Navistar (NAV) Could Get Bids, But Some Big Hurdles Remain...
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Navistar (NYSE: NAV) stock has fallen nearly 10 percent since the company announced it was adopting a shareholder rights plan on Wednesday morning, bringing its market cap to $1.81 billion.
Following headlines Thursday the truck maker could be in talks with investment bankers, some aren't entirely ruling out a takeover. Earlier in the month, we heard murmurs German auto giant Volkswagen might gain a stake in Navistar. Though Volkswagen has presence in Europe with commercial trucking, it has failed to gain a strong showing in the U.S. market -- something Navistar has had for years.
Now activist investor Carl Icahn is getting in the game, taking his stake in the company to 11.9 percent. His former protege, Mark Rachesky, also disclosed a 13.6 percent stake via his MHR Fund Management. Rachesky and Icahn were on opposite sides of the table during the Lionsgate (NYSE: LGF) battle last year.
Navistar trades for an 87 percent discount to sales, which is the least expensive among commercial truck makers with market caps above $1 billion, according to Bloomberg data. At 0.13 times sales, Navistar is far below the group average at 0.71 times.
One of the bigger challenges for Navistar is developing a truck engine which meets EPA standards, but is still a market leader in terms of capability. Shares took another hit on June 12th following a ruling the U.S. Federal Appeals Court vacated an EPA rule which would allow the company to sell heavy-duty diesel truck engines that don't meet pollution standards. The news came after Navistar reported a surprise second-quarter loss and also guided the rest of 2012 earnings expectations below views. The news sent shares plummeting, though they've since recovered on the takeover chatter.
Still, Navistar shares are off over 50 percent from a high of $58.50 reached nearly one year ago.
Potential investors like Volkswagen and Italy's Fiat S.p.A will find Navistar attractive. Despite losing about 29 percent of market share for Class 8 trucks since 2009, the company still sells one of every six heavy trucks in the U.S. and Canada. It also boasts the top position in severe service trucks, medium-duty trucks, and school buses in both regions. Both the metrics speak to the continued quality and name brand Navistar carries.
Some caveats for a bid include the ruling by the EPA on Navistar's new 13-liter engine, as well as potential blockage of a deal to a foreign buyer unless Navistar divests its military truck unit. The drawbacks have attracted short sellers as well, with about 8.7 percent of Navistar's shares being borrowed amid expectations a deal won't go through. That's the highest percentage of short shares in Navistar company history.
But with Icahn and Rachesky in the mix, the duo might push for more changes at the top of the company, which could tickle down to profits for investors will to wait it out. After all, Navistar is still expected to be profitable in 2012 and much of the EPA call might already be figured into the stock. In addition, Navistar's defense unit accounts for 13 percent of revenue, meaning any uptick in military spending in the U.S., Iraq, or Singapore (among a handful of other countries) could sustain shares until Navistar gets their engine under regulation.
Shares are indicated slightly lower Friday morning.
Following headlines Thursday the truck maker could be in talks with investment bankers, some aren't entirely ruling out a takeover. Earlier in the month, we heard murmurs German auto giant Volkswagen might gain a stake in Navistar. Though Volkswagen has presence in Europe with commercial trucking, it has failed to gain a strong showing in the U.S. market -- something Navistar has had for years.
Now activist investor Carl Icahn is getting in the game, taking his stake in the company to 11.9 percent. His former protege, Mark Rachesky, also disclosed a 13.6 percent stake via his MHR Fund Management. Rachesky and Icahn were on opposite sides of the table during the Lionsgate (NYSE: LGF) battle last year.
Navistar trades for an 87 percent discount to sales, which is the least expensive among commercial truck makers with market caps above $1 billion, according to Bloomberg data. At 0.13 times sales, Navistar is far below the group average at 0.71 times.
One of the bigger challenges for Navistar is developing a truck engine which meets EPA standards, but is still a market leader in terms of capability. Shares took another hit on June 12th following a ruling the U.S. Federal Appeals Court vacated an EPA rule which would allow the company to sell heavy-duty diesel truck engines that don't meet pollution standards. The news came after Navistar reported a surprise second-quarter loss and also guided the rest of 2012 earnings expectations below views. The news sent shares plummeting, though they've since recovered on the takeover chatter.
Still, Navistar shares are off over 50 percent from a high of $58.50 reached nearly one year ago.
Potential investors like Volkswagen and Italy's Fiat S.p.A will find Navistar attractive. Despite losing about 29 percent of market share for Class 8 trucks since 2009, the company still sells one of every six heavy trucks in the U.S. and Canada. It also boasts the top position in severe service trucks, medium-duty trucks, and school buses in both regions. Both the metrics speak to the continued quality and name brand Navistar carries.
Some caveats for a bid include the ruling by the EPA on Navistar's new 13-liter engine, as well as potential blockage of a deal to a foreign buyer unless Navistar divests its military truck unit. The drawbacks have attracted short sellers as well, with about 8.7 percent of Navistar's shares being borrowed amid expectations a deal won't go through. That's the highest percentage of short shares in Navistar company history.
But with Icahn and Rachesky in the mix, the duo might push for more changes at the top of the company, which could tickle down to profits for investors will to wait it out. After all, Navistar is still expected to be profitable in 2012 and much of the EPA call might already be figured into the stock. In addition, Navistar's defense unit accounts for 13 percent of revenue, meaning any uptick in military spending in the U.S., Iraq, or Singapore (among a handful of other countries) could sustain shares until Navistar gets their engine under regulation.
Shares are indicated slightly lower Friday morning.
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