Large IKON (IKN) Holder Steel Partners II Recommends Recapitalization Through $850M Self Tender Offer

In an amended 13D filing on IKON Office Solutions Inc. (NYSE: IKN), 9.95% holder Steel Partners II delivered a letter to the company recommending that the company capitalize on its operating momentum and utilize the strength of its balance sheet to pursue a public recapitalization through a self tender for at least $850 million of the Shares at a recommended price of $17.50 per Share. Steel Partners II also states in the letter that if the company is unwilling to pursue a recapitalization at this time, it recommends that the company take all immediate steps necessary to fully explore other strategic alternatives for maximizing shareholder value, including an outright sale.

A Copy of the Letter:

Dear Matthew: (CEO)

I appreciate the opportunity to have had several candid and open discussions with you and Bob over the last few months. As you know, Steel Partners II, L.P. ("Steel") is the third largest shareholder of IKON Office Solutions, Inc. ("IKON" or the "Company"). We beneficially own 12,456,300 shares, or approximately 10% of the outstanding common stock of the Company. We began investing in the Company over three years ago because we believed and continue to believe that the Company is a true leader in the document management and solutions industry, which has the potential to greatly improve profitability.

We commend management for its efforts that have resulted in improved operating margins and a simplified capital structure. We also recognize and commend the Company for expanding the Company's existing share repurchase program. However, we believe that the Company's common stock continues to trade below its intrinsic value and your balance sheet remains highly inefficient. We therefore recommend that the Company capitalize on its operating momentum and utilize the strength of its balance sheet to pursue a public recapitalization at $17.50 a share. This represents a 20% premium to the 20-day closing average of the shares.

With the Company's excess cash and a conservative debt financing package, the Company should be in a position to self tender for at least $850 million of common stock, or approximately 39% of its outstanding shares at the aforementioned price per share. Based on our discussions with several leading investment banks, we believe this refinancing is highly achievable in a short period of time.

The proposed recapitalization would provide immediate liquidity at a meaningful premium to the current share price for your shareholders who elect to tender. We believe it will be well received by the shareholders who desire liquidity. It would also be accretive immediately, and more so in the long term. As a long term shareholder, Steel would commit not to tender into this offer. Importantly, in addition to lowering the Company's cost of capital and enhancing its EPS growth, this recapitalization would result in a strong and flexible balance sheet that would support the Company's long term strategic vision.

We have enclosed for your review a brief summary of the proposed transaction which includes an estimate of IKON's EPS and implied share prices at various valuations with and without a recapitalization. Clearly, if management believes it will achieve its business plan, shareholders will be significantly better off if the Company changes its capital structure and executes the recapitalization.

If the Company is unwilling to pursue a recapitalization now, we strongly recommend that IKON and its Board take all immediate steps necessary to fully explore other strategic alternatives for maximizing shareholder value. In particular, we believe the Company is ideally situated for an outright sale and that a sale process could result in the Company receiving offers from financial and strategic buyers at a premium to the current market price. Steel anticipates it would participate in any such sale process. Based upon substantive discussions with financing partners, Steel believes that it could obtain all necessary financing commitments within a very short period of time.

We look forward to continuing discussions with you and the other members of the Board on enhancing shareholder value. We trust that the best interests of all shareholders will continue to remain of paramount importance.

Respectfully,
Warren G. Lichtenstein

Roumell Asset Management Discloses 8.3% Stake in KVH Industries (KVHI), Urges Buyback

In a 13D filing after the close on KVH Industries Inc. (Nasdaq: KVHI), Roumell Asset Management disclosed an 8.31% stake (1,246,000 shares) and disclosed a letter to the company urging the company to buyback shares at the current level.

The firm said, "We respectively urge the Board to seriously weigh any acquisition idea against the very compelling investment opportunity presented by buying back KVH stock at current levels. To wit, we note the following valuation metrics: 40%+ of market capitalization is represented by cash; the enterprise value to sales ratio is less than 1x; and free-cash flow is positive while overall commercial business continues to improve and new defense programs provide reason for optimism. In our view, KVHI common stock is a compelling investment that would be hard to duplicate."

A Copy of the Letter:

Attention:Arent H. Kits van Heyningen, Chairman of the Board
Martin A. Kits van Heyningen, Chief Executive Officer

We currently own 1,246,000 shares of KVH Industries, Inc. stock, or roughly 8.3%of outstanding shares. We are impressed with the company's history of technology innovation, its multiple commercial end-market opportunities as well as its defense business, particularly with the emergence of remote controlled weapons systems. The company has long been conservatively managed; and we appreciate that aspect of its history as well.

Although truly strategic opportunities should not be overlooked, it would behard for us to imagine a more compelling acquisition opportunity than repurchasing KVHI stock at a price below $10/share. Given the menu of commercial products (serving the marine, RV and automobile markets), and the emergence of new applications for the company's gyroscopes because of the CROWS program and others like it, we feel the company's plate is full and that the opportunities for organic growth are plentiful.

We respectively urge the Board to seriously weigh any acquisition idea against the very compelling investment opportunity presented by buying back KVH stock at current levels. To wit, we note the following valuation metrics: 40%+ of market capitalization is represented by cash; the enterprise value to sales ratio is less than 1x; and free-cash flow is positive while overall commercial business continues to improve and new defense programs provide reason for optimism. In our view, KVHI common stock is a compelling investment that would be hard to duplicate.

Sincerely,
James C. Roumell

Roumell Asset Management, LLC

Sandell Asset Mngmt Discloses 5% Stake in Fair Isaac (FIC); Requests Sale, Split-Up or Leverage Recap

In a 13D filing on Fair Isaac Corporation (NYSE: FIC), Sandell Asset Management disclosed a 5% stake (2,874,000 shares) in the company and a letter to the CEO expressing support for his efforts to improve the Issuer's performance but cautioning that operational turnarounds can be fraught with risk and are sometimes better attempted as a part of a larger organization or in a private ownership context. Further, SAMC urged the Board of Directors to (i) closely monitor the progress of the turnaround and hold management to clearly defined milestones in a reasonable timeframe, (ii) immediately engage a financial advisor to review the Issuer's strategic alternatives and (iii) continue to aggressively repurchase shares at the current depressed valuation level.

From the Letter:

It has become clear to us that the board made the strategic decision at some point earlier in the year to forego opportunities to sell the company to either strategic or financial buyers, instead choosing to hire a new CEO to turn the company around operationally as a public company. In our experience, extensive corporate turnarounds are fraught with risk, and we feel strongly that such actions may best be undertaken as a part of a larger organization or in a private ownership context. You and your team appear to have a plan to improve results and we expect that the board will monitor the progress of a turnaround closely by establishing concrete benchmarks and milestones (such as specific revenue growth and margin goals) for management within a well-defined and reasonable timeframe. In the event that management does not achieve these goals and value is not being created, we feel strongly that the board should initiate a process to sell the company in whole or in part. We caution the board against allowing too much time to pass before taking action if the company's financial performance does not improve, and suggest that the company actively evaluate its alternatives in the meantime. Specifically, we recommend that the board engage a financial advisor to study the following in order to determine which alternatives represent the best risk/reward versus the status quo for shareholders:

1. A sale of Fair Isaac in its entirety to a strategic or financial buyer
2. A separation and sale of the scoring, strategy machines and analytics software divisions
3. A leveraged recapitalization as a public company

A Copy of the Letter:

Dear Mark,

Thank you for taking the time to meet with our team at your InterACT conference in San Francisco. As you are aware, Sandell Asset Management Corp. and certain funds managed by it, are the beneficial owner of 5.0% of Fair Isaac's ("FIC")common stock. As such, our interests in maximizing the value of the company's assets should be aligned with both management and the board.

