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Carl Icahn's Oshkosh Bid Revives Merger Hopes with Navistar

 October 11, 2012 04:41 PM

(By Mani) Billionaire investor Carl Icahn is back in action with a $32.50 a share offer for Oshkosh Corp. (NYSE: OSK), a leading manufacturer of specialty vehicles and vehicle bodies, just after he won board seat at Navistar International Corp. (NYSE: NAV).

The offer, which represents a premium of approximately 21 percent over Oshkosh's closing price on Oct. 10, values Oshkosh at about $3 billion, while the company's market cap stood at $2.7 billion.

Shares of both companies surged on the hopes that the move by Icahn could revive his earlier proposal of merging Navistar and Oshkosh, which rejected the proposal. Oshkosh climbed as much as 16 percent to $31.27, a new 52-week high for the stock, while Navistar gained as much as 7 percent to $23.47.

[Related -Navistar International Corp (NYSE:NAV): Set To Benefit From Improving North American Truck Cycle]

Icahn, which owns more than 9 percent of Oshkosh, also announced his intention to nominate a slate of directors for election to the Oshkosh board at the upcoming annual meeting.

Icahn seeks shareholders to tender 40.1 percent of their shares to the offer, which, when added to the shares already held by Icahn, will equal 50.1 percent. Icahn sought board representation at last year's annual meeting in an effort to correct what he considers to be long standing problems that have contributed to a value gap between the stock price and the value of the assets.

[Related -Trying To Beat The Market Is A Fool's Errand]

"It is clear to me that management has taken a passive attitude to the future of this company, willing to sit back and watch what happens to the defense, housing and construction industries, hoping for a positive outcome and reduced competition," Icahn said in a statement.

Oshkosh, which is being advised by Goldman Sachs, said it would advise shareholders of its position within 10 business days of the commencement of the offer.

Wisconsin-based Oshkosh, which makes heavy duty vehicles under Oshkosh, JLG and Pierce brands, reported a 36 percent drop in profit through the first nine months due to declines at its military-vehicle unit. In August, Icahn urged Oshkosh to spin off JLG, which it acquired in 2006 for $3 billion.

Last month, Oshkosh said it is targeting to double earnings per share from an expected $2.05 to $2.15 in fiscal 2012 to $4.00 to $4.50 in fiscal 2015, yielding a compound annual growth rate of 23 to 30 percent, helped by strong growth at its JLG aerial-lift arm.

"Management would like shareholders to ignore this decade long track record along with the potential fiscal cliff, revenue declines and over capacity in the defense industry, and a volatile economy in top growth markets like Brazil. Instead they are asking shareholders to focus on 2015 projections contingent on a global economic boom. We believe that management should be focusing on how best to drive value to shareholders immediately," Icahn said.

Interestingly, Icahn's offer comes after Navistar agreed to appoint three directors nominated by Icahn, who raised his stake in the troubled truck maker to 14.94 percent.

If Icahn is successful in securing a board seat at Oshkosh, he could push for the combination of Oshkosh and Navistar, which makes commercial trucks, school buses, and diesel engines. In addition, Navistar makes chassis for motor homes, step vans, recreational vehicles, and military vehicles, as well as parts for trucks and trailers.

The potential merger would be favorable for Navistar, as it is facing increasing regulatory pressures, and a highly cyclical commercial truck segment with orders influenced by freight volumes, trucker profits, and the economy. A weaker than expected economic recovery could cause orders to be lower than expected.

Lisle, Illinois-based Navistar faces risk to profitability in its engine segment due to its EPA 2011 engine that is still in the approval process. Delayed approval could lead to larger than expected non-conformance penalties. The company has been posting losses for the past three quarters amid lackluster revenues.

Meanwhile, the tender offer for Oshkosh would expire in 45 days of its commencement. The offer would be extended if shareholders tender at least 25 percent of their outstanding shares to the offer.

Activist investors such as Icahn, whose net worth is estimated to be $14 billion, acquires significant stakes in target companies, and seeks board change, divestiture or spin-off of operations to enhance shareholder value.

Icahn has successfully executed the activist strategies to boost shareholder values at companies including Chesapeake Energy Corp. (NYSE:CHK), Clorox (NYSE:CLX), Motorola, Biogen Idec Inc. (NASDAQ:BIIB), Genzyme, and Hain Celestial Group Inc. (NASDAQ:HAIN).

"I strongly believe that Oshkosh needs proactive shareholders to bring a proactive management team together to weather a volatile economy, a shrinking defense industry and a budget constrained municipal environment," Icahn added.



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