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MHR Fuels Navistar Shares Ousting Icahn

NEW YORK ( TheStreet) -- Investment manager MHR Fund Management has ousted activist investor Carl Icahn as the top shareholder of struggling truck maker Navistar (NAV - Get Report), causing shares to rally.

With MHR onboard Navistar's stock, after Icahn launched a trucks bet in the fall of 2011 that hit a speed bump earlier in June on regulatory issues and weak public sector trucks and military spending, shares in the nation's largest trucks manufacturer are rising on the prospect of a shakeup or sale of the company.

Still, Navistar and its investors face a rough trucks ride in 2012 before any M&A speculation is borne out.

In a filing with the Securities and Exchange Commission, Mark Rackesky-run MHR revealed it holds roughly 9 million shares of Navistar, 13.6% of the company's stock, in an investment that tops Carl Icahn's stake, which he opened last October and boosted a week ago. Previously, MHR and the legendary activist invested in Lionsgate Films (LFG) during an epic Icahn-led buyout saga where he took a 30% stake in the Hunger Games film maker, but failed on takeover and activist efforts.

MHR said that it "may seek to engage in discussions with (the) management and others concerning the business and operations of the company," in its filing, signaling that it could become an activist Navistar shareholder, like Icahn.

The investment comes as speculation that Volkswagen (VLKPY) or U.S. industrial engineering giants like Cummins (CMI - Get Report) could partner or take a stake in Navistar, which is driving the company shares higher after they hit three-year lows in June.

Amid M&A speculation and Icahn's activist investment, JPMorgan analyst Ann Duignan said that downside risks and upside for the Lisle, Ill-based truck manufacturing company are "balanced," in a Wednesday upgrade from underweight to neutral. The company's biggest risks are its struggles to meet Environmental Protection Agency emissions standards on new truck lines, while the prospect of partners like Cummins, VW or Fiat Industrial could limit that downside.

Last week, Fiat chairman Sergio Marchionne said he wanted to increase the company's presence in the U.S., leading to speculation that Italian automobile and trucks giant could be interested in Navistar after taking a majority stake in Chrysler in 2009.

A full blown strategic acquisition of Navistar continues to remain an unlikely prospect, notes Duignan, citing the company's $3.2 billion of pension liability and its $2 billion of ordinary debt. Duignan estimates Icahn initiated a 9.8% Navistar stake at between $35 and $40 a share in October, making him unlikely to back sale attempts that would put his trucks bet in the red.

In Friday trading Navistar shares rose nearly 8% to $30.09; stemming year-to-date losses that remain above 20%. Still, Duignan of JPMorgan gives Navistar a $31 a share value when considering the impact of activist investors and potential European and industrial partners or bidders.

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