OKLAHOMA CITY -- These days, Navistar ( NAVZ) feels a pressing need for speed. The Warrenville, Ill., manufacturer has come out of nowhere to become a top supplier in the lucrative, fiercely competitive race to supply the military with mine-resistant ambush-protected vehicles. This story is the first installment in a five-part series examining the top players in the multibillion-dollar MRAP bidding. Navistar, which came to fame as a maker of commercial trucks, has surpassed rivals including Force Protection ( FRPT) to become one of the biggest suppliers under MRAP, with orders for some 2,000 trucks. The government is anxious to get its hands on the trucks, which are armored to protect U.S. troops deployed in overseas hotspots such as Iraq and Afghanistan. But Navistar faces another crucial deadline as well. The company needs to file overdue financial statements soon or face possible backlash from investors --including an activist hedge fund known for aggressively pressing underperforming companies. Navistar has already promised to file audited 2005 financial results by the end of September and to catch up completely during the first quarter of next year. But the damage is done: Last year, Navistar lost its coveted spot on the New York Stock Exchange, where it traded for some 99 years. The stock currently resides on the lowly pink sheets. Navistar shares have continued to rise even since their delisting, as the company racks up military orders. But also boosting the stock has been a buying spree by Harbinger Capital Partners, which has amassed nearly 15% of Navistar's outstanding stock to emerge as the company's largest shareholder.
Harbinger is no stranger to fierce battles for control of companies it covets. The firm is currently embroiled in a bitter tug of war for control of Ryerson ( RYI), a Chicago-based steel distributor, and has aggressively pursued a slew of other underperforming companies, including Openwave ( OPWV) and Gateway ( GTW), as well. So far, Harbinger seems content to simply sit on its Navistar stock. The firm, which declined to comment for this story, has reportedly made no demands of the company at all. Even so, Navistar responded to Harbinger's interest by adopting a temporary shareholder rights plan that could thwart an unwelcome takeover. "The board of directors felt that it was not in the best interests of shareholders for any group to acquire a substantial interest in, or control of, the company when financial statements are not available for all shareholders to see," Navistar spokesman Roy Wiley recently explained to TheStreet.com. "We've had calls from a lot of people -- who are generally against poison pills -- who have said, 'You guys did the right thing.'" From an operational standpoint, Navistar continues to delight investors as well. So far, on two separate occasions, Navistar has stunned the market with big MRAP awards that some felt that others -- particularly Force Protection -- might snag instead. In fact, only Navistar seemed to see the latest order coming. "Ever since we received the first award,
the government has been asking us on a daily basis how we can deliver quicker and how they can help," says Bob Walsh, assistant general manager of Navistar's International Military and Government division. "Once we were able to provide them with a plan, we felt relatively confident that -- if the funding was available and the timing was right -- we would receive some sort of incremental order" under the multibillion-dollar MRAP program.
Walsh feels that two major strengths set Navistar apart from the pack. First, he says, the company ranks as a major commercial truck manufacturer whose operations -- once focused exclusively on the military -- date back 100 years. Second, he says, the company boasts an impressive assembly line that can crank out some 30,000 vehicles per year. By bolting rather than welding blast protection to its trucks, he adds, the company can deliver MRAP vehicles far more rapidly than others. Still, Navistar could face tougher demands going forward. Notably, the U.S. military is calling for even sturdier vehicles -- capable of withstanding hits from sophisticated "explosively formed penetrators" -- under a greatly expanded program popularly known as MRAP II. Current MRAP vehicles, including Navistar's own, have been designed to shield against crude improvised explosive devices. But a newcomer to the MRAP competition, Ceradyne ( CRDN), claims that it has developed EFP protection already. The company, which is partnering with giant truck maker Oshkosh ( OSK), is viewed as an early favorite for MRAP II awards as a result. For its part, Navistar -- while still evaluating the new requirements -- plans to be a serious MRAP II contender as well. "We'll put together a solution," Walsh said. "And hopefully, we'll be fortunate enough to get an order. ... We'll go after MRAP II just as much as we did MRAP I." Looking ahead, Navistar clearly feels that a year from now -- when its temporary poison pill is set to expire -- it will emerge as a far more valuable company. Some industry experts seem to agree.
"While there's a long line of academic literature criticizing whether poison pills are really in the shareholders' best interests, in this case we actually think it is," Bear Stearns analyst Peter Nesvold wrote late last month. "In our view, it remains very difficult to arrive at a defensible fair value for the stock, given the lack of financials and NAVZ's continued cost restructuring and military transformation." Nesvold has a peer-perform rating on Navistar in the meantime. His firm makes a market in the company's securities. Still, he believes holding on to the stock while Navistar gets its books in order could pay off. "We think shareholders with at least a one-year time horizon would ultimately get a higher price for NAVZ after they're provided financial transparency," he writes, "than they would currently should unsolicited interest present itself."