Icahn on Oct. 11 offered $32.50 per share in cash for Oshkosh, a premium of 21% over the company's share price at the time, as part of a broader push for control of the Wisconsin-based truck maker. The investor, owner of about 10% of Oshkosh shares, said at the time he also intends to nominate a slate of directors to the company's board.

Oshkosh said Friday that its board, after consulting with advisers from Goldman, Sachs & Co., Skadden, Arps, Slate, Meagher & Flom LLP and Foley & Lardner LLP, had determined that the offer was not in the best interest of shareholders. The company in a letter to shareholders warned the offer was highly-conditional, and said that investors would be better served allowing Oshkosh to remain on its current path.

"We believe Mr. Icahn's offer is yet another attempt by Mr. Icahn to enrich himself at the expense of all other Oshkosh shareholders," Oshkosh chairman Richard M. Donnelly said in a statement accompanying the letter. "Tendering into Mr. Icahn's offer would only encourage Mr. Icahn in his opportunistic attempt to acquire Oshkosh at the inadequate price of $32.50 per share -- a price that even he admitted was below the company's value."

The company also said its board had adopted a shareholder rights plan that would be triggered if a single investor or group acquires more than 10% of its shares.

The rejection, which was expected, sets up a potential proxy battle at Oshkosh. This is Icahn's second attempt to win board seats at the company, with shareholders rejecting an Icahn-backed slate at Oshkosh's January 2012 annual meeting. The investor in the months since has argued that management is moving too slowly in addressing issues including potential declines in its defense and construction businesses, and should be more willing to consider strategic alternatives.

Icahn has pushed Oshkosh to divest JGL Industries, its construction equipment subsidiary, and has said one-time JGL Industries CEO William Lasky will be among his slate of board nominees. Many believe the investor would like to eventually merge at least part of Oshkosh with rival truck maker Navistar International Corp., where Icahn and other activists recently won board seats.

Oshkosh in its letter called a potential spinoff of JGL "ill-advised," and said the company is poised to benefit from an economic recovery and its internal restructuring plan, dubbed its "MOVE" strategy. The company on Friday reported a third quarter profit of $77.6 million, up from $40.3 million a year prior, though revenue declined 2.3%, to $2.06 billion, on weakness in the defense and government sectors.

"Our board and management team are confident that the continued execution of the company's MOVE strategy will deliver substantially greater value to its shareholders than Mr. Icahn's highly contingent offer," Donnelly said. "If Mr. Icahn had proposed an alternative that created greater value than the company's current strategy, the board would have been open to exploring that alternative. However, he has failed to do so."

It is up to shareholders to determine the next move in the battle. Icahn's tender was not contingent on due diligence, but is subject to the election of Icahn's eventually nominees to the board. The offer expires in late November, but Icahn said he would extend it if he receives the backing from at least 25% of outstanding shares.