Activist Track: Cannell Targets Auditor

We last saw Cannell Capital in its battle to control the BKF Capital Group (BKF - commentary - Cramer's Take) board of directors. The firm won that battle, but the war isn't over yet. Carlo Cannell is attempting to get on the board of BKF, and the main issue with BKF is that investors are worried that with John Levin leaving to start his own management firm, other investment managers within BKF will follow him to his new firm. BKF will own a piece of this new firm but the specifics of the financial relationship have not yet been disclosed.

As busy as this is keeping Cannell, it has not stopped the firm from pursuing PRG-Schultz (PRGX - commentary - Cramer's Take). On July 29, the fund made an unsolicited offer for $3.43 a share to PRG, an auditing company that specializes in retail. On Aug. 2, the company acknowledged that it had received the offer and that the board was reviewing the proposal. But it has not commented on the proposal since, and things have not been going well this year.

Second-quarter results came in on July 28 with a loss of 10 cents per share on revenue of $81 million, when analysts were expecting earnings of 11 cents per share on revenue of $86 million. The company also withdrew its fiscal-year 2005 guidance, and this report came after the company reported lower-than-expected earnings in the prior quarter. Then on Aug. 19, the company announced a restructuring that would cut jobs and save up to $4.5 million a year.

Last week, Cannell made a 13D filing stating its disappointment that the company had not responded to its offer. When the offer was made, the stock was at $3.15. At Friday's close, the stock was at $3.18. The 13D contained a letter from Carlo Cannell to David Cole, chairman of PRG-Schultz, which said, in part: "Cannell Capital is perplexed by the board of directors' failure to respond more readily and fairly to our offer."

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James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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