We were encouraged by management's plan to improve operating and financial results as outlined in your presentation and statements during the meeting and we support your efforts to bridge the clear disconnect between the quality of the company's products and its financial performance. However, we recognize that there is a lot of work to be done, and our fear is that, given prior management's abject failure at maximizing the value of the company's valuable assets, under performance may have become endemic at Fair Isaac and that more dramatic steps may be necessary.

It has become clear to us that the board made the strategic decision at some point earlier in the year to forego opportunities to sell the company to either strategic or financial buyers, instead choosing to hire a new CEO to turn the company around operationally as a public company. In our experience, extensive corporate turnarounds are fraught with risk, and we feel strongly that such actions may best be undertaken as a part of a larger organization or in a private ownership context. You and your team appear to have a plan to improve results and we expect that the board will monitor the progress of a turnaround closely by establishing concrete benchmarks and milestones (such as specific revenue growth and margin goals) for management within a well-defined and reasonable timeframe. In the event that management does not achieve these goals and value is not being created, we feel strongly that the board should initiate a process to sell the company in whole or in part. We caution the board against allowing too much time to pass before taking action if the company's financial performance does not improve, and suggest that the company actively evaluate it salternatives in the meantime. Specifically, we recommend that the board engage a financial advisor to study the following in order to determine which alternatives represent the best risk/reward versus the status quo for shareholders:

1. A sale of Fair Isaac in its entirety to a strategic or financial buyer
2. A separation and sale of the scoring, strategy machines and analytics software divisions
3. A leveraged recapitalization as a public company

While the operational turnaround is in process, there is no reason for the board not to be open to incoming expressions of interest from potential buyers or their financial advisors.

We also encourage the company to be aggressive in its existing stock repurchase program and extend that program as appropriate. Our research indicates that continued buybacks would be accretive and we think a reasonable amount of leverage is appropriate based on the cash flow strength of the company's businesses.

As a significant FIC shareholder, we are hopeful that you will be successful in your efforts and that growth and consistent profitability will return to FairIsaac. That hope is tempered by the company's poor history over the last five years of creating value, a tradition continued with the recently released results that reported revenue and margin pressures in essentially all of the company's segments, including disappointing guidance for revenue declines and significantly reduced earnings.

Consistent with our own duties to our investors, if we feel that the company is not gaining positive traction or that the board is unduly resistant to approaches by potential buyers, we will seek changes for the benefit of all shareholders.

We look forward to continued discussion on enhancing value at Fair Isaac and can be reached at 212-603-xxxx at your convenience.

Sincerely,
Thomas E. Sandell
Chief Executive Officer
Sandell Asset Management

Barington Capital Discloses 3.2% Stake in Dillard's (DDS); Requests Meeting with Management

Barington Capital Group discloses a 3.2% stake in Dillard's, Inc. (NYSE: DDS) and a letter to the CEO requesting a meeting with Mr. Dillard and members of his management team to discuss measures which Barington believes will maximize shareholder value for the benefit of all of the Company's stockholders.




A Copy of the Letter:



" Barington Capital Group, L.P. represents a group of investors that owns over 3.2% of the outstanding common stock of Dillard's, Inc. We have invested in Dillard\'s, whose shares we believe are undervalued, as we are convinced that we can assist the Company in dramatically improving shareholder value.

As we have not been able to reach you by telephone, we are writing to request to meet with you and members of your management team. We would like to discuss a number of measures that we believe will increase the Company's profitability to levels achieved by its peers and better utilize the Company's substantial asset base. These include initiatives that would augment the Company's existing operating strategy in areas such as merchandising, inventory management and cost containment, as well as measures to unlock the value of the Company's real estate portfolio.

We have substantial experience helping improve shareholder value as an investor in a number of retail, apparel and footwear companies including Syms, Warnaco, Pep Boys, Stride Rite, Steven Madden, Payless ShoeSource, Nautica and Maxwell Shoe. We hope that we can work together with you to maximize shareholder value at Dillard's."

Sageview Capital - Batting One Thousand

This morning, a stock on our activist list, Guitar Center (Nasdaq: GTRC), announced they would be acquired by private equity firm Bain Capital for $63 per share, a 26% premium to yesterday's close.

In September of 2006 we noted that newcomer Sageview Capital, founded by former KKR stars Ned Gilhuly and Scott Stuart, had built a 6.46% stake in the company.

Sageview had a cost basis of around $39.70 per share, indicating a potential profit of 59%. Not bad for your first investment!

The only other stock Sageview held at the quarter ended March 31, 2007 was Invitrogen Corp. (Nasdaq: IVGN), 920,986 shares.

Mercury Real Estate Advisors Discloses 9.4% Stake in Sonesta (SNSTA), Applauds Move To Explore Strategic Options

In a 13D filing on Sonesta International Hotels Corp. (Nasdaq: SNSTA), Mercury Real Estate Advisors LLC disclosed a 9.4% stake in the company and noted they changed their filing status from 13G to 13D. The firm also disclosed a letter to Sonesta applauding the company move to hire Goldman Sachs to explore strategic options.

From the Letter, "We applaud your decision to undertake this strategic review, as it has been clear to us for some time that the Company’s diminutive size, controlling family ownership and consequent share illiquidity make Sonesta ill-suited to be a publicly traded company. Our belief was compounded by the recent closure of the Sonesta Key Biscayne Hotel in anticipation of its redevelopment as a luxury condominium project. While the transaction made sound business sense, it substantially reduced the Company’s already small revenue base. Overall, it is not efficient for a company with a $115 million equity capitalization to try to incur the sizeable legal, accounting, regulatory costs that are borne by a public company, all of which are even more burdensome under Sarbanes-Oxley."

A Copy of the Letter:

Dear Directors:

Mercury Real Estate Advisors LLC (“Mercury”), together with its managed investment funds, is the largest independent shareholder of Sonesta International Hotels Corporation (“Sonesta” or the “Company”), owning a reported stake of 9.4% in the Company. As you are aware, we have been a long term and supportive shareholder of the Company. We are writing in response to the Company’s announcement on June 4, 2007 that it had hired Goldman, Sachs & Co. to assist it in a review of strategic options available to the Company to enhance shareholder value.

We applaud your decision to undertake this strategic review, as it has been clear to us for some time that the Company’s diminutive size, controlling family ownership and consequent share illiquidity make Sonesta ill-suited to be a publicly traded company. Our belief was compounded by the recent closure of the Sonesta Key Biscayne Hotel in anticipation of its redevelopment as a luxury condominium project. While the transaction made sound business sense, it substantially reduced the Company’s already small revenue base. Overall, it is not efficient for a company with a $115 million equity capitalization to try to incur the sizeable legal, accounting, regulatory costs that are borne by a public company, all of which are even more burdensome under Sarbanes-Oxley.

We further believe that the Company’s attractive assets are not appropriately valued in a public market obsessed with quarterly earnings. With modest net debt associated with the well-located 400 room Royal Sonesta Hotel Boston (Cambridge) and the significant value imbedded in the unique Key Biscayne property (the land is conservatively valued at $160 million and significant development profits are yet to be reaped), we believe that the intrinsic value of Sonesta is dramatically in excess of the current public market value.

Another reason for pursuing strategic alternatives is the unique market opportunity created by a growing number of investors interested in purchasing real estate assets, especially hotel assets. The dramatic growth of the private equity real estate funds, in particular, has spawned a number of public real estate mergers and acquisitions over the last two years, including ten completed or pending transactions in the United States hospitality business alone, according to SNL Financial. These acquisitions include La Quinta Corporation, MeriStar Hospitality, Boykin Lodging, Jameson Inns, Four Seasons Hotels, Winston Hotels, Innkeepers USA Trust, Highland Hospitality, Eagle Hospitality and most recently Equity Inns.

