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Navistar Saga Takes Yet Another Turn

The latest twist in the Navistar story: DealReporter is reporting that Navistar has recently interviewed “financial advisors for defensive advice.”

Navistar Logo
Source: Navistar.com
Navistar Logo

The publication cites a source familiar with the situation and said it is unclear whether an advisor had been hired. A Navistar spokeswoman declined to comment.

Even if Navistar did hire advisors, would it be too little too late? Gimme Credit analyst Vicki Bryan thinks so. In a report to clients, she wrote, “Newly minted defensive measures announced this week are not a failsafe certainty.”

All of this comes after a week or two of events that Navistar would like not to remember:

  • The company adopted a so-called “poison pill” strategy geared at blocking potential suitors.
  • Investor Mark Rachesky’s MHR Fund took a 13.6 percent stake in the beleaguered truck and engine maker days after his former boss, Carl Icahn, boosted his stake to 11.9 percent.
  • I reported the possibilities that a bankruptcy protection filing was not out of the question for Navistar, citing the analysis of Gimme Credit’s Bryan.

All of this follows rumors that the likes of Volkswagen and Fiat might be interested in buying the company, and a court ruling that could ultimately hamper Navistar’s ability to make big-rig engines.

Bryan noted, “Given Navistar's spectacularly bad press over the past few weeks ... we can envision a scenario similar to the coup d'état at Texas Industries in 2009, when its largest shareholders launched a public grass root appeal to all shareholders to support their new board candidates as well as sweeping changes to improve management strategy and company disclosures, accelerate board elections, and revamp the hurriedly tightened ‘poison pill’ provision.

“They won the shareholder vote by a 4-1 margin and all the proposed changes were enacted,” she said.

With Navistar, she points out, even if everything goes right on the shareholder activism front the company’s fate hinges on the success of its much-maligned EGR engine, which it has bet its future on — but which has been riddled with mechanical problems and unable to get Environmental Protection Agency (EPA) certification.

“If the EGR strategy fails or is abandoned, Navistar may be in on the ropes long before the next annual shareholders meeting in February,” Bryan says. “The best outcome we see for Navistar is getting EPA compliance — pronto — for its EGR engines, and even then the company will require serious repairs to its damaged brand and credibility. Otherwise, Navistar’s time and options seem to be running out.”

She adds that while the company’s finance segment debt “is secured separately, Navistar's primary manufacturing segment doesn't have enough cash and receivables to cover its current liabilities — and tangible assets fall far short of covering outstanding debt. We estimate that Navistar company bonds (trading at 94-96) might be valued 40-60 points lower in a liquidation scenario, and the equity rendered worthless.”

If, just in case, she hasn’t been clear enough, Bryan adds, “We know from court documents that AMR Corp. was secretly constructing its bankruptcy filing even as it present at investors conferences and sold $700 million in expensive secured high yield debt to raise cash — and assured investors in its [Oct. 19] third-quarter earnings call that liquidity was adequate and bankruptcy was not its ‘preference or goal.’ ”

The next day, Bryan said she thought AMR would file by Christmas. She was off by 25 days, with the company announcing its bankruptcy filing on Nov. 30.

Bryan is not saying the same thing is happening or will happen with Navistar, but based on what she has lived through in the past, she is not saying that it is not, either.

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