with the Issuer, other shareholders, industry analysts, existing or potential strategic partners or competitors, investment and financing professionals, sources of credit and other investors, their holdings in the Issuer. Possible transactions may include the acquisition of additional shares or selected divestitures of shares of Common Stock of the Issuer, a going private transaction in the form of the acquisition of all outstanding shares of Common Stock not currently owned by the reporting persons, or another form of extraordinary transaction. In this regard, a representative of one of the reporting persons discussed the above-mentioned consideration of the idea of a possible going private transaction with a member of management of the Issuer."

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Stevie Cohen Enters PDLI Mix

Stevie Cohen entered into the mix on Dan Loeb activist target PDL BioPharma Inc. (Nasdaq: PDLI). Unlike Loeb's, Cohen's stake is passive.


In a 13G filing after the close Friday on PDL BioPharma Inc. (Nasdaq: PDLI), SAC Capital / Steven A. Cohen disclosed a 5.1% stake (5,973,000 shares) in the company. This is up from the 269,793 share stake the firm held at the quarter ended June 30, 2007. A 13G filing indicates a 'passive' investment.
PDL BioPharma is currently an activist target of Daniel Loeb's ThirdPoint LLC, which has been pushing for executive changes and a sale. The stock had a significant sell-off at the end of August after announcing a restructuring including the sale of some assets and the termination of the Nuvion phase 3 program.
According to Stockpickr.com, "SAC Capital Partners is a $12 billion dollar group of hedge funds founded by Steven A. Cohen in 1992. While SAC closely guards its returns, published reports and people who have seen the fund's letters to its investors say that SAC had a gross return, before its fees, of at least 40 percent in every year since inception, making it astoundingly successful." Link to SAC Portfolio

Lichtenstein To IKON Office Solutions (IKN): We Don't Want To Fight You, Just Do What We Say

In a 13D filing on IKON Office Solutions (NYSE: IKN) 10.2% holder, Warren Lichtenstein's Steel Partners II, disclosed a letter noting that the company no longer wish to enter into a confidentiality agreement at this time. The firm requested representation on the board of directors, and recommended John Quicke be consider for a board seat.

Lichtenstein said they are committed, long-term shareholders and wish to work with the board - not against it.

A Copy of the Letter:

Dear Matthew:

It was a pleasure speaking with you and Bob on August 23, 2007. As I hope you already know, I appreciate the time you have given us to discuss candidly our views on IKON Office Solutions, Inc. ("IKON" or the "Company"). As you know, I believe that the IKON shares continue to trade at a significant discount to their intrinsic value and I have made several recommendations on ways to unlock the value of the shares, including by way of a self tender or outright sale of the Company. I was excited for the opportunity to explore with you in further detail my recapitalization proposal in light of other strategic alternatives you indicated are currently available to IKON. It was my expectation that this opportunity would come to fruition after our lawyers finalized a confidentiality agreement, including a standstill, after several weeks of negotiations. However, you advised me the last time we spoke that you no longer wish to enter into the confidentiality agreement at this time.

As you know, Steel Partners is one of IKON's largest shareholders and Steel's position in the Company represents one of its largest investments in a domestic public company. While I understand that there may be developments that prevent you from entering into a confidentiality agreement at this time, SteelPartners has a duty to its investors to protect its investment in IKON and would like to assist IKON in maximizing shareholder value. I believe this could be best achieved with proportionate representation on the Board. With one of my designees appointed to the Board, I believe we can add valuable expertise in assisting the Board in exploring strategic alternatives to maximize shareholder value in an amicable and productive manner. We therefore request that you consider John Quicke, a representative of Steel Partners, for appointment to the Board.

I would like to reiterate that we are committed, long-term shareholders whose priority is to work with the Board - not against it - in doing what is best for all shareholders. Please let me know when you are available to talk so I can discuss with you in further detail the background and qualifications ofMr. Quicke.