Given the Company’s undervalued share price, the impracticalities associated with being a public company and the intense interest among investors in companies like Sonesta, it is very timely that the Company explores strategic options, including either selling its assets or soliciting a buyout offer. A recent article in the Wall Street Journal on June 21, 2007 entitled “Hotel Buying Frenzy Intensifies” highlighted the extremely strong demand for hotel assets from private-investment companies, with one of the demand drivers being that “hotel yields in the form of capitalization rates - the return on investment in the first year of ownership - are still relatively high compared with their other commercial real estate cousins.” These attractive relative yields are piquing the interest of many real estate private-investment companies that are flush with cash and actively seeking investment opportunities.

The study of strategic options in a family-run and family-controlled business does, however, warrant several important considerations. Sonesta is a company with seven of 11 executive officers belonging to the extended Sonnabend family, four of nine directors belonging to the extended Sonnabend family and 39.2% of the Company’s common stock owned by Sonnabend family executives or directors. We have also been advised that certain Sonnabend family members not serving as executive officers or directors also own a substantial percentage of the common stock, giving the entire Sonnabend family majority ownership of the Company. Given these facts, it is obvious that certain protective mechanisms must be instituted by the independent members of the Board of Directors to insure the integrity of the strategic process and protect the interests of minority shareholders. Unfortunately, we have seen far too many circumstances where similarly situated companies are the subject of a controlling family’s attempt to take such company private at a price that does not reflect the company’s intrinsic value.

We would strongly advise the independent members of the Board of Directors to institute in advance procedures to accomplish the following:

1. Gauge whether there is any potential family interest in taking the Company private. If so, the independent directors should immediately form a committee that hires independent legal and investment banking counsel.

2. Require that any interested party offer be subject to the approval of a majority of non-Sonnabend family shareholders

3. Resist any breakup fee or other restrictions that would chill the interest of third parties.

The independent members of the Board of Directors would appear to have the business standing and professional expertise to be completely attuned to these issues and their overall fiduciary duties. Nonetheless, out of an abundance of caution, we respectfully submit these suggestions. We will be following the progress of the strategic review with intense interest and anticipate a professional process with an economically fair and market driven outcome.

We would appreciate the opportunity to discuss these matters with the independent members of the Board of Directors as soon as possible.

Very truly yours,
David R. Jarvis
Chief Executive Officer
Malcolm F. MacLean IV
President

RLR Capital to 1-800-Flowers.com (FLWS): "I Love You"

In a 13D filing this morning on 1-800-Flowers.com Inc. (Nasdaq: FLWS), RLR Capital Partners disclosed a 5.1% stake (1,307,000 shares) and a letter expressing their current support for the company's management and the initiatives management has undertaken.

In the letter the firm said, "We have been impressed by the successful launch, highly profitable growth and market positioning of BloomNet, your wire service business. We believe that your acquisition of Fannie May Confections last year is truly a transformative deal and are excited by the strength of the brand, the management team and the manufacturing footprint that come with it. Further, we see Fannie May as a strong complement to your other Gourmet Food and Gift Baskets brands and know that you are in the early innings of leveraging the online sales and marketing expertise honed at your consumer floral business across all of the Gourmet Food and Gift Baskets brands. We are encouraged by your extensive enterprise-wide cost-cutting initiatives and the prospects for resultant higher margin growth.Lastly, we are supportive of your efforts to re-examine the Home and Children's Group segment, given its lower margin, lower growth profile."

A Copy of the Letter:

Dear Jim: (CEO)

Over the past year, my colleagues and I have had the opportunity to meet with you and other members of your management team on numerous occasions. During this time, we have gained an increasing appreciation for the significant value that you are creating by transforming the business and for the increased transparency that you have provided investors. We have grown our position accordingly and, as of June 22, 2007, RLR Capital Partners, LP and RLR Focus Master Fund, LP,beneficially own 1,307,000 Class A shares of 1-800-Flowers.com, Inc. in the aggregate, which represents approximately 5.1% of the outstanding Class A shares.

We have been impressed by the successful launch, highly profitable growth and market positioning of BloomNet, your wire service business. We believe that your acquisition of Fannie May Confections last year is truly a transformative deal and are excited by the strength of the brand, the management team and the manufacturing footprint that come with it. Further, we see Fannie May as a strong complement to your other Gourmet Food and Gift Baskets brands and know that you are in the early innings of leveraging the online sales and marketing expertise honed at your consumer floral business across all of the Gourmet Food and Gift Baskets brands. We are encouraged by your extensive enterprise-wide cost-cutting initiatives and the prospects for resultant higher margin growth.Lastly, we are supportive of your efforts to re-examine the Home and Children'sGroup segment, given its lower margin, lower growth profile.

We are appreciative of the time that you and your team have spent talking with us about the business and look forward to continuing our dialogue. As your free cash flow builds over the coming months and years, you will have capital structure and allocation opportunities. We remain confident that you will continue to pursue those opportunities which will most greatly enhance shareholder value.

We look forward to meeting with you again soon.

Very truly yours,
Robert L. Rosen

Richard Breeden Turns His Attention to H&R Block (HRB)

Breeden Capital will nominate three candidates for election to the Board of Directors of H&R Block Inc. (NYSE: HRB) at the company's 2007 annual meeting. The 2007 annual meeting is scheduled for September 6, 2007.

Richard Breeden, Chairman and Chief Executive Officer of Breeden Capital Management LLC, will seek election to the H&R Block board, along with two other individuals to be announced by Breeden Partners later this week.

Mr. Breeden said, "While H&R Block is widely known for its market-leading tax preparation services, its efforts to diversify into activities including subprime mortgage lending, securities brokerage and banking have resulted in substantial lost shareholder value. H&R Block's stock has significantly underperformed the S&P 500 Index for the five years ended June 15, 2007. As shareholders, we believe that five years is long enough to wait for H&R Block to achieve attractive returns for shareholders. This board needs fresh perspectives and new energy, which we intend to supply, to tackle the company's problems."

Breeden Capital, run by former SEC-chief Richard Breeden, recently targeted Applebee's (Nasdaq: APPB), winning a board seat and pushing for a strategic review, which the company said has yielded several non-binding, preliminary proposals to acquire the company.

Other stocks in Breeden portfolio are ACCO Brands Corporation (NYSE: ABD), Alexander & Baldwin Inc. (Nasdaq: ALEX), Applebee's (Nasdaq: APPB), Bausch & Lomb Inc. (NYSE: BOL), Helmerich & Payne (NYSE: HP), Hillenbrand Industries (NYSE: HB), Steris Corp. (NYSE: STE), and Warnaco Group (Nasdaq: WRNC).

Clinton Group Discloses 5% Stake in HealthSpring (HS); Proposes Leveraged Recap and a Dutch Tender Offer

In a 13D filing on HealthSpring (NYSE: HS) this morning, Clinton Group disclosed a 5.05% stake (2,893,404 shares) in the company and a letter to the company suggesting they undertake a leveraged recapitalization and a Dutch tender offer. The firm sent a follow-up letter noting that they have not heard back from the CEO regarding its proposal.

