Six Stocks Activists May Rock in 2006

Three Battles Activists Should Win in 2006

I think activists will win out this year over McDonald's (MCD Quote), Time Warner and the New Germany Fund (GF Quote).

William Ackman is urging McDonald's to spin off its 8,000 company-owned franchises. He contends this would provide better transparency and governance of an underperforming, mismanaged branch of the company. McDonald's has demurred, saying the market wouldn't necessarily reward the stock. The good news for investors is that regardless of what McDonald's chooses to do, most parties agree the shares are deeply undervalued and deserve to be shaken up.

Everybody's favorite activist, Carl Icahn, is currently waging a war with Time Warner. He's calling for the company to split into four separate units: cable, Internet, publishing and movies/TV. This is no simple task, so Icahn hired iconoclastic banker Bruce Wasserstein of Lazard to help him. Together they are waging a proxy fight to win board seats to push through their strategic alternatives.

In regard to the recent Google-AOL deal, Icahn writes: "I am not opposed to Time Warner entering into an AOL transaction that creates long-term value. However, I am deeply concerned that the Time Warner board may be on the verge of making a disastrous decision concerning an agreement with Google if this agreement would make it more difficult in any way or effectively preclude a merger or other type of transaction with companies such as IAC/InterActive, eBay, Yahoo! or Microsoft, etc., etc."

I agree with Icahn that there is tremendous value in Time Warner, and I think 2006 will be a big year in this face-off. I don't always agree with his suggestions, but hey, that's why he's Icahn and I'm me. Within the next week, we should see more details on his plans for Time Warner.

Philip Goldstein has been waging a brutal battle with the New Germany Fund for over a year, and it's leading to litigation. In a nonbinding vote, shareholders have approved the conversion of the fund to an open-ended structure, which would eliminate the huge discount at which the fund is trading. I think Goldstein will be successful in pushing this fund open, and I think this will be a good year for the German economy, especially with the World Cup coming. I'm also hoping Goldstein wins in his court battle against the SEC's hedge fund-registration program. I'm going through this process now, and it's a drag.