UPDATE 3-Navistar board ousts CEO Ustian after failed engine bet
* Lewis Campbell joins as executive chairman, interim CEO
* Ustian ousted by board over the weekend -source
* Goldman advising Navistar special committee -sources
* Navistar shares up 1 pct
By Soyoung Kim
NEW YORK, Aug 27 (Reuters) - Navistar International Corp replaced Chief Executive Officer Daniel Ustian with former Textron Inc CEO Lewis Campbell on an interim basis, after the truck maker's bet on a new generation of diesel engines failed to live up to its promise.
The company, which was hit hard by its failed engine strategy and has withdrawn its 2012 earnings forecast, also promoted Troy Clarke, currently head of its truck and engine operations, to president and chief operating officer.
The Lisle, Illinois-based company announced the executive changes on Monday morning but did not give a reason for Ustian's departure.
Ustian, who spent 37 years at Navistar, was ousted over the weekend after the board lost confidence in him and his engine strategy, a person familiar with the situation said. The source was not authorized to speak to the media and asked not to be named.
After an independent probe, the board concluded that Ustian had made a wrong bet on a new generation of diesel engines and his technology solution would not work on trucks, the person said.
Campbell, who will also serve as Navistar's executive chairman, is tasked with stabilizing the company, restoring relations with long-time suppliers, and launching the search for a permanent chief executive, the source said.
Shares of Navistar, which had shed nearly half their value in the last six months, were up 1.9 percent at $23.42 at midday on Monday on the New York Stock Exchange.
"Naming new Chairman/Interim-CEO and new President removes a key sticking point from the investment decision for many investors," Robert W. Baird analyst David Leiker said in a research note.
"While we are supportive of Dan Ustian's energy and focus as CEO, the challenges bringing new technology to market proved too great," Leiker said.
Wells Fargo Securities analyst Andrew Casey said: "The departure of Ustian is not a surprise after the failure of the company's engine strategy. The surprise is the length of time that it took for this to happen."
For much of the past year, Navistar had been struggling to win approval from the U.S. Environmental Protection Agency for a novel diesel engine technology that would cut emissions of nitrogen oxide, a pollutant linked to asthma, without using urea. Urea is a raw material used in the manufacture of many chemical compounds, including ones used in automobile systems.
Last month, Ustian reversed course and said the company would begin using urea, adopting the dominant technology and one used by rivals including Paccar Inc and Volvo AB. To do that, Navistar will begin selling trucks with engines made by Cummins Inc early next year.
Navistar won a temporary reprieve in early August after U.S. regulators submitted a final rule allowing it to continue to sell engines that do not meet U.S. emissions standards as long as it pays fines. [ID: nL2E8J67LK]
Navistar has also become a target of activist investors, with about 45 percent of its outstanding stock held by three big investors: billionaire Carl Icahn, hedge fund MHR Fund Management and asset manager Franklin Resources Inc.
Icahn, which has not yet detailed his agenda at Navistar, did not return calls for a comment, while representatives of MHR, founded by former Icahn associate Mark Rachesky, declined to comment on the executive changes.
Navistar's special committee of the board has also hired Goldman Sachs Group Inc for strategic advice, and used executive search firm Heidrick & Struggles to identify interim CEO Campbell, people familiar with the matter said.
Campbell, 66, was Textron's CEO from 1998 to 2009. Prior to joining Textron in 1992, he 24 years at General Motors Co in various executive roles.
"Lewis Campbell is a high-caliber executive who brings to Navistar deep and broad strategic, technical and operational skills and a proven track record of leadership with global industrial companies," said Michael Hammes, Navistar's independent lead director.
The large stakes held by Icahn and MHR could set the stage for investors to pressure Navistar to move quickly to improve its performance, in a year when analysts expect it to lose money.
Investors have until Oct. 24 to nominate a slate of directors for Navistar's next annual shareholder meeting slated for February.
Navistar adopted a "poison pill" defense in June, intended to keep any investor from acquiring a 15 percent or greater stake in the company. It would allow existing investors with less than a 15 percent stake to buy new shares in the company at half price, which would dilute the holdings of anyone with more than 15 percent.
Analysts and investors have suggested that Navistar could be sold to a European or Chinese truck maker. Fiat Industrial SpA CEO Sergio Marchionne in June publicly flirted with the idea, but one of his deputies said later Navistar's engine strategy was "completely different" from Fiat's approach.
Volkswagen AG has also been named as a logical buyer for Navistar, since a purchase could allow the German carmaker to gain its market share in the key North American truck market.
But people familiar with the industry said that no buyer is likely to emerge in the near term, while Navistar is working to sort out its engine technology problems and the big positions held by activist investors are adding to the uncertainty surround the company's strategic direction.