When Poison Pills Poison Shareholders (NAV)

Navistar International Corporation (NYSE: NAV) is finding itself caught between a rock and a hard place.  We have covered the reporting that Navistar could ultimately go bankrupt, but it could also end up being an activist investor acquisition stock as well. Now the company has taken a defensive move to prevent an acquisition which can hurt shareholders.

Activist investors Carl Icahn and Mark Rachesky own about one-fourth of the stock and are pushing for action here.  All the while, this pending decision from the EPA on its new technology could make or break the company and the company is said to have very slow sales at the current time as buyers are going for competitors’ products.

Today’s news is that Navistar adopted a shareholder rights plan, which is street-code for a poison pill.  Effectively, this is an anti-takeover measure designed to dilute an acquirer’s efforts.

Navistar said that one preferred stock purchase right will be distributed as a dividend on each common stock share held of record as of the close of business on June 29, 2012 and it will entitle holders to buy a unit representing one one-thousandth of a share of a new series of preferred stock of the Company for $140.00. The trigger is rather low at 15% ownership as the hurdle, and this may force Icahn and Rachesky to reconsider their position considering that they own or control up to one-quarter of the company as of the most reporting on the matter. The rights will expire on June 18, 2013.

Just yesterday we showed the options trades on how to play the possible death of Navistar. With shares down 5.5% at $27.76 today, those put options are going to be up in value.

JON C. OGG