Analysts: “Poison pill” buys time for Navistar

A shareholder rights plan adopted by truck maker Navistar this week – commonly known as a “poison pill” – is being viewed by many analysts as an attempt to stall any potential efforts to change the company’s management team.

However, Jeff Kauffman, an analyst with investment firm Stern Agee, believes this “poison pill” strategy “likely only delays the potential shareholder call for management change,” rather than scuttling it entirely.

“With two large activists holding nearly 25% of the company's shares, and share performance down so much on management credibility, we don't view it as difficult for other shareholders to decide to vote as a bloc as the next opportunity to change the makeup of the board,” he said in a statement.

Navistar noted in a press release earlier this week that its shareholder rights plan is designed to deter coercive takeover tactics including the accumulation of shares in the open market or through private transactions and to prevent an acquiror from gaining control of the company without offering a fair and adequate price to all of the company's stockholders.

Thus, the plan established that one preferred stock purchase right will be distributed as a dividend on each share of the company's common stock held of record as of the close of business on June 29 this and year and will expire June 18, 2013. Initially, each right will entitle stockholders to buy a unit representing one one-thousandth of a share of a new series of preferred stock of the company for $140, Navistar noted.

The OEM added that those rights generally will be exercisable only if a person or group acquires beneficial ownership – including through derivatives – of 15% or more of the company's common stock or commences a tender or exchange offer.

Agee’s Kauffman added that, based on Navistar’s stock closing price yesterday of $28.38, this would work out to an issuance of close to 10 shares of common stock for each exercisable right. “This would have the effect of diluting the equity stake of an acquiror with a 15% stake by close to 90%,” he said.

“Navistar management sees the writing on the wall and is taking steps to thwart a hostile bid,” Kauffman added. “This does not come as a surprise given the din of takeover talk in the two weeks since the company reported disappointing results.”

Yet other analysts believe if Navistar can successfully weather the near term headwinds it’s experiencing due to the issues surrounding its truck engines, the company could begin to more fully reap the benefits of several other strategic initiatives.

“Look at Navistar’s defense unit; it’s highly profitable,” Sandeep Kar, global director for commercial vehicle research with consulting firm Frost & Sullivan, told FleetOwner. “It’s also a leader in school bus sales, and its partnerships with Mahindra in India and its joint venture with Caterpillar are creating good fundamentals for truck sales globally.”

In particular, Kar believes “good things are happening” for Navistar in terms of trucks sales outside the U.S. – particularly in China and India – which could help buttress the company’s bottom line and help it overcome the near-term fiscal drag created in the U.S. due to its engine emission reduction technology choice.

“Looking forward, 40% to 50% of the global truck demand in the next few years is going to come from China and India alone,” he explained. “Even if Navistar ranked number one in terms of U.S. [heavy truck] market share, those sales would not even come close to the [sales] volumes generated by China alone. If they can only survive the near term challenges, they could benefit significantly from those efforts in the global truck market.” 

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