Navistar fires back after Icahn criticizes CEO switch

Mon Sep 10, 2012 1:22pm EDT

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange, June 27, 2007. REUTERS/Chip East

Investor Carl Icahn speaks at the Wall Street Journal Deals & Deal Makers conference, held at the New York Stock Exchange, June 27, 2007.

Credit: Reuters/Chip East

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(Reuters) - Navistar International Corp (NAV.N) defended itself on Monday after activist investor Carl Icahn attacked the U.S. truck and engine maker for hiring a new chief executive officer without consulting top shareholders.

The company, whose shares fell less than 1 percent, accused Icahn of engaging in "threats, attacks and disruptions" after he made his criticisms public on Sunday.

Icahn, Navistar's third-largest shareholder, said the truckmaker had not discussed the CEO switch with his firm, and he called the hiring of former Textron Inc (TXT.N) CEO Lewis Campbell a "worse than ill-advised move."

The company, which makes International-brand heavy trucks as well as school buses and recreational vehicles, dismissed Icahn's complaint.

"Navistar maintains an ongoing dialogue with its shareholders and appreciates their input and views," Navistar said. "After a year of dialogue, we are extremely disappointed that Mr. Icahn has chosen to pursue his unproductive tactics of threats, attacks, and disruption."

Icahn's move came about two weeks after Navistar, which had struggled over the past year to win U.S. regulatory approval for a new diesel engine technology, named Campbell to replace former CEO Daniel Ustian. The company in August dropped the new technology, instead saying it would buy engines from Cummins Inc (CMI.N) and Campbell last week laid out plans to cut costs and possibly sell off some pieces of the company.

"You have to balance the desire to have more independence on the board, which is probably positive, with disruption to the company, which has now started to take the right operational actions," said Robert Wertheimer, an analyst with Vertical Research Partners.

Navistar shares were down nine cents at $24.67 in afternoon trading on the New York Stock Exchange. Over the past year, they have lost about 37 percent of their value.

PROXY BATTLE AHEAD?

Icahn, a billionaire investor known for shaking up the management of companies, said in an open letter to Navistar's board released late Sunday that he may take his case directly to Navistar shareholders in a proxy battle.

"I would prefer to amicably resolve this matter now, rather than through protracted litigation and a proxy fight," Icahn said. "However, I am sure that you have no doubt that I will proceed with both, if necessary, to protect my investment and the interest of all shareholders."

Icahn, who now owns a 14.5 percent stake in the company, had threatened a proxy fight at Navistar last year but backed down after the company agreed to begin electing directors for one-year, rather than overlapping three-year, terms. In his Sunday letter he called on the company to allow shareholders to name four new directors immediately.

Navistar typically holds its shareholder meetings in February.

Icahn pushed last year for a merger between Navistar and rival Oshkosh Corp (OSK.N), but Oshkosh shareholders voted down an Icahn-backed slate of directors in January.

But even in defeat, Icahn can have an influence on how companies are run, observers said.

"Even when Icahn and his ilk can't get the votes they need to change the board, what they often is accomplish is waking up the company," said Erik Gordon, a business professor at the University of Michigan, who studies takeovers. "The fact that he can threaten a proxy battle or wage a proxy battle often leads to fairly substantial changes at a company."

More than half of Navistar's stock is in the hands of three big funds.

MHR Fund Management, an activist fund run by former Icahn adviser Mark Rachesky, has amassed a 14.99 percent stake in the company, just below the 15 percent level that would trigger the poison pill defense that the Navistar board adopted in June.

Navistar's largest shareholder is Franklin Resources Inc (BEN.N), which has a 16.3 percent stake it amassed before the company adopted its poison-pill defense.

Gimme Credit senior analyst Vicki Bryan said Icahn's actions could start a public dialogue that might attract similar support from Navistar's other major shareholders.

'OUTRAGEOUS' MOVE, ICAHN COMPLAINS

Campbell, who replaced ousted CEO Ustian on August 27, held his first major conference call with shareholders last Thursday, saying the Lisle, Illinois-based company was starting a cost-cutting campaign and would consider selling smaller parts of its business and it looks to return to long-term profitability.

Investors sent Navistar shares up nearly 20 percent last Thursday, on a day the company said it would have lost $100 million in the latest quarter without a one-time gain related to its tax rate.

"Campbell showed broad, early knowledge of company structure, direction, and improvements needed for Navistar turnaround," R.W. Baird analyst David Leiker said. "He voiced confidence in ability to execute objectives and exudes a sense of urgency within the organization."

Icahn said Navistar's board should have consulted shareholders before naming a new CEO.

"It is therefore outrageous that you have not reached out to obtain our opinion (and I assume you have not obtained the opinions of the other large holders) on issues such as choosing a new management team to lead this company," Icahn wrote.

(Additional reporting by Nick Zieminski in New York; Editing by Lisa Von Ahn, John Wallace and Tim Dobbyn)

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