Inside Wall Street: A Takeover Bid for Navistar?

Navistar International (NAV -0.55%) may find itself in play sooner than many expect.

Its latest defensive moves, including adopting a shareholder rights plan, or “poison pill,” aimed at thwarting hostile bids, signal that Navistar has been getting unsolicited feelers from some interested groups.

Shares of Navistar have spurted higher in recent days, to $27 on June 22 from $24 on June 7. While that doesn’t seem such a big gain, it is enough to attract notice. The rise in the last few days has been attributed to market rumors suggesting that foreign auto makers, including Germany’s Volkswagen (VLKAY -0.42%) and Italy’s Fiat (FIATY +0.65%), may be interested in making a run for the company.

A report from the Financial Times speculates that Volkswagen may be interested in taking a stake in Navistar, which also makes a wide range of diesel engines and parts for the North and South American and Asian trucking markets. The report notes that entering the North American market would enable Volkswagen to better compete with its rival Daimler.

Some analysts believe neither Volkswagen nor Fiat is interested right now since they are both busy pursuing strategic moves in their respective markets in Europe. However, they also concede that acquiring Navistar would be a big plus for either company.

“While we find a near-term takeover by Volkswagen or Fiat Industrial to be unlikely given strategic initiatives taking place at both companies, both manufacturers lack any substantial presence in the North American commercial truck market, where Navistar stands as the sole pure play,” says Brian Sponheimer, analyst at investment firm Gabelli & Co.

He notes that Navistar’s woes, including market share losses due to its inability to meet 2010 emission standards, have made the company an “eventual takeover candidate.” Rating the stock a “buy,” he says investors will ultimately be rewarded for their patience because there is value in the company that a takeover should unlock.

Sponheimer puts the “intrinsic private market value” of Navistar at $45 a share, excluding “a number of likely synergies that would likely surface in a takeover scenario.”

But Navistar has yet to cope with fundamental operating problems. Its results in the first half of fiscal 2012 disappointed Wall Street analysts. In the second quarter (ended April 30), Navistar posted an adjusted loss of $1.99 a share. Results this year are expected to be dismally disappointing, as well.

Sponheimer expects 2012 earnings of just 5 cents a share on sales of $13.9 billion, and EBITDA of $300 million for the fiscal year ending Oct. 31. That is way down from fiscal 2011 earnings of $5.28 a share.

Given Navistar’s operating problems and depressed stock price, some analysts think Volkswagen and Fiat may now be more encouraged to make an acquisition offer for the struggling company.