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MHR increases stake in Navistar

by Lou Whiteman | Published July 11, 2012 at 4:36 PM

Navistar International Corp. saw its shares climb more than 4% on Wednesday, July 11, after activist firm MHR Fund Management LLC disclosed it had increased its stake in the troubled truckmaker to 14.95%.

Lisle, Ill.-based Navistar has been the target of activists since last year, when Carl Icahn first disclosed a stake that has since grown to 11.87% of the company's shares outstanding. MHR, which is controlled by one-time Icahn protégé Mark Rachesky, entered the fray last month when it announced a 13.6% stake.

Navistar, which lost $172 million in the first quarter, cut full-year guidance earlier this year as costs relating to a new engine design have mounted. A federal court last month sided with Navistar rivals that sued the Environmental Protection Agency after the EPA allowed Navistar to sell noncompliant engines as the company continues to struggle to win approval for its new heavy-duty truck engine.

The company said last week it would change its engine strategy and work on a different design, but that a new engine will not be ready until next year. Meanwhile, the market for trucks appears to be softening, with rival Cummins Inc. earlier this week lowering full-year sales projections due to weak global demand for its heavy equipment.

MHR's disclosure, which sent Navistar shares up more than $1.09 a piece to $23.04 in afternoon trading, comes just a day after Franklin Resources Inc. reported that it had increased its stake in Navistar to 18% as of June 30. MHR's next move is unclear, as Rachesky in his original filing said only that he planned to talk about "business, operations, strategy and future plans" with management.

Gimme Credit senior analyst Vicki Bryan on Tuesday estimated that the company's top four holders now control more than 51% of the stock, fueling speculation by the analyst that the activists could "appeal publicly to Navistar's shareholders and generate support for their efforts to make changes to Navistar's management strategy and its Board, which may even include ousting CEO Dan Ustian."

But it remains unclear whether Icahn would advocate a management change. The two sides came to an agreement earlier this year to pursue Icahn's idea of a tie-up with rival Oshkosh Corp., a move that was derailed by Oshkosh shareholders. And Icahn, during an appearance on Bloomberg television earlier this week, said Navistar "is not like other companies where the board just sat by."

Icahn said Ustian "was doing what he felt was right for the company" by pursuing the troubled engine technology, though the investor admitted "obviously it has had problems."

The investors could also push Navistar to seek out a partner. Though Oshkosh was uninterested, Financial Times Deutschland reported June 10 that Volkswagen AG could take a stake in Navistar to improve its exposure to the U.S. truck market, where it trails international rivals Daimler AG and Volvo AB. Another European company, Fiat Industrial SpA, has also expressed an interest in increasing its presence in the U.S.

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MHR increases stake in Navistar

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