From the Filing:

"On June 15, 2007, CGI sent a letter to the Issuer's Chairman and CEO, Mr. Herbert A. Fritch, expressing its support of the Issuer's management team and its view of the Issuer as an attractive long-term investment. The letter noted that the Issuer's stock price has retreated to levels below that of the Issuer's initial public offering in February 2006 and, in CGI's opinion, is undervalued. CGI suggested that the Issuer consider undertaking a leveraged recapitalization and a Dutch tender offer in the range of $22.00 to $23.00 per share for approximately 30% of the outstanding shares in order to better optimize the Issuer's balance sheet and to take advantage of the appealing debt financing markets in an accretive transaction. Further, CGI offered itself as a sounding board for the Issuer's management team in discussing value maximization opportunities, including a potential privatization in which CGI would participate. A copy of this letter is attached hereto as Exhibit B and incorporated herein by reference.

On June 26, 2007, CGI sent a letter to the Issuer's Board of Directors (the "Board") to notify the Board that since CGI had not heard back from Mr. Fritch regarding its proposal to increase shareholder value, CGI deemed it appropriate to forward the June 15, 2007 letter to the Board's attention. A copy of this letter is attached hereto as Exhibit C and incorporated herein by reference."

Copy of First Letter 6/15/2007:

Dear Mr. Fritch: (CEO)

As one of the largest investors of HealthSpring, Inc. (the "Company" or"HealthSpring") and given the recent performance in the stock price, we thought it would be appropriate to detail to you our ideas with regards to the financial structure of the Company. We are very supportive of your management team and view HealthSpring as an attractive long-term investment. We hope you find this constructive and would welcome any follow-up discussions with you and your team.

UNDERPERFORMANCE SINCE IPO

As a result of the earnings guidance revision, the Company's stock price has retreated to levels below the price of $19.50 per share pursuant to the Company's initial public offering in February 2006. As a comparison, the S&P 500Index and Dow Jones Industrial Average have increased 20% and 25%, respectively,since February 2006. Furthermore, the strong cash generation of your business over the past five quarters SHOULD HAVE increased your market value of equity.

VALUATION

Based on a current stock price today of approximately $19.00, the implied valuation multiples are as follows:

TABLE

Clearly, there is a disconnect in the Street's valuation of the Company, and the earnings revision with regards to medical loss ratios have caused a deterioration in shareholder's confidence in the execution capabilities of management. As a comparison, the forward 2006 PE multiple at the pricing of the IPO was 19.5x. Furthermore, we share management's view that your business specialized in Medicare Advantage - HMO products is more defensible than other companies focused on managed Medicare, and could argue that a premium multiple to comparable companies' implied valuations may be warranted.

LEVERAGED RECAPITALIZATION AND DUTCH TENDER

We believe that you and your management team share our view of the Company's under-valuation relative to its growth prospects going forward. At this point,given the current stock price, we believe that it is in the best interest of shareholders for the Company to execute a leveraged recapitalization in conjunction with a Dutch Tender offer for approximately 30% of the outstanding shares of the Company at a reasonable premium to the current market prices.

Based on our monitoring of the debt financing markets and conversations with our investment banking relationships, we believe that a modest $338 million credit facility borrowing (Revolver and Term Loan B) is certainly financeable and could be achieved at attractive rates of at least L+175 to L+200 with flexible terms with regards to prepayment and the absence of financial covenants. This debt financing along with cash on the balance sheet would comprise the amount required to execute the Dutch Tender.

We believe that an appropriate range to set the Dutch Tender is $22.00 to $23.00per share based on (i) the earnings accretion resulting from the transaction;(ii) the price range's implied premiums to divesting shareholders; and (iii)that the price range is below an expected post-tender trading range. Sources and uses and pro forma capitalization for this transaction would be as follows:

TABLE

Based on this transaction, an illustration of the earnings impact is set forth below. We estimate 13.8% accretion.

TABLE

It could be argued that post the tender, the PE could increase due to accelerated estimated EPS growth. Assuming HealthSpring trades at the comparable companies valuation multiple of 13.9x, the implied share price post-transaction would be $23.42.

TABLE

We believe the contemplated transaction would: (i) better optimize the Company's balance sheet and provide conservative leverage to equity returns going forward and (ii) take advantage of the extremely appealing debt financing markets.

We note that your total debt as of September 30, 2005 (prior to the IPO) was$192 million. Conservatively excluding any unrestricted cash in both cases, the Company's total debt to EBITDA was 2.7x pre-IPO compared to the above transaction's pro forma leverage of 3.0x total debt to EBITDA. Pro forma for the transaction detailed above, the Company would have additional debt capacity and over $25 million in unrestricted balance sheet cash plus cash flow generated from operations.

We believe that this is a pivotal point in the Company's history as a public company. We believe that the transaction detailed is a prudent one from a financial point of view while offering significant upside to continuing shareholders.

I want to reiterate that we are supportive of your management and excited about the growth prospects and strategic positioning of the Company. We have along-term view regarding our investment in HealthSpring and are happy to offer ourselves as a sounding board for your team in discussing value maximization opportunities.

We hope that you find this letter constructive and look forward to your timely response. We would welcome the opportunity to discuss our proposal in person or by teleconference. As an aside, our investment team also manages the private equity fund at the Clinton Group and would be happy to explore a privatization with you, if appropriate.

Please feel free to contact me at your convenience at (212) 377-xxxx or my colleague, Joseph De Perio, at (212) 739-xxxx to discuss any and all issues. We look forward to hearing from you.

Sincerely,

Conrad Bringsjord
Senior Managing Director





Copy of Second Letter 06/26/07:

Attention: Board of Directors

Gentlemen:

As of today, funds and accounts managed by Clinton Group Inc. ("Clinton")currently beneficially own approximately 5% of the outstanding shares ofHealthSpring, Inc.

Two weeks ago, we sent the attached letter to Mr. Herbert A. Fritch describing our thoughts on opportunities to increase shareholder value. Despite what we believe is a prudent proposal designed to enhance shareholder value, we have not heard back from Mr. Fritch, so we deemed it appropriate to forward this letter to your attention as well.

Please feel free to contact me at your convenience at (212) 377-4224 or my colleague, Joseph De Perio, at (212) 739-1833 to discuss our proposal as well as any and all issues. We look forward to hearing from you.

Sincerely,
Conrad Bringsjord
Senior Managing Director

Ackman's Pershing Square Discloses 1.92M Share Stake in Legg Mason (LM)

William Ackman's Pershing Square Capital disclosed they held a 1.92 million share stake in Legg Mason (NYSE: LM) at the quarter ended March 31, 2007. Pershing Square disclosed the stake today after confidential treatment, which concealed the stake, expired.

William Ackman is known as an activist investor.

Dan Loeb Makes Big Bet on BioFuel Energy (BIOF)

In an 13D filing after the close on BioFuel Energy Corp. (Nasdaq: BIOF), Daniel Loeb's Third Point LLC disclosed a 30.4% stake (5,578,800 shares) in the company.

Third Point Partners and Third Point Partners Qualified purchased shares of Common Stock in a private placement completed simultaneously with the closing of the initial public offering of the Company, on June 19, 2007.

The Funds expended an aggregate of approximately $36,265,000 of their own investment capital to acquire the Units and shares of Common Stock held by them. Third Point Partners expended an aggregate of approximately $16,242,324 of its own investment capital to acquire its Units and shares of Common Stock, and Third Point Partners Qualified expended an aggregate of approximately $10,541,176 of its own investment capital to acquire its Units and shares of Common Stock. Mr. Loeb, Mr. Bernstein and Mr. Swanson expended $1,200,000, $600,000 and $60,000, respectively, of their own personal funds to acquire the Units held directly by them.

Daniel Loeb has been a member of the Board of Directors of the Company since May 2006.

