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Carl Icahn Buys More Navistar in Share Offering

October 26, 2012 | About:
Holly LaFon

Holly LaFon

267 followers
Billionaire investor Carl Icahn increased his position in large truck manufacturer Navistar International Corp. (NAV) by 15.56% on Oct. 25, according to GuruFocus Real Time Picks.

The transaction was for 1,594,667 shares, for which he paid $18.75 each, or $29.9 million total. His updated total Navistar holding size is 11,845,167 shares. In an aggressive buying spree, Icahn has made at least 10 purchases of Navistar since July, as he tries to force his will within the company.

This time, Icahn purchased the shares in a 10 million-share public common stock offering, which Navistar held to raise money. With the additional shares issued, his ownership stake remains unchanged at 14.95 percent of the company.

Icahn has fired letters at Navistar’s board, upbraiding them for a history of underperformance and demanding changes. On Sept. 9, Icahn asked the company to devote four board seats to shareholders, and criticized the company’s 40 percent market share decline in the last two and a half years, share price drop from almost $60 at the beginning of 2011 to under $25, and spending of shareholder money on lawsuits, marketing plans, non-core acquisitions and “a ‘gold-plated’ corporate headquarters” costing $100 million.

Icahn also disapproved of the company’s choice of temporary CEO, accusing him of having no experience in the heavy truck industry and a “questionable” track record in his former position as CEO of Textron.

Navistar issued a statement the following day in response: "The Navistar Board takes its fiduciary duties very seriously and is committed to acting in the best interest of the Company and all of its shareholders. Navistar has recently taken a number of important actions, including appointing new leadership, defining and beginning to implement a new clean engine solution, accelerating cost reduction actions, and undertaking a review of its non-core businesses, all with the goal of driving long-term profitability and delivering shareholder value."

Navistar’s stock has declined by 51% year to date. The company has increased revenue over the past three years beginning in 2009 and increased net income from $297 million in 2009 to $1.7 billion in 2011. Its free cash flow declined from $1.03 billion in 2009 to $412 million in 2011. Its gross margin also expanded from 19% in 2009 to $19.30 in 2011.

Navistar has cash of $3.47 billion, down from $4.06 billion a year ago, along with $6.98 billion in long-term liabilities and debt, up from $6.63 billion a year ago.

In its third quarter results, released Sept. 6, Navistar reported net income of $84 million, or $1.22 per diluted share, compared to net income of $1.4 billion, or $18.24 per diluted share, the previous year. The third quarter of 2011 was higher due to $1.48 billion resulting from the release of a portion of its income tax valuation allowance.

The company’s revenues declined 6 percent to $3.3 billion, driven by lower U.S. and Canadian truck and engine segments, primarily as a result of lower military demand and lower South American engine volumes.

The company said in a statement that it would reduce its work force to save approximately $70 million to $80 million annually, cut discretionary spending and review its non-core businesses in an aim to improve return on invested capital and boost profitability.

Navistar has two severe GuruFocus warning signs: an Altman Z-score of 1.42, signaling distress, and three consecutive quarters of revenue per share decline. It also has three good signs: expanded operating margin, a share price close to its three-year low, and a three-year low P/S ratio of 0.1.

Today, Icahn was rejected in his $3 billion bid to buy all of another specialized equipment manufacturer, Oshkosh Corp. (OSK), which he at one point wanted to merge with Navistar. In a Bloomberg interview this week, he confirmed that he was no longer interested in merging the two companies.

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