Navistar International Corp (NYSE:NAV) took a step towards keeping big investors at bay today when the company announced they were in possession of a poison pill which is engineered to prevent any big investor from gaining a 15% stake or more into the engine and US truck maker. MHR Fund Management LLC said week said they had a 13.6% stake in the firm. This is even larger than Carl Icahn’s stake of 11.9%.
Navistar appears to be the latest firm to be prodded by activist investors. The company has had some issues in recent months such as the company’s unexpected quarterly loss and struggle to get a new diesel engine approved by the government.
A Look Back At Warren Buffett’s Best and Worst Oil & Gas Investments
Warren Buffett is perhaps best known for his large investments in some of the world's most recognizable brands, companies like Coca-Cola, American Express and Apple. Q1 2020 hedge fund letters, conferences and more Companies that fit into this bracket seem to fall squarely within his circle of competence. They sell a product that's easy to Read More
The company’s poison pill works by diverting any shareholder with a disclosed stake of 15% or more to a new class of shares. “The 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 acquirer from gaining control of the company without offering a fair and adequate price to all of the company’s stockholders,” said Navistar on Wednesday.
The protection will make it easier on Navistar CEO Daniel Ustian because it will be easier to avoid outsider pressures such as a possible sale or activist shareholders. One a company has a poison pill it becomes very difficult for that company to be acquired. However, it is not impossible.
In addition to the company’s new safety net, Navistar is working on a new type of engine that is unique to the industry. Currently rivals such as Cummins Inc. (NYSE:CMI) use engines that produce nitrogen oxide, a pollutant that is linked to conditions such as asthma. Navistar’s new engine prototype is supposed to limit harmful emissions which makes it safer for drivers and other people around the trucks. However, Navistar has had some trouble getting the engine approved by the EPA.
Originally in January, the EPA approved the new engine but later pulled the application and the company was forced to resubmit the proper forms in late May. This uncertainty with the new engine has sparked shareholder demands for the company to come up with alternatives if the engine model falls through.
The bottom line here is that Navistar currently is facing some headwinds. Luckily, with the poison pill in place, management can now focus more time on the new engine and other new products to help jolt earnings.