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Morning Flash is a quick reaction report produced by dealReporter's analyst team that combines a smart summary of key merger arb and special situations news—such as shareholder activism, spinoffs, litigation, regulatory issues, and other significant corporate events—with insight and commentary from dR analysts and buyside sources. If you have any ideas for coverage please e-mail 

Tenet Healthcare (THC) makes its money running hospitals but it also has a fast-growing business that helps hospitals collect revenues they are owed. This “revenue cycle management” business—named Conifer—isn’t a huge unit but it has been growing nicely and THC decided in the June quarter to shed some light on it by giving it its own reporting segment. Naturally, this has led some investors to wonder whether THC might have a spinoff plan in mind. That question was posed to CEO Trevor Fetter at a Lazard Capital Markets conference yesterday and Fetter hardly slammed the door shut on the spinoff idea, should THC think down the road that Conifer is being underappreciated. “It would be frustrating if our valuation continued not to reflect the value of Conifer, but certainly we would consider all sorts of different options,” said Fetter, who went on to list a number of reasons why Conifer might look good as an independent company—higher margins, low capex, less regulation. As a point of reference, Conifer is probably a bit immature to spin right now as it collects most of its revenue from THC hospitals. But it will generate around USD 100m in EBITDA in 2012 and THC is spurring its growth through acquisitions. 

The Morning Flash mentioned yesterday this could be an interesting week at Legg Mason (LM) as its standstill agreement with Nelson Peltz expires Thursday. Coincidently, LM made an appearance at an investment conference yesterday and, while Peltz didn't get mentioned by name, LM CFO Pete Nachtwey made some interesting comments that may be worth remembering down the road. Specifically, Nachtwey was asked by Bank of America analyst Cynthia Mayer whether LM kept its tax assets at the parent level or at a subsidiary level. The purpose of that question was to learn whether LM's tax shield would be available to cover a sale or spinoff of particular LM pieces. Although its only speculation at this point, some LM followers think Peltz, who is LM’s second-largest shareholder, could agitate for such a move. Notably, Nachtwey responded by saying “to the extent that we were to sell an affiliate, the net operating loss carry-forward that we have is held up at the parent level and so [it] would be available to fully offset” a transaction up to a certain amount. Nachtwey quickly warned that a major transaction, as envisioned by Mayer’s question, is unlikely but if it were pursued he said “there are plenty of ways to unlock the value from a tax standpoint.” Consider this food for thought if LM considers spinning off its fixed income manager—Western Asset Management—or said manager starts angling itself towards a management buyout.

After winning three board seats at Take-Two Interactive Software (TTWO) in 2010, Carl Icahn hasn’t been very active in the video game developer. That is until last week, when the activist went on a buying spree that spilled into this week. All told, Icahn has spent nearly USD 40m to increase his ownership level from 8.7% at 30 June to 12.97%. While TTWO is down 15.3% on the year, its shares have been on a tear since hitting a 52-week low in August. And signs from TTWO’s 2Q earnings call on Halloween were encouraging. But is a turn in TTWO’s fundamentals what spurred Icahn to build his stack? Or is something else afoot?

Diamond Foods (DMND) surged nearly 15% yesterday after the company announced Monday night that it was finally ready to share restated and current financial results with the financial community. The actual results won’t be revealed until this afternoon, but after an accounting scandal wrecked the company and torpedoed its deal to acquire Pringles, investors seemed to be encouraged that DMND is finally getting ready to start afresh. With that in mind, DMND will disclose two years of restated financials (2010 and 2011) along with results for the first three quarters of 2012. Obviously, investors this afternoon will be interested to see just how profitable the company was without the help of some questionable accounting. But even if the restated financials paint a fairly gloomy picture of the company’s earnings power, they will at least help DMND remain listed on the NASDAQ and allow the board to shop the company if it chooses to go in that direction.

TPG-Axon made it official yesterday, revealing in a regulatory filing that it’s now “active” in SandRidge Energy (SD). This news shouldn’t come as a surprise to anyone who read an 8 November letter TPG sent to the SD board that calls for the company to fire CEO Tom Ward, appoint new directors and possibly sell the company. Hours after that missive was sent, SD announced a major divestiture that it believes will give it some breathing room to invest in higher-growth opportunities, but the market digested that news with little enthusiasm. That brings us to yesterday and TPG-Axon’s 13D filing. There’s not much additive in yesterday’s update, although the fund does reveal it now beneficially owns, through stock and swaps, 30.5 million shares, or 6.2% of the company. The swaps are a new wrinkle that wasn’t disclosed in the 8 November letter. Now that TPG-Axon is active, the next thing to watch for is whether it goes hostile and mounts a proxy fight. Board nominations for the 2013 annual meeting are due between 1 February and 3 March.

Quote of the Day: “The problem is, the deal will likely meet substantial antitrust resistance. This is a potential business combination that we have already thought long and hard about—six years, in fact! And while the strategic rationale of the deal makes sense, we actually now believe that the transaction would struggle to pass antitrust review.” Those are the words of Jefferies analyst Peter Nesvold, who was commenting this morning on the prospects that Carl Icahn might be able to engineer a merger between Greenbrier (GBX) and American Railcar Industries (ARII). Both stocks ripped higher yesterday after Icahn disclosed a 9.9% stake in GBX and the thought is a combination would be a win-win for shareholders of both companies. Nesvold doesn’t disagree and he lists a number of reasons this morning for why GBX might jump at a deal. But Nesvold also warns that a potential combination blows right through the antitrust model that the Department of Justice uses to evaluate market consolidation.

by Don Bilson and Vincent Chan

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