Icahn Bids on Oshkosh; Sees No Navistar Merger

This story appears in the Oct. 22 print edition of Transport Topics.

Carl Icahn formally launched a $2.88 billion tender offer to buy “any and all” shares of specialized equipment manufacturer Oshkosh Corp. beyond the nearly 10% that he and his affiliates already own, but said he does not envision combining it with Navistar International Corp.

An Oct. 17 filing with the Securities and Exchange Commission made official what Icahn said he would do on Oct. 11. If successful in taking control of Oshkosh at $32.50 a share, Icahn said he would spin off JLG Industries — Oshkosh’s largest non-defense segment — making the corporation even more of a defense contractor.

Navistar also has a defense unit to complement its truck and engine business. Icahn owns about 15% of Navistar — as does investor Mark Rachesky — and Icahn once said he envisioned combining the Navistar and Oshkosh defense units.

That does not appear to be the case anymore, based on his comments during a Bloomberg Television interview last week.

“There’s no chance of that. We’re not interested in that. The real interest in Oshkosh has to do with the JLG division and that has nothing to do with Navistar, so there really is no relationship,” Icahn said, adding that he thought it was time for Oshkosh CEO Charles Szews “to say adios.”

The Icahn tender offer filed with the SEC does state that in December 2011, Icahn had discussed the possibility of developing “significant synergies” between the Navistar and Oshkosh defense divisions. An Oshkosh spokesman said the Oct. 17 filing starts a two-week countdown, during which management will craft a full response to the offer.

Until that response is posted, though, “Oshkosh shareholders are advised to take no action at this time, pending a review of the unsolicited tender offer by the Oshkosh board,” management said.

Icahn criticized Oshkosh management when he announced his takeover bid.

“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,” he said.

A part of Icahn’s plan is to elect a slate of candidates to the Oshkosh board of directors. Oshkosh management was quick to say that Icahn tried that at the company’s annual meeting in January and failed to elect a single member.

Oshkosh spokesman John Daggett said the company elects its entire 13-member board annually and that that last happened on Jan. 27. He said the time of the 2013 meeting has not been set.

Icahn characterized his offer as a 21% premium over the stock’s closing price of $26.85, the day before the tender offer was announced.

Oshkosh’s JLG unit makes lift equipment for people and materials. During the nine months ended June 30, the division earned $169.7 million on sales of $1.38 billion.

Overall for the nine months, Oshkosh posted net income of $151.9 million on sales of $6.13 billion. During the same time a year earlier, Oshkosh made $235.9 million on revenue of $5.47 billion.

In addition to the lift equipment and defense businesses, Oshkosh also makes fire and rescue equipment, concrete mixers and refuse vehicles.

Stock analyst Timothy Denoyer follows Navistar for Wolfe Trahan & Co. and said that he frequently has been asked about Icahn and Rachesky’s involvement. The two men control two seats on Navistar’s 10-member board, and they soon will get to pick another member.

“They likely believed Navistar’s engine story, as many did, but as high-profile activists, cannot now sell without a material drop in the stock,” Denoyer said.

He added that Volkswagen and Fiat have been mentioned as possible merger partners for Navistar but that neither European firm is likely to act soon.

Oshkosh is in a position to benefit from an expanding construction industry, said analyst Ann Duignan, who follows Oshkosh and Navistar for J.P. Morgan Securities.

“Our ‘overweight’ rating on Oshkosh is predicated on the company’s exposure to U.S. construction,” she said, noting that the sector appears to have finally hit bottom and is now growing.

Duignan wrote to her clients that Icahn is probably serious about backing away from an Oshkosh-Navistar defense merger but said she could see that Volvo Group or Paccar Inc. could be interested in buying parts of Oshkosh.