Catalyst Investment Research for AVGN - Complimentary Copy

Hedge Fund Solutions recently announced the launch of a new investment research product dedicated to uncovering undervalued publicly traded companies that could have the potential to generate outsized returns due to an activist investor's involvement.

Download a complimentary copy of the recently published Catalyst Investment Research(TM) analysis for Avigen, Inc. (Ticker: AVGN).

This research identifies companies where activist investors have taken sizable investment positions and are pressing management to unlock value.


For additional information about subscribing to receive a minimum of two research reports monthly, email research@hedgerelations.com.

Posted by Damien Park, President & CEO Hedge fund Solutions LLC

SRZ Issues Winter 2009 Activist Investing Developments

Schulte Roth & Zabel recently issued the winter edition of their activist investing newsletter.
Topics covered in this issue include:

Second Generation of Advance Notification Bylaws (review this topic)
Many companies, at the urging of counsel “defending” against activist investors, have adopted new forms of ANBs, or Second Generation ANBs, that demand far more extensive disclosure from, and in some cases purport to establish eligibility qualifications for, proponent shareholders. These ANBs have been expanded to include not only longer advance notice requirements, but also requirements for the completion of company-drafted director nominee questionnaires, submission of broad undertakings by nominees to comply with company “policies,” minimum size and/or duration of holding requirements, continuous disclosure of derivative positions, disclosure of otherwise confidential compensation information, and even information regarding shareholders with whom the proponent has merely had conversations regarding the company.

Proxy Contest Settlement Agreements: An Overview (review this topic)
Although intense proxy contests are what attract attention in activist situations, most potential contests are resolved in advance of a fight through settlement agreements. Settling a potential contest allows both the activist investor and the company to avoid significant drains on their resources—both time and money—while at the same time providing additional mutual benefits.

Swaps and Section 16: Reporting and Liability Issues (review this topic)
Total return, cash-settled equity swaps, or “TRSs,” have been used by activist investors to build their economic exposure in target companies in addition to, or in lieu of, taking a direct ownership stake in the target. The use of these derivatives can give rise to complex issues for activists who find themselves subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Where the potential for becoming a Section 16 insider exists, investors should understand how their TRS positions and the complexity of these instruments can impact their reporting obligations under Section 16(a), along with their potential for Section 16(b) profit disgorgement liability, lest they stumble into reporting delinquencies and/or liability exposure.

Click here to download the entire Publication.

Marc Weingarten, a Partner with SRZ and an expert on activist investing, is one of our Blog & Tacklers.

Takeover Preparedness and the New Hostile M&A Environment

Eduardo Gallardo and Matthew Walsh from Gibson, Dunn & Crutcher have issued a client memo which discusses the recent increase in hostile takeover activity and what companies should do about it.

Here are a few salient points from the article:

• Depressed stock prices coupled with companies flush with cash - particularly in the technology and pharmaceutical sectors - have made companies more vulnerable to hostile overtures.

• In 2008 there were 17 large-cap hostile takeover attempts of U.S. targets, compared to only 5 in 2007. As of the end of February 2009, hostile takeover accounted for over 38% of 2009 publicly announced M&A deals.

• Mid cap companies are not immune to unsolicited bids, which are coming from both strategic and financial players.

• At the same time that companies are facing an acceleration in hostile activity, activist investors have become a fixture of the corporate landscape.

• In the last few months, spin offs, share buyback programs and detailed proposals to improve operational efficiency and review business plans are among the alternatives to outright sales that have gained increasing favor among activists.

In light of these recent trends, public companies and their boards can take a number of practical steps to better prepare for, and respond to, a hostile bid or activists campaign.

These include:

1. Keep the Board Engaged and Informed.
2. Revisit the Company's Defensive Profile.
3. Explore Implementing an "On the Self" Shareholder Rights Plan
4. Review Advance Notice Bylaws
5. Know Your Shareholder Base
   

To read the entire client memo Click Here

Posted by Damien Park, Hedge Fund Solutions

Hedge Fund Solutions Launches New Activist Investing Research

Hedge Fund Solutions, LLC recently launched an investment research product dedicated to uncovering undervalued publicly traded companies that could have the potential to generate outsized returns due to an activist investor's involvement.

