Shares of Dillard's (NYSE: DDS) rose 35% yesterday. But the occasion wasn't a buyout or a great earnings report. Instead it was the news that hedge funds Barington Capital Group LP and Clinton Group want CEO William Dillard II fired over the company's dismal performance.

You can read the investors' letter here -- it was attached to a 13-D filed with the SEC. A quick sample:

Despite the generous compensation that has been paid to Dillard family members, the performance of the company over the past ten years has been atrocious. . . . As significant shareholders of Dillard's, we therefore call upon you to work with the Board's Class A directors to IMMEDIATELY begin the process of looking for a new chief executive officer. We recommend that this new chief executive be someone with exceptional integrity and proven leadership and turnaround experience in the retail industry.

You can read the letter for more detail but the market's reaction tells you pretty much all you need to know. The stock was up 35% on the suggestion that the CEO be replaced -- on a day when the Dow was down more than 200 points. What else do you need?

Dillard's insiders bought a few shares of stock last week, perhaps in anticipation of this letter. But investors are likely to see through it: decades of under-performance are not undone by a few token insider buys.

Griffon Corp. (NYSE:GFF) is a diversified manufacturing company operating in four segments - garage doors, installation services, specialty plastic films, and electronic information and communication systems. The garage doors segment, as the name implies, manufactures and sells garage doors for residential housing and commercial buildings. The installation services business installs and services garage doors, fireplaces, floor coverings, cabinetry, etc. The specialty plastic films segment produces and sells plastic films used in infant diapers, female hygiene products, and so on. The electronic information and communication systems system provides logistical support for communications, radar, circuits for defense, etc.

Although this company doesn't likely have a lot of growth ahead of it, the stock seems very cheap. It is roughly 13x this year's earnings and less than 7x EV/EBITDA. However, the story becomes a lot more interesting when researching the activist situation.

The activists involved in the stock are Barington Capital and the Clinton Group. Barington owns roughly 5% of the company while Clinton Group owns about 6% of the company. Both of these activists have pushed through change in their 13D filings with the SEC.

In Barington's 13D filing, the firm made four suggestions that could "improve the Company's profitability and share price performance." First, Barington suggested the company engage in the "divestiture, spin-off or partial initial public offering of the Company's Telephonics subsidiary." This is because Barington feels the full value of the business is not being reflected in the share price. Secondly, Barington suggested an increase in the amount spent on the share buyback program. Thirdly, the firm suggested further cost reductions, especially in the garage door and specialty plastic films businesses. Lastly, Barington made some governance suggestions, namely the "de-classification of the Board of Directors and the separation of the Chairman and CEO positions."

In the exhibit of Clinton Group's 13D, the letter written to Griffon's Chairman and CEO is displayed. Similar to Barington, Clinton feels that "the market price of Griffon shares fails to reflect the true value of the Company's operating subsidiaries, if they were to be valued on a stand-alone basis." However, this exhibit's true value is found further down, where the firm breaks down their valuation of $31-$35 per share (note the current price is less than $23 per share). I highly recommend readers check out the exhibit for themselves to study Clinton's valuation.

The situation in Griffon Corporation is very interesting. While the business is not so intriguing, the company has built a solid franchise over the last several years. However, due to the conglomerate structure the company is not being valued properly or fairly by the markets. Although this would normally be a problem, this is a benefit because two activists (who own more than 10% of the company, combined) are pushing for changes to increase shareholder value.