HBK Investments May Seek Possible Deal with Steak n Shake (SNS)

In a 13D filing after the close on The Steak n Shake Company(NYSE: SNS), HBK Investments and related funds disclosed a 9.5% stake (2,703,726 shares) in the company and said they plan in engaging in discussions with management and the Board of Directors concerning the business and the future plans of the company generally, and with regard to strategies and potential transactions to maximize shareholder value, including potentially exploring an acquisition or other transaction involving HBK.

HBK said it does not intend to engage in any acquisition, offer or other transaction that is not supported by the Board of Directors of the Steak n Shake, or otherwise seek representation on the Board of Directors of Steak n Shake.

From the "PURPOSE OF TRANSACTION' section of the filing:

"The Reporting Persons acquired the shares of SNS Common Stock reported hereunder for investment purposes, and with a view to engaging in discussions with management and the Board of Directors of the Issuer concerning the business and the future plans of the Issuer generally, and with regard to strategies and potential transactions to maximize shareholder value, including potentially exploring an acquisition or other transaction involving the Reporting Persons. The Reporting Persons do not intend to engage in any acquisition, offer or other transaction that is not supported by the Board of Directors of the Issuer, or otherwise seek representation on the Board of Directors of the Issuer. Any future decision of the Reporting Persons with regard to the Issuer or its securities will take into account various factors, including the results of any discussions with management and the Board of Directors of the Issuer, the prospects of the Issuer, general market and economic conditions, the price levels of common stock of the Issuer, and other matters deemed relevant to the Reporting Persons.

The Reporting Persons may, and reserve the right to, change their intentions, acquire additional shares of SNS Common Stock, or dispose of shares of SNS Common Stock, from time to time in the open market, in privately negotiated transactions or otherwise.

Except as referenced above, none of the Reporting Persons nor, to the best knowledge of the HBK Reporting Persons or the Lone Star Reporting Persons, as applicable, any of the Additional HBK Persons or Additional Lone Star Persons,has any plans or proposals that relate to or would result in any of the transactions or changes contemplated in Items 4(a) though 4(j) of Schedule 13D."

13D Tracker Makes Another Top Blog List

13D Tracker has been named to Gannon on Investing's Eight Best Investing Blogs. The blog's owner, Geoff Gannon, wrote the list following 24/7 Wall St.'s list of The 25 Best Financial Blogs, which we were also named to. Thanks Geoff!

Bill Rempel NO DooDah's and 13D Tracker were the only two blogs to make both lists.

24/7 Wall St. and Fat Pitch Financials are two on Geoff's list that I like read. Geoff also points out some good value blogs which I will try to find more time to look at.

Catalyst Semi (CATS) Holder J. & W. Seligman Requests Additional 1-2M Shares Buyback

In a 13D filing this afternoon on Catalyst Semiconductor (Nasdaq: CATS), J. & W. Seligman disclosed a 5.2% stake (855,666 shares) in the company. The firm said the shares of the company are significantly undervalued and said in order to increase shareholder value the company should buyback one to two million additional shares.

From the filing, "JWS believes that the Issuer can accommodate a repurchase of its Common Shares at the recommended level because it represents approximately 15% to 29% of the Issuer's available cash, cash equivalents and short-term investments of $28.6 million, inclusive of an increase of $2.9 million during its last fiscal quarter. Additionally, JWS believes that the Issuer will continue to generate cash from operations."

Large Lancaster Colony (LANC) Holder Barington Criticizes CEO Gerlach

In an amended 13D filing on Lancaster Colony Corp. (Nasdaq: LANC), large shareholder Barington discloses a letter to the Board of Directors criticizing the Company's Chairman/CEO/President John B. Gerlach.

In the letter, Barington said Gerlach has failed to implement any of their recommended changes and continues to run the company as if it was a privately-owned family business, versus a publicly-traded corporation. Barington also criticizes the takeover defenses.

The firm calls on the board to make meaningful improvements to their corporate governance and return the company to historical levels of profitability and share price performance.

A Copy of the Letter:

To the Board of Directors of Lancaster Colony Corporation:

We have been disappointed with the profitability and share price performance of Lancaster Colony Corporation under the leadership of John B. Gerlach, Jr., the Company's Chairman of the Board, Chief Executive Officer and President. We have therefore suggested to him a number of measures that we believe will create significant value for the benefit of the Company's public shareholders.

The continued under performance of the Company since we initially proposed these measures over 14 months ago has compelled us to reach out to you - given your fiduciary duty to all Lancaster shareholders - as we question whether Mr.Gerlach will ever make any substantive changes to the company he runs and his family effectively controls.

While the Gerlach family founded Lancaster Colony Corporation and is the Company's largest shareholder, Lancaster is a publicly-traded corporation, not a privately-owned family business. Unfortunately, it seems as if the Company is being run as if it was.

Mr. Gerlach is not only the Company's Chief Executive Officer, he has also been appointed Chairman of the Board, the governing body responsible for selecting and overseeing the performance of the CEO. This was done without even the designation of a permanent lead independent director as a countervailing measure.

Even more concerning, however, is the Company's veritable fortress of anti-takeover defenses. These defenses include a staggered board of directors, a"poison pill" rights plan with a 15% trigger that was adopted without shareholder approval, "blank check" preferred stock and the ability of the Board to add directors without shareholder approval. In addition, the Company's articles of incorporation deny shareholders the right to cumulate their votes in the election of directors and require that shareholders obtain Board or shareholder approval prior to acquiring 20%, 33% and 50% ownership thresholds inthe Company, despite the existence of the Company's "poison pill" rights plan.Furthermore, the Company has an 80% super majority vote requirement to approve certain business combinations and amend various provisions in the Company's articles of incorporation and regulations, effectively giving the Gerlachs, wh ohold approximately 26% of the Company's common stock, a blocking position. All these defenses are in addition to the business combination, fair price, disgorgement and other provisions that protect Lancaster and all other corporations organized in the State of Ohio.

We believe that the numerous defenses the Company has in place are excessive(1)and demonstrate a disregard for the interests of Lancaster's public shareholders by facilitating the entrenchment of the Company's directors and executive officers and minimizing the influence that shareholders (other than the Gerlachs) have on the Board. In our opinion this is not only inappropriate, but likely damaging to shareholder value as many studies have demonstrated that companies that have good corporate governance in these areas tend to outperform those that do not.(2)

It is our hope that, upon reflection, you will concur that the Company's financial performance and corporate governance record is unacceptable and seet hat meaningful improvements are promptly made so that Lancaster not only becomes a leader in the area of corporate governance, but also returns to historical levels of profitability and share price performance.

Sincerely,
James A. Mitarotonda
Footnotes:

(1) Institutional Shareholder Services ("ISS"), a leading provider of corporate governance and proxy voting services, currently rates the Company's takeover defenses with a score of 1 out of 5, indicating that the Company's corporate governance practices in this area are in the bottom quintile relative to the Company's peers as identified by ISS. Overall, 73% of the companies in the Standard & Poor's 400 Index outperform the Company in the area of corporate governance according to ISS's most recent index ranking of the Company.

(2) See, e.g., Bebchuk, Cohen and Ferrell, What Matters in Corporate Governance?, Harvard Law School John M. Olin Center for Law, Economics and Business Discussion Paper No. 491 (September 2004)(identifying a statistically significant correlation between stock performance and the degree to which boards are accountable to their shareholders); Institutional Shareholder Services,Better Corporate Governance Results in Higher Profit and Lower Risk(2005)("Companies with better corporate governance have lower risk better profitability and higher valuation. More specifically, these well-run companies outperform poorly governed firms in return on investment, annual dividend yield,net profit margin, and price-to-earnings ratio."). See also Eisenhofer and Levin, Investment Returns: Does Corporate Governance Matter to Investment Returns?, Corporate Accountability Report, Vol. 3, No. 57 (September 23,2005)("[E]mpirical evidence suggests what common sense tells us is correct -those corporate boards that are more concerned about shareholder rights are also better guardians of shareholder money").

