Navistar Braces For Wild Takeover Ride

NEW YORK ( TheStreet) -- As activist investors snap up its waning shares, struggling truck maker Navistar ( NAV) is adopting poison pill to brace against the prospect that its largest shareholders -- like Carl Icahn -- will try and take the company over.

Navistar said on Wednesday that its Board of Directors has adopted a stockholder rights plan, otherwise known as a "poison pill," in a move to fend the company from a prospective acquirer. Recently, MHR Fund Management became the heavy-duty truck maker's largest shareholder, topping a near 12% stake held by Carl Icahn, in a move that fanned speculation the company could be sold. Now, Navistar is bracing for the prospect of takeover bids.

In a press release, Navistar said that it is adopting the poison pill to "deter coercive takeover tactics" and will offer preferred stock to be distributed as a dividend on each share held as of June 29, if any investor takes a larger than 15% stake in the company. That move will prevent an acquirer from taking control of the company for a low-price, Navistar added.

Last Friday, investment manager MHR Fund Management ousted ) activist investor Carl Icahn as the top Navistar shareholder, causing shares to rally. However, Navistar shares fell over 3% to $28.38 in Wednesday trading on its adoption of a poison pill.

Mark Rachesky-run MHR now holds 13.6% of the Navistar's stock, in an investment that tops Carl Icahn's stake, which he opened last October and boosted earlier in June. 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.

That investment comes as speculation that Volkswagen ( VLKPY) or U.S. industrial engineering giants like Cummins ( CMI) could partner or take a stake in Navistar, driving the company shares from three-year lows hit in early June.

In an upgrade last week, JPMorgan analyst Ann Duignan said that Navistar's biggest risks are its struggles to meet Environmental Protection Agency emissions standards on new truck lines, while the prospect that the company finds a stragetic partner like Cummins, VW or Fiat Industrial limits that downside.

Fiat chairman Sergio Marchionne said he wants to increase the company's presence in the U.S. earlier in June, 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, noted Duignan of JPMorgan, citing the company's $3.2 billion of pension liability and its $2 billion of ordinary debt. Given potential takeover interest, Duignan gives Navistar shares a $31 price target.

Without M&A speculation and activist investors driving shares, Navistar may face a rough ride. The Lisle, Ill-based company recently said it's struggling to meet new government mandated emission standards for one of its truck engines and cut its 2012 profit guidance to $5.25 a share from $5.75.

After Navistar lowered its profit forecasts, Deutsche Bank analysts said last week that share expectations for the company in the second half of 2012 may still be too high. "Navistar's current guidance assumes both positive pricing actions and market share gains in the second half of 2012 . In our opinion, both could be challenging, even assuming EPA certification over the next few months," the analysts noted.

"Although we believe that the drums of shareholder activity are likely to bang louder, we believe both Volkswagen and Fiat are likely more at the consideration stage, if that far in their thinking," wrote Sterne Agee analyst Jeffrey Kauffman in note to clients last Tuesday that cited regulatory challenges, the cyclicality of U.S. truck sales and shareholder provisions as possible headwinds to a deal.

In October, Icahn took a 9.8% stake in Navistar a maker of commercial trucks, busses and diesel engines. Last Friday, Icahn upped his stake in Navistar to nearly 12% from 10.6%, buying up 883,200 shares at an average price of $24.44, according to a filing with the Securities and Exchange Commission.

Icahn -- who is a now the second leading Navistar shareholder -- also took a near 10% stake in truck maker Oshkosh ( OSK) last June, in an activist investment that comes amid falling government orders for trucks, fire engines and military vehicles. So far, Icahn's big rig play has performed poorly as he's struggled to get both truck makers to consolidate or induce drastic change.

Navistar is one of the nation's largest commercial truck makers while Oshkosh is the leading U.S. military truck maker.

Icahn's trucks bet has so far been hit by continued weakness in government and military vehicle orders, is expected to continue to weigh on earnings.

In late 2011, Icahn settled an activist push to nominate hostile directors to Navistar's board after the company said that the billionaire could put his directors up for election this year.

To be seen is whether MHR and Icahn or a strategic bidder will launch hostile takeover bids for Navistar. Recently Icahn's worked with activist investor Southeastern Asset Management on a newly launched investment in struggling gas giant Chesapeake Energy ( CHK), in a move that has already precipitated investor representation on the company's board and billions in asset sales .

For more on Icahn's Chesapeake Energy bet, see 5 ways Chesapeake Energy can be saved from itself . See Carl Icahn's investment portfolio for more on the activists stock picks.

-- Written by Antoine Gara in New York

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