Download a complimentary copy of the recently published Catalyst Investment Research(TM) analysis for Tier Technologies Inc (Ticker: TIER).

This research identifies companies where activist investors have taken sizeable investment positions and are pressing management to unlock value.

In each case, the research will strive to provide readers with: (1) the activist's investment thesis and analysis, (2) the activist's track record for improving value in targeted companies, (3) the likelihood that the activist investor will achieve their goals in this circumstance, and (4) an in-depth analysis of the company's financial health irrespective of the activist's involvement.

For additional information about the subscription-based product email research@hedgerelations.com.

Posted by Damien Park, President & CEO Hedge fund Solutions LLC

February's Activist Investments - 59 Companies Targeted

Below is a summary list of 59 investments made by shareholder activists during February. As a comparison, we analyzed 87 companies last February.

This information was extracted from Hedge Fund Solutions' Catalyst Equity Research Report (TM), a free in-depth weekly research on activist investments.

Click Here to subscribe to the FREE report.

Ticker	Company	Investor
AANB	Abigail Adams National Bancorp	P.S. D'Iberville Limited Partnership
ABVA	Alliance Bankshares	Frank Williams
ADLS	Advanced Life Sciences Holdings	Groundworks of Palm Beach County
AHNA.PK	ATC Healthcare Inc	Roaring Fork Capital
AMLN	Amylin Pharmaceuticals	Carl Icahn
APAC	APAC Customer Service	Ronald Chez
APPA	AP Pharma	Tang Capital
ATML	Atmel Corp.	Microchip
ATSG	Air Transport Services Group	Red Mountain Capital
AVCA	Advocat Inc.	Bristol Investment Fund
BARI	Bancorp Rhode Island	Financial Edge Fund
BGP	Borders Group Inc.	Pershing Square Capital Management
BIIB	Biogen Idec Inc.	Carl Icahn
BVF	Biovail Corp	Eugene Melnyk
BWC.TO	Bridgewater Systems	Crescendo Partners
CAMD	California Microdevices	Dialectic Capital Management
CAV	Cavalier Homes Inc	Legacy Housing
CBNJ	Cape Bancorp Inc	Patriot Financial
CHE	Chemed Corp	MMI Investors
CHG	CH Energy Group	Gamco Investors
CLHI.PK	CLST Holdings	Red Oak Partners
CVG	Convergys Corporation	Jana Partners
DIN	DineEquity, Inc	MSD Capital
DITC	Ditech Networks	Lamassu Holdings
DPS	Dr. Pepper Snapple Group	Trian Fund
ENZN	Enzon Pharmaceuticals inc.	DellaCamera Capital Management
EPIC	Epicor Software Corp	Elliott Associaes
ESHB.PK	Earl Schieb	Lawndale Capital
GET	Gaylord Entertainment Co	Gamco Investors
GSLA	GS Financial Corp.	Riggs Qualified Partners
IPAS	iPass Inc	Foxhill Opportunity Master Fund
KFS	Kingsway Financial Sevices	Joseph Stilwell
LCAV	LCA-Vision	Eduardo Baviera Sabater
LGF	Lions Gate Entertainment Corp	Carl Icahn
MEDW	Mediware Information Systems	Cannell Capital
MIM	MI Developments	Greenlight Capital; Farallon Capital
MIPI	Molecular Insight Pharmaceuticals	David Barlow
MSPD	Mindspeed Technologies	AIGH Investment Partners
OFIX	Orthofix International	Venner Capital
OPTV	OpenTV Corp	Kudelski SA
ORCC	Online Resources Group	Tennenbaum Capital Partners
ORNG	Orange 21	Costa Brava
PMRY	Pomeroy IT Solutions	David Pomeroy
PRSC	Providence Sevice Corp	73114 Investments
RLH	Red Lion Hotels Corp	Columbia Pacific Opportunity Fund
SNG	Canadian Superior Energy	Palo Alto Investors
SNR	Sunair Services	Dru Schmitt
SSE	Southern Connecticut Bancorp	Lawrence Seidman
TDS	Telephone & Data Systems	Gamco Investors; Southeastern Asset Management
TEAM	TechTeam Global	Costa Brava; Emancipation Capital
TECUA	Tecumseh Products	Herrick Foundation
TLGD	Tollgrade Communications of PA	Ramius Capital
TLX	Trans Lux Corp	Gamco Investors
TUC	Mac-Gray Corp	Fairview Capital Investment
TUTR	Plato Learning	Stephen Becker
VNDA	Vanda Pharmaceuticals	Tang Capital
WEDC	White Electronic Designs Corp	Wynnefield Partners
WOC	Wilshire Enterprises	Bulldog Investors