Respectfully,
Warren G. Lichtenstein

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Friday, September 14, 2007

Icahn Discloses 8.53% Stake in BEA Systems (BEAS), Seeks Sale

In a 13D filing on BEA Systems (Nasdaq: BEAS), Carl Icahn and affiliated funds disclosed an 8.53% stake in the company (33,426,069 shares includes those underlying call options). In the filing, Icahn said he believes a sale of the company to a strategic acquirer will maximize the price of the shares. Icahn seeks talks with management to discuss possibilities of a deal. Icahn also said he may seek to nominate members for election to the Board of Directors.

BEAS has long been a rumored buyout target.

From the filing:

" The Reporting Persons believe that a strategic acquirer could utilize greater resources and market presence than the Issuer to advantage the Issuer's innovative technology and thereby profit from higher revenue growth and the elimination of duplicative costs. The Reporting Persons believe consolidation in the technology industry is leading to increased competition that may place independent software vendors at a competitive disadvantage. In light of these beliefs, the Reporting Persons believe that a sale of the Issuer to a strategic acquirer will maximize the price of the Shares. The Reporting Persons intend to seek to meet with management of the Issuer to discuss the potential for such a transaction, as well as the Issuer's business and operations generally. The Reporting Persons also intend to discuss these matters with other large-holders of the Shares. The Reporting Persons also note that an annual meeting of the shareholders has not been held since July2006 and may seek to have such a meeting held and may also seek to nominate individuals for election as directors of the Issuer."

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Thursday, September 13, 2007

Pirate Capital To Media: We're Not Goldman's Global Alpha, We Only Barred Investors From Getting Their Money

Pirate Capital issued a press statement related to media reports on the status of their hedge funds. On Tuesday, Bloomberg reported the activist fund barred withdrawals from its two Jolly Roger funds as assets declined by almost 80% in the past year.

"Various media have published grossly misleading information regarding results at funds managed by Pirate Capital. Some reports have suggested that Pirate funds lost almost 80 percent of their value in the past year. In fact, while assets under management have decreased, average returns over Pirate's four funds during the last year are about plus 4 percent.

Pirate Capital remains committed to its event-driven strategy to create value for its investors."

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Riley Investment To Silicon Storage (SSTI): "Your Stock Stinks - Do Something Or We Will"

In a 13D filing this morning on Silicon Storage Technology Inc. (Nasdaq: SSTI), Riley Investment Management disclosed a 4.9% stake in the company, noting that they believe the shares are "significantly undervalued."

The firm said they hope management shares their 'sense of urgency' related to the share under performance saying, "If they do not, it will force RIM to take a more proactive approach, one which will include, among other things, the nomination of new directors."

From the filing:

"RIM believes the shares of the Issuer to be significantly undervalued. RIM believes the sum of the parts of the Issuer, including cash of $168 million, equity investments which RIM believes are worth in excess of $100 million, annual licensing revenue of over $35 million, existing NOR flash business and robust pipeline of non-commodity products are worth significantly more than the Issuer’s current market capitalization of $321 million. In fact, when one backs out cash and investments, the market is valuing SST’s NOR flash business, product pipeline and licensing revenue stream at only $60 million—which RIM believes to be an extremely low valuation by any measure. RIM has communicated this view to the Issuer’s management. Although the current options investigation seems to have clouded investors’ view of the Issuer, RIM believes that recent data points appear to be encouraging. For example a September 10th article in DIGITIMES suggests the Issuer’s capacity is fully booked and that the Issuer may have difficulty meeting demand from motherboard manufactures. The article goes on to suggest that this tight environment may persist for some time. RIM’s desire, at this point in time, is to work assiduously and aggressively with the current management team on behalf of all shareholders. RIM’s sincere hope is that management and the Board of Directors share its sense of urgency. If they do not, it will force RIM to take a more proactive approach, one which will include, among other things, the nomination of new directors."

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Wednesday, September 12, 2007

Activist Target Authentidate (ADAT) Engaged In Negotiations With a Private Company

Coghill Capital's activist target, Authentidate Holding (Nasdaq: ADAT), announced after the close that it is engaged in negotiations concerning a potential business combination between the Company and a private company.

