Senator John McCain likes to say that the federal government is like a drunken sailor. He then apologizes to sailors.

We've also seen some drunken behavior in private equity. Then again, with a stable economy, cheap debt and tons of equity capital, why not do lots of deals – even if some are dicey?

In today's Wall Street Journal [subscription only], it now looks like some of the deals are not looking so good.

Keep in mind that buyout transactions involve lots of debt. So if things come undone, the consequences can be severe.

Some of the problematic deals include Linens 'n Things, Star Tribune, and Freescale.

Basically, these are companies in volatile industries. For example, Linens 'n Things must not only deal with tough competition but an ailing real estate sector; Freescale is in the rough-and-tumble semiconductor space and its biggest customer, Motorola (NYSE: MOT), is lagging; and the Star Tribune is suffering from the diversion of advertising money to dot-com properties.

True, this is a small sample. But we are still in the early stages of the buyout surge, so it's tough to gauge what may happen. Although, if the economy falters and interest rates continue to rise, we'll definitely see more deals go sideways.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

In late December, Avista Capital Partners agreed to pay $530 million for the Star Tribune, less than half of what McClatchy paid for it in 1998. The deal comes amid growing concerns about the future of newspapers, which are facing competition from the Internet. But in spite of the ugly long-term outlook for newspapers, they may make an interesting investment for now.

For starters, Avista is purchasing the newspaper for 6.5 times its cash flow. Newspapers don't have the large capital expenditure requirements that many more booming businesses do. The industry is in decline, but it's still making money. I'm reminded of a profound statistic that I first read about in Jeremy Siegel's book The Future for Investors: Since 1957, railroad stocks have outperformed airlines, trucking, and the S&P 500.

This is of course not attributable to dramatic growth in the railroad industry. Rather, most investors saw that the companies were in decline and the share prices were driven down, and then provided a good return. The moral of the story: valuation matters. Most stocks are a good deal at the right price.

Are newspapers the new railroads? There are numerous similarities. Railroads were replaced by airplanes and trucks, but the railroad stocks were the better investment. Newspapers are being replaced by the Internet, but that in no way means that Internet stocks are better buys. Here's a quick look at some of the bigger newspaper stocks:

• Gannett (NYSE:GCI): Owner of 91 daily newspapers, including USA Today. The also own around 1,000 non-daily publications. Trades at around 11 times cash flow.
• E.W. Scripps (NYSE:SSP): Owns some newspapers, but also television stations, including HGTV and the Food Network. Also owns Shopzilla.
• Tribune (NYSE:TRB): Trades at around 8 time cash flow. Owns 11 daily newspapers, the Chicago Cubs, television stations, and other media interests.
  
  

Speculation of a takeover battle for Lenox Group (NYSE: LNX) was first reported by the Star Tribune in November of last year; the article described the escalating dispute between the company and its largest shareholder John Morgan. Reuters also reported the possibility of a takeover battle for Lenox in early December of last year, but the speculation has faded since.

With shares of Lenox Group trading near a 52-week low and the resignation of CEO Susan Engel today, the company may once again be the subject of a possible takeover or restructuring. Morgan and other shareholders have criticized Engel's management ability and the destruction of shareholder value, as well as the oversight by the board of directors.

Engel's resignation could possibly pave the way for Morgan to "assist the company in changing its strategy," which Morgan has asked the Board of Directors for in previous SEC Filings. In a letter to ex-CEO Engel, disclosed in a SEC Filing on September 21, 2006, Morgan said that the company's board decided to pursue a course of action that "is not in the best interests of shareholders and is a continuation of the strategies that have failed to create value over the past ten years." In the most recent Filing on December 15, 2006, Morgan said he was still reviewing his investment in Lenox and decided not to pursue the acquisition of additional shares but may sell shares "from time to time."

According to the most recent SEC Filings, John Morgan reported owning 969,300 shares, or a 6.9% stake; Gabelli Funds also reported owning 712,300 shares or a 5.04% stake in Lenox.