Carl Icahn, MHR Set Sights On Navistar International Corp (NAV)

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ICAHN CAPITAL LPIn a recent 13D filing with the SEC, Navistar International Corp (NYSE:NAV)’s largest shareholder, MHR Fund Management increased its stake by 17% to 12 million shares. The recent purchase adds to MHR’s already robust Navistar position. Navistar was MHR’s 4th largest 13F holding at the end of the third quarter, accounting for 9% of the firm’s total 13F assets. Another big name shareholder of Navistar is billionaire investor and famed corporate raider Carl Icahn (see Carl Icahn’s newest bets here).

Icahn begin building a position in Navistar, while concurrently building a position in Oshkosh Corporation (NYSE:OSK), with the idea to put pressure on the two companies – Navistar and Oshkosh – to merge their defense units. Icahn is now making an exit from Oshkosh after failing to get enough investor support to rearrange the company’s board of directors. Per a set of 13D filings this week, we can see that Icahn has already reduced his ownership of Oshkosh from 9.5% to 4.3%. Interestingly, Ray Dalio of Bridgewater Associates undertook a new position in Oshkosh last quarter (check out Ray Dalio’s full portfolio).

While Oshkosh has see recurring weakness in its defense segment, Navistar has more sustained product diversification, leading us to believe that Navistar is a better standalone investment. It appears that Oshkosh may still need a spinoff to help refocus its operations. Icahn appears to be making progress in Navistar, with two new members recently announced to the board of directors, and a third member to be agreed upon by Icahn and MHR.

Navistar’s trucking segment is around 70% of revenues, which manufactures medium-sized and heavy trucks in the U.S. and Canada. Navistar’s other segments include its engine (13.5%) and parts (14.5%) divisions, which make up modest portions of the company’s total top line. Boding well for Navistar is its dedicated customer – the U.S. government. This provides some stability for sales as it continues to get around 25% from government contracts that extend over several years into the future. MHR and Carl Icahn also have billionaire Ken Griffin as a fellow Navistar investor (see Ken Griffin’s latest picks).

Cummins Inc. (NYSE:CMI) has various exposures to many of the same markets that Navistar operates in. The engine maker expects revenues to be relatively flat this year after a 36% increase in 2011. North American truck engine sales are slowing, but emerging markets are expected to drive growth, particularly in India and China. This will boost the company’s long-term prospects, given that over 50% of revenues are derived from outside of North America. Other interim growth should be helped by pent-up demand in vehicle engines, due to aging truck and power-generating fleets. Cummins had billionaire George Soros taking a new position in the company last quarter (here’s what George Soros is buying).

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