The market just yawned at the news (stock basically flat), but this might be interesting to watch.

It is unclear if Coghill is involved in the process, but in the past the firm said it made several suggestions relating to the implementation of the company's strategic business initiatives.

Coghill Capital owns a 9.9% stake in ADAT.

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Tuesday, September 11, 2007

Ancora Capital To Support Lawndale's Capital Proposal to Expand the Mace Security (MACE) Board to Seven

In an amended 13D filing on Mace Security International Inc. (Nasdaq: MACE), 8.58% holder Ancora Capital said they intend to support Lawndale's Capital proposal to expand the Board to seven members. Ancora also acknowledged the three "highly qualified" independent individuals Lawndale proposed as board nominees.

Ancora's Richard Barone urged Mace not to oppose the expansion of the Board to seven, saying, "Opposition to this strengthening of the Board's ability to govern would not only be an additional waste of the Company resources, but would reinforce the perception that the Company’s management is concerned only with personal gain at the expense of shareholder value." Barone said shares of Mace sell at less than half of what he believes is the Company's private market value, due to lack of confidence in the current Board.

In the filing, Barone noted that the company offered to nominate him to the board, replacing Matthew Paolino, in return for his support for the Company’s proposed slate of Directors.

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Accredited Home Lenders (LEND) Holder Roth/Stark Urges Board To Continue To Pusue Remidies Under Lone Star Merger Agreement

In a 13D filing on Accredited Home Lenders Holding Co. (Nasdaq: LEND), 8.4% holders Michael A. Roth and Brian J. Stark disclosed a letter to the company urging the board of directors to continue to pursue all available remedies under the Merger Agreement in order to consummate the Offer and the other transactions contemplated by the Merger Agreement.