Clinton Group to China Security (CSCT): We Like You, But We're Keeping a Short Leash

In a 13D filing on China Security & Surveillance Tech. Inc. (OTCBB: CSCT), Clinton Group disclosed a 5% stake (1,749,117 shares) in the company and a letter to the CEO expressing its support of the company's management and its excitement about the company's growth prospects.

Clinton Group said it has a long-term view regarding its investment in the company and offered itself as a "sounding board" to discuss value maximization opportunities.The firm detailed their ideas with regards to the strategic direction and financial management of the Company: 1. NO FURTHER ISSUANCE OF COMMON STOCK AT THESE LEVELS, 2. CONTINUED INVESTOR RELATIONS EFFORT, 3. NYSE LISTING, 4. PRIVATIZATION (Says CSCT could be worth over $20/Share).

A Copy of the Letter:

Dear Mr. Tu:

As you know by our multiple discussions and meetings with you and several members of your management team, we have conducted industry and business due diligence on China Security & Surveillance Technology, Inc. ("China Security" or the "Company") and have been purchasing shares in the open market since last October. As of today, funds and accounts managed by Clinton Group Inc.("Clinton") currently beneficially own approximately 5% of the outstanding shares.

As one of the Company's largest investors, we thought it would be appropriate to detail to you our ideas with regards to the strategic direction and financial management of the Company. We are very supportive of your management team and view China Security as an attractive long-term investment. We hope you find this constructive and would welcome any follow-up discussions with you and your team.

NO FURTHER ISSUANCE OF COMMON STOCK AT THESE LEVELS

Clearly, a significant part of your strategy is to execute roll-up acquisitions and vertical integration acquisitions to grow your business. As a shareholder,we are supportive of your acquisition strategy and are confident in the integration capacity of your current management team. While your acquisitions are coming at attractive multiples and result in earnings accretion, we urge you to take steps to increase your share price and implied multiples to ensure that there is a significant arbitrage (and resulting EPS accretion) between your trading multiples and your acquisition multiples.

Based on recent closing prices, we believe that your common stock is trading at an extremely low valuation in comparison to relevant companies. We would further note that China Security's implied multiple of 14.1x consensus 2007E EPS is not an entirely appropriate valuation metric as it is not pro forma for the current business after acquisitions. We note that the Company's PEG multiple has a tremendous discount.

TABLE

Assuming a 20x 2008E PE multiple, the Company's stock should trade just north of$30.00 per share.

Thus, we do not believe it is beneficial to issue any more stock to execute acquisitions until the valuation discrepancy closes, and the magnitude of accretion is higher to your shareholders. We believe your stock will be rewarded in the market by demonstrating further quarters of strong organic growth and smooth integration of the acquisitions already announced.

CONTINUED INVESTOR RELATIONS EFFORT

We recognize that your management team has worked diligently to take meetings with investors to communicate the China Security story. We have spoken to bulge-bracket investment banks about your story and believe that several more investment banks should pick up equity research coverage over time. We would be happy to make introductions with our equity research contacts. Currently, your stock price is at a large discount to the price targets of Brean Murray Carret &Co. and Maxim Group LLC at $20.00 and $23.00, so additional research coverage with investment banks with larger reach would certainly be beneficial.

Given the exciting growth opportunity of the business and the depressed valuation range, we believe that your management team and investor relations efforts should be focused on potential long-term holders of the stock such as mutual fund investors and retail investors.

Further, we believe your reporting and business transparency has been effective,timely and detailed.

NYSE LISTING

Further to our comments on the investor relations effort, we urge the management team to devote a significant amount of its corporate strategy efforts to a timely listing on the NYSE. We believe that a transition to a major exchange would expand the stock ownership universe and provide an opportunity to enhance the shareholder base with long-term holders.

To that end, we urge the Company to engage a reputable investment bank (or announce that China Security has already engaged one, if appropriate) to advise the Company on a listing on the NYSE. We think that the Company would benefit from a long-term advisory relationship with a reputable investment bank that could assist on further capital raising and counsel on optimal capital structures. We would be happy to further provide investment banking contacts of the Clinton Group who have already expressed interest in developing a long-term advisory relationship.

PRIVATIZATION

To the extent your stock price continues to fail to reflect a valuation appropriate for the Company's growth prospects, we believe that China Security represents an attractive privatization candidate at a valuation well north of$20.00 per share. We believe that private equity firms are looking to increase exposure in Asia in partnership with companies with strong growth prospects. If after proceeding with all of the measures we have previously outlined and if there is not a significant appreciation in your stock price to levels appropriate for the Company's growth prospects, we would be happy to introduce to you several private equity firms to evaluate a management buyout transaction.We would welcome the opportunity to invest in a private equity transaction with you and a selected partner.

I want to reiterate that we commend your business execution to date and are supportive of your management and excited about the growth prospects of the Company and management's ability to implement its business strategy.

Please feel free to contact me at your convenience at (212) XXX-XXXX or my colleague, Joseph De Perio, at (212) XXX-XXXX to discuss any and all issues.

Sincerely,
Conrad Bringsjord
Senior Managing Director

MMI Discloses 9.4% Stake in DJO - Is It Now a Buyout Target?

In a 13D filing on DJO Incorporated (NYSE: DJO), MMI Investments, L.P. disclosed a 9.4% stake (2.2 million shares) in the company. The firm did not show a stake in DJO at the quarter ended March 31, 2007.

The firm filed notification under the Hart Scott Rodino Antitrust Improvements Act to acquire 10% or more the company. The firm does not plans to raise its stake above 14.9%.

We recently published an article discussing how many of MMI Investments' portfolio stocks have been, or are in the process of being, acquired. Link to "The Buyout Touch" report

While it is likely a foolish strategy to bet on a buyout of DJO just because MMI holds a stake, the recent track record of the fund can not be ignored. Of their past 6 positions, excluding today's DJO disclosure, 4 have been acquired and one other is likely exploring that possibility.

From the filing: "In order to retain its flexibility to determine to increase MMI Investments’ holdings of Common Stock to more than 10% of the outstanding Common Stock of the Issuer, MMI Investments intends to notify the Issuer of its intention to file in the near future a Notification and Report Form under the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act") and request early termination of the waiting period pursuant to the HSR Act. Upon such filing, the filing of the Issuer’s responsive filing, and the expiration or early termination of the waiting period, the Reporting Persons would be permitted under the HSR Act to purchase additional shares of Common Stock such that the Reporting Persons would hold up to $500 million (subject to adjustment from time to time in accordance with the HSR Act, with the current threshold being $597.9 million) in total market value of Common Stock at the time of such purchase. However, MMI Investments does not currently intend to purchase Common Stock of the Issuer if, as a result of the purchase, it would own more than 14.9% of the outstanding Common Stock (which would have represented a market value of approximately $137 million based on the number of shares outstanding at May 8, 2007 and the closing price on June 21, 2007)."

Kraft Foods (KFT) Jumps On Reports of Peltz Stake

Shares of Kraft Foods Inc. (NYSE: KFT) have jumped 6% today on reports from CNBC, activist investor Nelson Peltz has accumulated a 3% stake in the company.

Peltz is expected to urge Kraft to sell the Maxwell House and Post brands and to improve the Kraft cheese business. Peltz may also push for more share buybacks.

