Icahn keeps heat on Oshkosh spin-off campaign

Thu Aug 23, 2012 5:25pm EDT

* JLG "pulled down" by rest of Oshkosh, Icahn says

* JLG is Oshkosh's fastest-growing unit

* Icahn says JLG's growth makes it ready to stand alone

* Some argue companies would be worth less apart

* Oshkosh says considering "wide range of options"

By Soyoung Kim and Lynn Adler

Aug 23 (Reuters) - Carl Icahn believes Oshkosh Corp's JLG aerial-lift business would be worth more on its own than as part of the U.S. truckmaker, but the activist investor may have a tough time convincing Wall Street.

Icahn, whose 9.5 stake makes him Oshkosh's largest shareholder, took a new tack this month in his bid to shake up the company, calling for a tax-free spinoff of JLG, a maker of scissor lifts and cherry pickers that was bought by Oshkosh in 2006 for $3 billion.

JLG's strong growth - its sales are up 40 percent this year - make the timing right for a spin-off, Icahn said in an interview on Thursday.

"It's certainly pulled down by the legacy business," Icahn said, adding that spinning off JLG "makes a lot of sense now because the multiples would be much higher."

Late last year, Icahn urged Oshkosh to sell JLG and merge the rest of the company with truck and engine maker Navistar International Corp, or another truck maker. Management refused and shareholders backed that decision by rejecting Icahn's slate of board nominees in January.

Some investors in Oshkosh, which also makes military vehicles, fire trucks and cement mixers, are equally skeptical about the merits of a spin-off.

"It is extremely unlikely that JLG's market value as a stand-alone company would exceed Oshkosh's current market value," said Alex Blanton, a senior analyst at Clear Harbor Asset Management. "The reason Oshkosh bought JLG was to reduce Oshkosh's dependence on the defense business and to diversify Oshkosh's product line. That diversification is a substantial benefit to Oshkosh's shareholders."

Oshkosh shares have risen 53 percent over the past year to give the company a market value of $2.3 billion, helped by growth in JLG. The stock trades at a 11.6 times forecast 2012 earnings, below the 15.8 price-to-earnings multiple on crane maker Manitowoc Co Inc, but above to the 10.7 times valuation of Terex Corp.

Blanton estimated JLG would earn about $140 million in fiscal 2012 as a stand-alone company and trade for about 9 times earnings, giving it a $1.26 billion market value.

"I estimate that because of the lack of diversification, the two companies separately would be worth 18 percent less than the two companies together," he said.

JLG READY TO STAND ON OWN?

JLG generated $2 billion in sales last year, or about one-quarter of Oshkosh's total. It is the company's fastest-growing unit and helped offset weakness at the military-vehicle arm, where sales fell 6 percent in the nine months ended June 30 amid slowing U.S. defense spending.

Samuel Merksamer, a managing director at Icahn Associates who represented the investor at Oshkosh's last annual meeting, said JLG's growth would leave it well positioned to stand on its own, even with a share of Oshkosh's $955 million in debt.

"The dramatic increase in cash flow at JLG in the last year, would allow JLG business to support most, if not all, of the company's net debt of the company and allow for a robust independent company," Merksamer said.

Oshkosh officials declined to directly address Icahn's call for a spin-off, which he first made in an Aug. 9 filing with the U.S. Securities and Exchange Commission.

"Oshkosh regularly reviews a wide range of options regarding its business and operations and considers the views of its shareholders," said spokesman John Daggett. "Our focus, as always, is on doing what's best for all of our shareholders."

Analyst Ann Duignan of JPMorgan Chase estimated the JLG business could earn $1.70 per share as a standalone company and trade for as much as 12 times forecast earnings, suggesting it would be worth as much on its own as the remainder of Oshkosh.

"In our view, spinning off the (JLG) business would likely not make as much sense as selling it to a strategic buyer," she said, citing agricultural equipment makers Deere & Co and CNH Global NV as among the companies that could be logical buyers for JLG if Oshkosh chose to sell it.

Deere and CNH officials did not return calls for comment.

A JLG spinoff could shake the resulting companies' credit ratings, depending on how Oshkosh's debt is divvied up, said Dan Picciotto, a director of corporate ratings at Standard & Poor's, which currently has a junk-grade "BB" rating on Oshkosh.

"If you slash off a significant portion of the existing Oshkosh business, from our credit perspective it would make the overall enterprise obviously less diverse," said Picciotto.

Oshkosh shares rose 2.18 percent to close at $25.30 on the New York Stock Exchange on Thursday.

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