Study Shows Good Corporate Governance Improves Value

A forthcoming paper published this month in The Review of Financial Studies from an academic and agitator for improved corporate governance appears to add some empirical evidence to the intuition that better governance leads to more value. Lucian Bebchuk of Harvard Law School and two colleagues construct a measure of executive entrenchment, and conclude that more entrenched management reduces equity returns by as much as 7% per year. The paper builds on previous work that addresses a critical question: investors have long had a strong hunch that "good governance" makes sense. Yet, these same investors have struggled to connect the range of activist efforts to improve governance to tangible financial results.

Bebchuk and his colleagues start with a laundry list of 24 governance provisions that others have connected to equity returns. They narrow this down to six that appear to have the most impact: classified or staggered boards, golden parachutes, poison pills, and supermajority voting requirements on mergers, charter amendments, and bylaw amendments. While some of the other of the 24 provisions also protect management, these six "appear to provide incumbents at least nominally with protection from removal or the consequences of removal," which they call entrenchment. They construct a simple index of entrenchment, called the "E index", and companies that adopt more of these provisions have a higher score. They are quite proud of the E index, noting that "more than 75 papers have already used our E index in their analysis." Through numerous regression analyses that control for a range of other factors, they conclude that companies with the highest score (most entrenched) deliver equity returns around 7% lower annually than firms with the lowest score.

The authors also have some unflattering comments about others that create and use governance scores, such as ISS and even debt rating agencies like Standard & Poor's and Moody's. These firms uses indexes "based on a massive number of governance attributes." ISS uses a metric based on 61 elements, while Governance Metric International uses one with over 600 elements. The study authors call this appraoch "misguided" and an "attempt to count all the trees in the governance forest."

The paper is available here.

Posted by Michael Levin, Hedge Fund Solutions LLC. Contact Michael at mlevin@hedgerelations.com.

Go out & play Defense!

The rummage sale level of stock prices has produced an uptick in hostile takeover activity - and in the fear of unwanted suitors - according to the March 2009 issue of Mergers & Acquisitions magazine. As might be expected, there’s a step-up in defensive play among CEOs, boards and investor relations people:

Until last year, the activist investor community had seemingly convinced companies that shareholders rights plans and the cherished poison pill were against the best interest of shareholders. However, as hostile activity seems to be ramping up, management teams are returning to more aggressive defense strategies.

(Poison pill defenses, for example, surged in late 2008 after several years in decline. According to FactSet Sharkrepellent, December saw 28 poison pill adoptions, the most in any month since 2001. Full-year 2008 adoptions of 127 poison pills were the most since 2002, FactSet says.)

M&A writer Avram Davis notes that lawyers often are the key players on defense. They encourage measures like language in bylaws to require advance notice of proposals for shareholder meetings, safeguards against activists’ calling their own meetings, and systems for tracking flow of confidential information to prevent its use against the company.

Another defensive strategy goes to the heart of investor relations:

Perhaps the easiest protection against hostile takeover attempts is among the least practiced - shareholder communications.

Joseph L. Johnson III, chair of the M&A and corporate governance practice at Goodwin & Procter LLP, tells M&A many companies have gotten out of the habit of meeting regularly with shareholders. Johnson (no relation) says this is dangerous, because you can be sure a hostile bidder will be actively reaching out to your investor base.

‘I’ve been telling people for years, it’s like you’re running for Congress,’ says Johnson. ‘You need to get out there and press the flesh.’

Staying in close touch with investors is essential. And going out to address concerns and explain the business strategy is the best way to communicate that management is serious about creating value.

Posted by Dick Johnson, [a regular Blog & Tackler] President Johnson Strategic Communications and the author of the investor relations blog IR Cafe.