June 15, 2012 / 5:35 PM / 5 years ago

Another activist fund takes big Navistar stake

(Reuters) - A second activist investment firm said on Friday it had taken a big stake in Navistar International Inc (NAV.N), boosting shares of the troubled U.S. truck and engine maker as investors saw pressure ramping up for management to pursue a sale of the company or change its engine strategy.

MHR Fund Management LLC said it had taken a 13.6 percent stake in Navistar, edging Carl Icahn's 11.9 percent to make it the company's largest shareholder.

Navistar shares leaped as much as 11.6 percent on the New York Stock Exchange, on investor hopes that the board will be forced to tackle some of the problems that prompted an unexpected quarterly loss last week.

"Things are going to start to happen faster now," said Robert Wertheimer, an analyst with Vertical Research Partners. "If you were the board or you were senior management, I think you would have to be considering a variety of options."

Navistar, whose roots are in agriculture and which was once called International Harvester, has been struggling for the past year to contain the costs of its program to develop a new style of diesel engine for heavy trucks, and has seen its shares lose about half their value along the way. The company has been in the spotlight since October, when Icahn disclosed his stake and proposed a merger with rival Oshkosh Truck Corp (OSK.N).

MHR, founded by Mark Rachesky, a former associate of activist investor Icahn, built its position during an exceptionally volatile period for Navistar shares.

The stock plunged as much as 28 percent on June 7 after it reported the loss, then recovered a day later when Icahn raised his stake from 10 percent and Fiat Industrial FI.MI Chairman Sergio Marchionne hinted he was keen on the company.

UNLIKELY ALLIANCE?

One question Rachesky's move raises is whether he and Icahn plan to work toward the same end.

Rachesky worked for Icahn before co-founding his own investment firm. His company is the largest shareholder of film studio Lions Gate Entertainment Corp LGF.N - a position it solidified after Icahn last year gave up a long battle to take over the company, which included a lawsuit Icahn filed against his former chief investment adviser.

"Clearly, Icahn had a game plan and while these two guys were in the past at odds, so were the French and the Germans, what can I tell you?" said Mario Gabelli, whose Gabelli Funds is the fourth-largest Navistar shareholder.

An MHR spokesman declined to comment on the company's plans. Icahn could not be reached for comment.

MHR now holds 9.4 million shares in Navistar, bought May 22 through June 13, it said in a filing with the U.S. Securities and Exchange Commission.

That makes it the biggest investor in the Lisle, Illinois-based company, based on current Thomson Reuters data.

In the filing, New York-based MHR said it "may seek to engage in discussions with (the) management and others concerning the business and operations of the company."

MHR noted in the filing that it may seek seats on the company's nine-member board of directors or advocate for a sale or reorganization of the company.

Navistar, which makes International brand trucks, Monaco recreational vehicles and school buses, declined to comment on the news.

ENGINE TROUBLE

Shareholders received more unwelcome news this week when a U.S. appeals court ruled it would no longer allow the company to pay fines to avoid curbs on selling diesel truck engines that fail to meet U.S. pollution standards.

While that engine may yet win the U.S. Environmental Protection Agency's approval, the company should have a backup plan in place in the meantime, suggested analyst Wertheimer.

"It's certainly time for a change in course and whether that be pursuing the sale of the company at this time or simply changing management, the time has come for the board to take action," said one investor with a stake in Navistar who said his company had not authorized him to speak publicly. "The board needs to take a more proactive role at this point."

Navistar's board is next scheduled to meet on Tuesday.

Late last year, Navistar's CEO, Daniel Ustian, said he was open to Icahn's idea of merging with Oshkosh, in which Icahn holds a 10 percent stake. But Oshkosh shareholders and management beat it back, voting down an Icahn-nominated slate of directors at the company's January annual meeting.

Analysts have said there could be obstacles to a foreign company buying Navistar, since it also makes military vehicles.

When the company reported the quarterly loss it also named Troy Clarke, a former General Motors Co (GM.N) executive who previously ran Navistar's Asian operations, to the new role of president of trucks and engines, essentially overseeing all the company's business lines.

Ustian, 61, said last week that the company had succession in mind when it promoted Clarke and another top official.

Navistar's competitors also include engine maker Cummins Inc (CMI.N) and truck maker Paccar Inc (PCAR.O).

Navistar shares were up 8 percent at $30.01 on Friday afternoon, off an earlier high at $31.06. The shares have lost almost half their value over the past 12 months, while Oshkosh has fallen 22 percent. Both slumps are far deeper than the 3 percent decline of the Standard & Poor's capital goods industry index. .GSPIC

Reporting by Scott Malone in Boston; Additional reporting by Ross Kerber in Boston, Lynn Adler in New York and A. Ananthalakshmi in Bangalore; Editing by Bernadette Baum, Matthew Lewis and M.D. Golan

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