In the letter the firm said, "On August 30, 2007, Lone Star publicly disclosed that it had made an offer to the Accredited Board of Directors to reduce the purchase price under the Agreement from $15.10 to $8.50 in exchange for resolving the pending litigation between Lone Star and Accredited. We believe that this offer is nothing more than an attempt to divert attention from the inherent weakness in Lone Star’s litigation position under the Agreement. Based on our review of the Agreement, it is evident that Accredited endeavored to obtain, and did successfully negotiate, unambiguous terms preventing Lone Star from terminating the Agreement based upon the changes in Accredited’s operations or financial condition that have occurred since execution of the Agreement."
The firm also said, "As Accredited’s second largest shareholder, we fully support and encourage the Board to continue to make decisions consistent with the strength of Accredited’s legal position. It appears that we are certainly not alone in this assessment. Given that the trading price of Accredited’s common stock on the New York Stock Exchange has been materially in excess of $8.50 since the announcement of Lone Star’s offer on August 30, 2007, we believe the market also recognizes the weakness of Lone Star’s position and is anticipating a recovery well in excess of today’s closing price of $10.14. Given the significant number of Accredited’s shares that have changed hands over the past few trading days, any shareholder that does not agree with the strength of Accredited’s position has had ample opportunity to sell its shares at levels far exceeding Lone Star’s proposed amended price. Accordingly, we believe that the current shareholder base is strongly supportive of Accredited’s decision to enforce the Agreement’s terms and to pursue all available remedies thereunder."
A Copy of the Letter:
Attention: Board of Directors
Ladies and Gentlemen:
Stark Investments and its affiliated investment funds (collectively, “Stark”) hold approximately 8.2% of the outstanding common shares of Accredited Home Lenders Holding Co. (“Accredited”). Based upon publicly available information, Stark appears to be Accredited’s second largest shareholder. We are writing with respect to the Agreement and Plan of Merger dated June 4, 2007, as amended June 15, 2007 (the “Agreement”), with Lone Star Fund V (U.S.), L.P. and its affiliates (collectively, “Lone Star”) and the related litigation pending in the Delaware Chancery Court.
On August 30, 2007, Lone Star publicly disclosed that it had made an offer to the Accredited Board of Directors to reduce the purchase price under the Agreement from $15.10 to $8.50 in exchange for resolving the pending litigation between Lone Star and Accredited. We believe that this offer is nothing more than an attempt to divert attention from the inherent weakness in Lone Star’s litigation position under the Agreement. Based on our review of the Agreement, it is evident that Accredited endeavored to obtain, and did successfully negotiate, unambiguous terms preventing Lone Star from terminating the Agreement based upon the changes in Accredited’s operations or financial condition that have occurred since execution of the Agreement. We read the express language of the Agreement as being clear that Lone Star assumed the entire risk of a diminution of value of Accredited in the present circumstances. The fact that these terms were obtained from a seasoned and sophisticated buyer of troubled assets, which was advised by a law firm that is a recognized expert in advising parties to merger and acquisition transactions, is clear evidence of Lone Star’s unqualified desire and intent to acquire Accredited while assuming the aforementioned risk.
We are pleased that the Board of Directors recognizes the strength of Accredited’s position under the Agreement and has rejected Lone Star’s revised offer. We support this decision and offer our support to the Board of Directors as it continues to appropriately carry out its fiduciary duties, which duties, in our view, require Accredited to pursue all available remedies under the Agreement. The strong protections included in the Agreement were designed to benefit and protect Accredited and its shareholders in circumstances such as those now faced by Accredited, and should be used accordingly.
We believe that the greatest risk now faced by Accredited’s shareholders is neither the possibility of further deterioration of the non-prime residential mortgage loan market in which Accredited competes,1 nor the risk of an adverse outcome at trial. The first risk was eliminated when Lone Star signed the Agreement2 and a proper application of the facts and law by the Delaware Chancery Court should eliminate the second risk. Instead, we believe that the greatest risk facing Accredited’s shareholders is that the Board of Directors will attribute too much significance to the unlikely possibility of an adverse outcome at trial and settle for a price far removed from the value of Accredited’s existing claims against Lone Star.
After a thorough review of the Agreement, the facts in the public domain (including the prevailing market conditions at the time the Agreement was executed) and relevant case law, we believe that the Delaware Chancery Court will see this case as we see it – an experienced and sophisticated buyer (with a long history of successfully stepping into adverse industry environments, purchasing companies or assets at distressed prices and reaping significant rewards when recovery occurs)3 that is now trying to back away from a transaction and the risks it explicitly agreed to assume, when it appears to have concluded that its timing was inopportune in this instance. Moreover, Delaware courts require parties such as Lone Star to meet a heavy, and we believe insurmountable here, burden of proof when attempting to terminate obligations in reliance upon material adverse effect (“MAE”) clauses of the nature contained in the Agreement.4 When Lone Star agreed to acquire Accredited, it did so after a long due diligence exercise and a multi-bidder process that Accredited detailed in its Schedule 14D-9, filed with the Securities and Exchange Commission on June 19, 2007. There can be little question that Lone Star was aware prior to signing the Agreement of the impact already being felt by Accredited as a result of existing and ongoing adverse market conditions.5
As Accredited’s second largest shareholder, we fully support and encourage the Board to continue to make decisions consistent with the strength of Accredited’s legal position. It appears that we are certainly not alone in this assessment. Given that the trading price of Accredited’s common stock on the New York Stock Exchange has been materially in excess of $8.50 since the announcement of Lone Star’s offer on August 30, 2007, we believe the market also recognizes the weakness of Lone Star’s position and is anticipating a recovery well in excess of today’s closing price of $10.14. Given the significant number of Accredited’s shares that have changed hands over the past few trading days, any shareholder that does not agree with the strength of Accredited’s position has had ample opportunity to sell its shares at levels far exceeding Lone Star’s proposed amended price. Accordingly, we believe that the current shareholder base is strongly supportive of Accredited’s decision to enforce the Agreement’s terms and to pursue all available remedies thereunder.
Please note that we currently expect to include a copy of this letter with the Schedule 13D filing that we plan to make next week. We are available to discuss these matters with you at your convenience.
Very truly yours,
STARK INVESTMENTS
Brian J. Stark
Principal

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