Peltz was instrumental in Cadbury Schweppes PLC (NYSE: CSG) move to split its beverage and confectionery businesses and has also in the past targeted H.J. Heinz Co.'s (NYSE: HNZ), where he has two board seats.

Peltz's Trian Fund also holds positions in Wendy's (NYSE: WEN), Tim Hortons (NYSE: THI), Lions Gate Entertainment Corp. (NYSE: LGF), Chemtura (NYSE: CEM) and Tiffany (NYSE: TIF).

It was only a matter of time before some activist or shareholder stepped up on Kraft. In the past it has been rumored that William Ackman's Pershing Square could target the company and there was also a rumor that guru Warren Buffett was building a stake.

Glenhill Advisors Dumps 2.8M Shares of TLC Vision (TLCV)

In an SEC Form 4 filing this morning on TLC Vision Corp. (Nasdaq: TLCV), large holder Glenhill Advisors disclosed they sold 2,835,614 shares at prices from $5.83-$5.87, bringing their stake to 6,778,486 shares.

Glenhill has been a activist in the stock, recently disclosing discussions with certain senior executives and members of the Board. Glenhill had voiced concerns regarding the performance of the Company.

This morning, TLC Vision announced preliminary results of its tender offer, saying they expect to purchase for cancellation 20 million common shares at a price of US$5.75 per share.

PHH Corp (PHH) Holder Pennant Capital Continues to Oppose Merger Deal, Outlines Omissions from Preliminary Proxy

In an amended 13D filing on PHH Corp (NYSE: PHH), 7.8% holder Pennant Capital disclosed a letter to the board of directors reiterating its strong objections to a sale at this time at the proposed consideration and also outlined several material omissions from the preliminary proxy statement filed June 18, 2007.

Pennant Capital believes the company can maximize value for shareholders through continued public ownership and a business separation through a spin-off. The firm estimates that the value that could be realized through continued public ownership is more than $51 per share within 2 years and said shareholders could immediately see a value of at least $36 from the separation of the Fleet business from the Mortgage business. The firm said this is, "a vastly superior outcome to the proposed sale at $31.50."

The firm said the material omissions from the preliminary proxy included: "(i) the fairness opinions ignore the possibility of continued public ownership and a spin-off and fail to quantify the significant tax savings associated with such an approach; (ii) the Preliminary Proxy fails to break out the purchase price allocation between the Fleet business and the Mortgage business; (iii) the failure to disclose in the Preliminary Proxy any information regarding future employment of Terence Edwards, PHH's CEO, and other members of management in the Mortgage business after the completion of the sale; and (iv) the omission of any long-term financial projections or any assessment of the Mortgage business' structural cost advantage or full potential in a normalized mortgage environment beyond 2008."

A Copy of the Letter:

Dear Members of the Board,

In our letter dated April 30, 2007, we laid out the rationale for maximizing value for PHH shareholders through continued public ownership and a business separation through a spin-off. We are disturbed by your failure to address our proposal in any substance in your preliminary proxy statement (the"Preliminary Proxy") filed on June 18, 2007. The actions described in the Preliminary Proxy paint the picture of a seller in panic mode as bidders were dropping out and even Blackstone blinked at the eleventh hour. Importantly, the issues that caused this panic were either irrelevant (sub prime meltdown) or self-inflicted and temporary (inability to produce financial statements, failure to cut capacity heading into the declining mortgage market). It is clear that you merely sought to do the best you could in a desperation auction of the Company, without giving serious consideration as to whether the Company should be sold in the first place. The lack of any convincing arguments against a spin-off in the Preliminary Proxy reinforces our objection to the proposed sale.In addition, we note that PHH's better than expected recent results and the recent recovery in other mortgage related stocks should enhance the returns associated with a rejection of the sale.

Incorporating the Company's recent results, we now estimate the value per share that could be realized through continued public ownership at more than $51per share within 2 years. Even in the short term, we believe that the separation of the Fleet business from the Mortgage business through a spin-off would likely result in an immediate value per share of at least $36, a vastly superior outcome to the proposed sale at $31.50. A spin-off would likely avoid the substantial tax leakage associated with a separation after a sale. Using the deferred tax liability related to mortgage servicing rights as of December 31,2006 as a crude estimate, we estimate the tax leakage in the proposed sale could amount to $10 per share.

MATERIAL OMISSIONS IN THE PRELIMINARY PROXY

The Preliminary Proxy fails to address a number of key issues. Most importantly, the fairness opinions ignore the possibility of continued public ownership and a spin-off and fail to quantify the significant tax savings associated with such an approach. Based on the time line of events outlined in the Proxy, you only hired investment bankers once the conduct of an auction was practically a foregone conclusion. Instead, the mandate of the investment bankers should have included an evaluation of a spin-off. While it appears that management had some concern that a standalone mortgage business might not retain investment grade credit ratings, the fairness opinions concede that PHH is overcapitalized by assuming a $135m one-time dividend. We believe that a standalone Mortgage business could easily retain an investment grade rating if PHH shifted a larger portion of the unsecured debt to the Fleet business prior to a spin-off. Our conversation with a leading credit rating agency has reinforced our belief that this would allow both the Mortgage and the Fleet business to retain investment grade ratings post-spin-off, and we are disappointed that the Board has not put more effort into exploring this path. In any event, we believe that a downgrade to below investment grade would be manageable and likely temporary. It would be instructive for shareholders to understand how much equity capital Blackstone intends to fund to operate the Mortgage business after increasing the borrowing capacity of the Mortgage business (including the unsecured debt) from $4.7 billion before the sale (as of March 31, 2007) to $5.8 billion and contemplating the issue of another $300million in public debt.

We are also disappointed to learn that the Preliminary Proxy does not breakout the purchase price allocation between the Fleet business and the Mortgage business. We expect that such disclosure would highlight that the mortgage assets are being sold at a significant discount to tangible book value. We find it hard to understand why the Board would agree to this given the mortgage assets' liquid nature and conservative valuation.

Furthermore, we note the failure to disclose in the Preliminary Proxy any information regarding future employment of Terence Edwards, PHH's CEO, and other members of management in the Mortgage business after the completion of the sale.It is conceivable that Mr. Edwards has a strong incentive to help effect a sale of the Mortgage business at a low valuation. This would be the case if there was an implicit expectation that he will remain employed by the Mortgage business with a generous new options package as is customary in private equity deals, with strike prices at the low deal valuation.

Finally, we note the omission of any long-term financial projections or any assessment of the Mortgage business' structural cost advantage or full potential in a normalized mortgage environment beyond 2008. PHH's shareholders cannot make an informed decision regarding a sale of the business without an understanding of the longer term potential of the Company beyond the next six quarters. Of your four valuation methodologies, only the Discounted Dividend Analysis is based on the Company's longer term internal estimates. However, while the analysis implies EPS of at least $6.00 in 2012 for the combined businesses, the fairness opinions assign inexplicably low multiples to these earnings (e.g. 6.5xto 7.5x for the Mortgage business before discounting). Hiding behind simplistic fairness opinions by bankers, whose compensation is mostly dependent on a deal going through, is irresponsible.

We demand that you correct the above omissions in your definitive proxy statement. Shareholders will not be able to make an informed decision about the pending sale unless a) the fairness opinions comprehensively evaluate the option to remain public and pursue a spin-off, b) you quantify the tax leakage associated with the proposed sale and break-up, c) you break out the after-tax proceeds from the sale of the standalone mortgage business, d) you disclose whether CEO Terence Edwards and other members of management have any agreements or understandings, or are in negotiations with Blackstone regarding future employment and equity participation, or whether such negotiations have been precluded and e) your longer term internal projections are disclosed.

