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In Nook and AOL Wins, a Kinder, Gentler Activist Emerges (Update 1)

After the deal, analyst David Joyce of Miller Tabak keyed in on the progress the company was making in building some media brands, while UBS analyst Brian Pitz noted that other assets remain under-appreciated by investors. With what Pitz estimates will likely be $10 in cash as a result of the deal, the company also has new money to invest in growth.

Starboard Value targets small cap companies -- usually smaller than AOL -- that are struggling to grow their earnings as their core cash generating businesses mature. Smith says the big challenge is for management to figure out how to use the remaining value of a declining core business to invest in new opportunities that will grow earnings over time. Though Starboard-invested companies oftentimes find their way on their own, Smith says he's ready to be an activist on every investment. "For every investment we make, we have the ability to run a proxy campaign." After patent sale, Starboard still plans to pursue the election of new board members at AOL's annual meeting.

When investing in Barnes & Noble, Jana felt share prices gave little to no value to its promising Nook unit, mirroring the sentiment of other investors and analysts.

"When we invested, the market was ascribing no value to the Nook business, which was absurd," said Jana Partners founder Rosenstein in a Monday statement. The fund is known for its large-cap and discreet activist campaigns in the planned split up of McGraw-Hill and a spinoff of El Paso's oil & gas exploration unit that precipitated 2011's largest merger .

"Jana's brand of activism is based on working with management teams... We've resolved all of the situations that we've been involved in without a proxy contest," added DiDomenico, who said the firm's investment time horizon is between 12 to 18 months. "We don't want to enter any situation where there is only one way out."

Investors may do well to think in these terms, taking AOL and Barnes & Noble's deals as a sign that it's still possible to identify undervalued businesses with multiple avenues for share returns. That focus may also benefit from dealmaking, as spinoffs remain popular after 2011 boom. Yet betting on headline scenarios like spinoffs and asset sales alone is a riskier bet than either of these funds was willing to make. And in the nebulous patent war that continues to grip the tech world there may be as many landmines like Eastman Kodak and InterDigital (IDCC) as there are goldmines like AOL and Motorola Mobility (MMI).

Investors may also be rewarded by paying attention to where these value-minded activists are looking for their next profits.

Jana Partners' DiDomenico explained why he thinks Marathon Petroleum (MPC - Get Report) may have unlocked value in energy infrastructure assets hidden within refining operations. With management open to an IPO of the midstream business and a newly launched share buyback program, DiDomenico says Jana is likely to add to an estimated $10 share gain since the fund built an over-4% stake in November.

Meanwhile, Starboard Value CEO Smith detailed why he thinks SuperCuts-owner Regis (RGS - Get Report) can trim rent and operating costs at its nearly 10,000 owned and franchised hair salons. Smith said that the company has a strong core hairdressing business with low operating margins that can be improved with cost cuts and improving same store sales. Starboard-nominated directors on Regis's board are also pushing for Regis to hire a new CEO to drive higher margins, said Smith.

For more on spinoffs, see why giant players in the pharmaceuticals sector are trimming their weight . See why timing is key in biotech takeovers for more on M&A ideas.

-- Written by Antoine Gara in New York.

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