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The Deal: Navistar Extends Truce With Activists

NEW YORK (The Deal) -- Navistar International Corp. (NAV) said Monday it has amended its agreement with activists Carl Icahn and Mark Rachesky, buying more time as the struggling truckmaker tries to retool its business and reverse losses.

Lisle, Ill.-based Navistar said that under the terms of the new agreement Icahn Partners LP and Rachesky's MHR Fund Management LLC can name a fourth representative to its board. The Navistar board has also approved an amendment to its poison pill plan that extends the provision to June 18, 2015, instead of August 2013, and increases the amount of beneficial ownership of common stock without triggering the rights plan from 15% to 19.99%.

In return, Icahn and Rachesky have agreed not to run a proxy contest at Navistar's planned February 2014 annual meeting. As part of the deal current director John C. Pope has retired from the board, creating a slot that the investors will fill by the February 2014 meeting.

Navistar has been floundering in recent years due to problems stemming from its 2001 decision to invest more than $700 million in an ambitious, but so far not viable, technology designed to meet higher emission standards. It has announced six consecutive quarterly losses due to tepid sales and high warranty expenses relating to its troubled engine design.

The company in October 2012 averted a potential proxy fight with Icahn and Rachesky with an initial agreement that gave the investors three seats on the board. Navistar has also replaced CEO Dan Ustian and other members of management, shed assets and is in the process of revamping its operations.

Current CEO Troy Clarke in a statement said "we view the updated agreements with Icahn Partners and MHR, as well as the amendment to the rights plan, as positive steps as we continue to execute our turnaround plan and drive the company to restored profitability."

Shares of Navistar traded up more than 8%, or $2.35, to $31.54 on Monday afternoon, but analysts don't expect any quick action from the company following the amended agreement.

Extending the truce seemingly benefits both the company and the activists by giving Navistar's new management more time to overhaul the business. Industry sources have said for some time now that they believe Navistar would be open to a sale, but is at present an undesirable target due to its struggles and continued uncertainty about its future.

Gimme Credit senior high yield analyst Vicki Bryan noted that Icahn and Rachesky both took the bulk of their stakes prior to Navistar's July 2012 announcement that it was abandoning its new engine tech, and are likely underwater on their investments.

"Clearly these holders bought most of their stakes with dramatically different expectations versus what actually developed last year, and their investments at current prices are comparatively much smaller," Bryan wrote.

Written by Lou Whiteman

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