Navistar International Corp.'s agreement with investor Carl Icahn to drop a key takeover defense measure shows the truck maker is open to a merger with a rival, such as a part of Oshkosh Corp.
Earlier this week, Navistar and Icahn agreed on a new declassified board structure that sources familiar with the situation said would make the U.S. company more vulnerable to an unsolicited bid by a larger, possibly foreign rival.
A classified board, where directors serve for different terms, is typically seen as a deterrent to an unwanted takeover approach, as the bidder cannot easily force change at the board level through a proxy fight.
Icahn, who has amassed a 10 percent stake in both Navistar and Oshkosh, has also expressed interest in combining them, sources told Reuters last month.
Icahn's agreement with Navistar came less than two weeks after the billionaire investor proposed a slate of six associates as directors for Oshkosh's board. He had previously considered nominating directors for the Navistar board as well.
Oshkosh expressed concern in a U.S. securities filing that Icahn's move to elect directors at the company could result in a proxy battle that would lead to the election of board members with a "specific agenda." A proxy battle could hurt its business by distracting personnel and customers, it added.
Oshkosh also has updated certain executive employment agreements, which have extensive protections for changes in company control.
Icahn has not made a formal proposal to Oshkosh about what he wants the company to do. Navistar and Oshkosh declined to comment for this story, and Icahn did not return calls.
While Icahn's maneuvers have heightened interest about a Navistar-Oshkosh merger, sources said Navistar executives had already listed Oshkosh as a potential takeover target before the investor came on to the scene.
Navistar sees Oshkosh's business that makes heavy vehicles for customers ranging from fire departments to the military as the most attractive part of the company, these people said.
That means that Oshkosh would need to divest its more recently acquired JLG aerial lift equipment business to pave the way for a Navistar deal, these sources said.
Icahn, meanwhile, believes Oshkosh would be more valuable if it separates these two businesses or sells the truck operation to Navistar or another buyer, the sources said.
Oshkosh bought JLG Industries for $3.2 billion in cash in 2006. Since then, the company's entire market value has fallen to about $2 billion even as JLG's importance has increased because of growing sales and headwinds in the defense business.
Besides an interest in a Navistar tie-up, Icahn is setting his sights on shaking up Oshkosh with his board nominees.
Oshkosh CEO Charles Szews said in an interview earlier this month that the company was focused solely on its "Move" strategy aimed at lowering costs and growing in emerging markets.
The company is bidding on a record number of new defense contracts while predicting growth for its access machinery business, which includes the production of aerial platform lifts.
Szews, who became CEO in early 2011, said the company was looking to avoid dramatic swings in its financial performance by better balancing revenue among its defense, access machinery, and municipal and commercial truck segments.
Analysts have criticized Oshkosh for being too heavily dependent on defense contracts that propelled it to a record profit in 2010, but have not been as lucrative since.
After declassifying its board, Navistar looks more vulnerable to the possibility of another company making a bid for it, although that does not seem to be the most likely near-term result of the agreement with Icahn.
The logical universe of buyers for Navistar includes truck manufacturers in Europe and emerging markets, other people familiar with the industry said.
The sources, however, cautioned against drawing a link between the declassified board and openness to being sold, saying electing directors every year is an increasingly common shareholder demand to ensure boards are not entrenched.
Other Navistar investors had also asked the company to take the step, the sources said.
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