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Navistar Braces For Wild Takeover Ride

Tickers in this article: CMI NAV OSK

NEW YORK ( TheStreet) -- As activist investors snap up its waning shares, struggling truck maker Navistar(NAV) is adopting poison pill to brace against the prospect that its largest shareholders -- like Carl Icahn -- will try and take the company over.

Navistar said on Wednesday that its Board of Directors has adopted a stockholder rights plan, otherwise known as a "poison pill," in a move to fend the company from a prospective acquirer. Recently, MHR Fund Management became the heavy-duty truck maker's largest shareholder, topping a near 12% stake held by Carl Icahn, in a move that fanned speculation the company could be sold. Now, Navistar is bracing for the prospect of takeover bids.

In a press release, Navistar said that it is adopting the poison pill to "deter coercive takeover tactics" and will offer preferred stock to be distributed as a dividend on each share held as of June 29, if any investor takes a larger than 15% stake in the company. That move will prevent an acquirer from taking control of the company for a low-price, Navistar added.

Last Friday, investment manager MHR Fund Management ousted ) activist investor Carl Icahn as the top Navistar shareholder, causing shares to rally. However, Navistar shares fell over 3% to $28.38 in Wednesday trading on its adoption of a poison pill.

Mark Rachesky-run MHR now holds 13.6% of the Navistar's stock, in an investment that tops Carl Icahn's stake, which he opened last October and boosted earlier in June. Previously, MHR and the legendary activist invested in Lionsgate Films (LFG) during an epic Icahn-led buyout saga where he took a 30% stake in the Hunger Games film maker, but failed on takeover and activist efforts.

MHR said that it "may seek to engage in discussions with (the) management and others concerning the business and operations of the company," in its filing, signaling that it could become an activist Navistar shareholder, like Icahn.

That investment comes as speculation that Volkswagen(VLKPY) or U.S. industrial engineering giants like Cummins(CMI) could partner or take a stake in Navistar, driving the company shares from three-year lows hit in early June.

In an upgrade last week, JPMorgan analyst Ann Duignan said that Navistar's biggest risks are its struggles to meet Environmental Protection Agency emissions standards on new truck lines, while the prospect that the company finds a stragetic partner like Cummins, VW or Fiat Industrial limits that downside.

Fiat chairman Sergio Marchionne said he wants to increase the company's presence in the U.S. earlier in June, leading to speculation that Italian automobile and trucks giant could be interested in Navistar after taking a majority stake in Chrysler in 2009.

A full blown strategic acquisition of Navistar continues to remain an unlikely prospect, noted Duignan of JPMorgan, citing the company's $3.2 billion of pension liability and its $2 billion of ordinary debt. Given potential takeover interest, Duignan gives Navistar shares a $31 price target.