BETTER THAN EXPECTED RECENT RESULTS

We were encouraged by stronger than expected operating results disclosed in the Company's recently filed 2006 Form 10-K and the release of operating metrics for the first quarter of 2007. Fleet earnings before taxes in 2006 were $102million, significantly better than the Company's previously communicated expectation of $90 - $95 million. The 10-K did not break out any non-recurring benefits in the Fleet business and we now assume the Company will grow revenues and earnings before taxes at a mid single digit percentage rate starting from this higher base in 2006. For 2007, this would translate into $105 - $110million in earnings before taxes and $62 - $67 million in free cash flow after cash taxes at 20% and a $20 - $22 million net investment to grow the fleet (at constant 10x leverage). At a 15x to 17x multiple of 2007 free cash flow, the Fleet business would be worth $17 to $20 per share today or $19 to $22 per share in 2 years. Consistent with our previous methodology, this estimate still does not reflect the synergies GE would likely reap.

The higher Fleet valuation implies a sale of the Mortgage business at approximately 0.7x tangible book, an even more staggering discount than we previously estimated. As a consequence, a spin-off of the mortgage business and initial valuation at tangible book value would yield an immediate combined valuation of approximately $36 per share. The same valuation could also be realized in a liquidation of the Mortgage business at tangible book value. For shareholders, both scenarios are vastly superior to a sale at $31.50. Clearly, a Board acting in shareholders' interests would not agree to a sale at this price.

We believe the mortgage operation will re-emerge as a uniquely attractive asset in one to two years. It represents the only private label outsourcing option with scale for smaller mortgage originators and it has a structural cost advantage rooted in the disintermediation of expensive loan officers. The Company's recently reported results have been incrementally supportive of this view. Adjusted for the unusual expenses associated with the restatement, 2006mortgage results, while still depressed, were better than the Company's most recent expectation. In addition, in the first quarter of 2007, total closings actually increased year over year, despite continued declines in the market. We expect that this is a reflection of the new private label partnerships and of improved penetration of the real estate broker channel. Importantly, this growth in volumes has been achieved with fewer staff. Finally, credit statistics for the servicing portfolio such as 90 day delinquencies and foreclosures/real estate owned/bankruptcies remained stable year over year at below industry levels, a reflection of the Company's high quality mortgage mix, superior credit underwriting and the absence of exotic mortgage products.

We continue to value the Mortgage business at $26 to $34 per share. As we outlined in our previous letter, this valuation assumes an 8x to 10x multiple of the combined production and servicing after-tax earnings, a 40 basis points pre-tax profit margin on origination volumes of $45 - $50 billion and an 8 basis points pre-tax profit margin on the Company's current $162 billion servicing portfolio.

In total, if shareholders were allowed continued public ownership, we believe they could realize $51 to $68 per share over two to three years,comprised of $19 to $22 per share for the Fleet business, $26 to $34 for the Mortgage business and $6 to $12 per share in cumulative earnings over the next two to three years.

MORTGAGE STOCKS RECOVERY

We believe that if GE and Blackstone's bid is allowed to proceed,shareholders would be deprived of a tremendous opportunity. We are disappointed by the Board's decision to support such a course of action and we are particularly disturbed by the Board's lack of long-term commitment to the Company and its shareholders. When the proposed sale was announced on March 15,the deal price represented a 13.3% premium to the $27.81 close on the previous day, close to a four-plus month low. Since the announcement of the proposed sale, mortgage-related stocks have started a significant recovery: A basket of stocks comprised of Countrywide Financial, Washington Mutual, IndyMac Bancorp,Freddie Mac and Fannie Mae has appreciated by an average of 14.7% since the March 19 close (as of June 14 and including dividends), with returns ranging from 6.7% to 29.6%. It is quite likely that if the Company's stock had been allowed to appreciate in line with this group without a sale agreement, it would already exceed the proposed deal price of $31.50.

SUMMARY

Simply doing the best you can in a desperation auction or a similar process without sufficiently questioning the merits or the timing of a sale in the first place does not constitute the proper exercise of fiduciary duty. We reiterate our strong objection to a sale of the company. We note that the Preliminary Proxy does not provide any compelling reasons as to why a spin-off would not be the optimal way to proceed. We are encouraged by the accelerated profit growth in the Fleet business and the improvements in the Mortgage business. We believe that a rejection of the proposed transaction would allow shareholders to benefit from a continuation of these trends and result in substantial rewards both immediately and over a two to three year time frame. The recent recovery of mortgage-related stocks likely limits the short-term risk associated with a rejection of the take-over bid. In addition, a pursuit of a tax-free spin-off should result in immediate appreciation of the Company's stock, as the standalone mortgage company is unlikely to trade below book value. We demand that you provide shareholders with the information required to understand such alternatives to the proposed sale by filing a definitive proxy statement that alleviates the gaping holes in the Preliminary Proxy statement.

Sincerely,
Alan P. Fournier
Managing Member
Pennant Capital Management, LLC

Home Depot: An Activist on the Board

An activist on the board.
An activist on the board.
Hi-ho, the dario,
an activist on the board.

After the close, Home Depot (NYSE: HD) announced an astonishing $22.5 billion increase to its share repurchase program. The Company will fund the $22.5 billion share repurchase with the net proceeds from the sale of HD Supply, existing cash on hand and the net proceeds from an anticipated $12 billion issuance of senior unsecured notes.

As you may recall, activist firm Relational Investors was awarded a board seat in February as part of a settlement on corporate governance matters. Relational was instrumental in getting former-CEO Bob Nardelli ousted and getting the company to look at a sale of the supply business, which was also announced yesterday. It can also be safely assumed that they had something to do with the buyback decision.

Here is my guess on how the board meeting went:

Frank (Blake, Chairman): But David (Batchelder from Relational), if we take on this much debt the credit agencies will cut our ratings.

David: F%@^ those pricks. Lever up that damn balance sheet.

Frank: But David, what about our customers? We can spend the money improving service.

David: F@^! the damn customers, shareholders are what matters. The customers can figure it out through trial and error or eventually they will run into what they are looking for walking around the stores.

Other Board Members: Proposal approved. What should we do next David?

Relational Investors' other holdings: ConAgra Foods (NYSE: CAG), Prudential Financial (NYSE: PRU), National Semiconductor (NYSE: NSM), Baxter International Inc. (NYSE: BAX), Sovereign Bancorp (NYSE: SOV), Unum Group (NYSE: UNM), Analog Devices Inc. (NYSE: ADI), and Sprint Nextel (NYSE: S).

Is PDL BioPharma's (PDLI) McDade On the Way Out?

Could Daniel Loeb finally get the head of PDL BioPharma (Nasdaq: PDLI) CEO Mark McDade?

According to rumors today, noted by Adam Feuerstein at RealMoney.com, PDLI will have a meeting with Loeb's Third Point LLC this week and there is speculation McDade could be forced out.

Odyssey Value Advisors Wants Golf Trust of America (GTA) To Re-Evaluate Plan of Dissolution

In a 13D filing after the close on Golf Trust of America (AMEX: GTA), Odyssey Value Advisors disclosed a 5.06% stake and said management should, "re-evaluate its 6 plus year old plan of dissolution."

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

"In light of the great number of resort and lodging company takeovers in the last twelve to twenty four months at improving prices, it would be prudent for the management of GTA to re-evaluate its 6 plus year old plan of dissolution.

The obvious fact that the shareholder base has changed dramatically over the last 6 plus years since it was adopted, clearly means that it would be incumbent upon Management and the Board of Directors to seek a new consensus of the current shareholders.

To not do this would clearly be a disservice to shareholders and not in the spirit of maximizing shareholder value."