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MHR Fuels Navistar Shares Ousting Icahn

Tickers in this article: CMI LGF CHK NAV OSK

Although we believe that the drums of shareholder activity are likely to bang louder, we believe both Volkswagen and Fiat are likely more at the consideration stage, if that far in their thinking," wrote Sterne Agee analyst Jeffrey Kauffman in a Tuesday note to clients, citing U.S. Department of Defense's Foreign Ownership, Control, or Influence provisions, the cyclicality of U.S. truck sales and shareholder provisions as possible headwinds to a deal.

Without M&A speculation and activist investors driving shares, Navistar may face a rough ride in the second half of 2012.

This week, Deutsche Bank analysts said that price declines and share expectations for Navistar in the second half of the year may be too high. "Navistar's current guidance assumes both positive pricing actions and market share gains in the second half of 2012 . In our opinion, both could be challenging, even assuming EPA certification over the next few months," the analysts noted.

In October, Icahn took a 9.8% stake in Navistar a maker of commercial trucks, busses and diesel engines. Last Friday, Icahn upped his stake in Navistar to nearly 12% from 10.6%, buying up 883,200 shares at an average price of $24.44, according to a filing with the Securities and Exchange Commission .

Icahn -- who is a now the second leading Navistar shareholder -- also took a near 10% stake in truck maker Oshkosh(OSK) last June, in an activist investment that comes amid falling government orders for trucks, fire engines and military vehicles. So far, Icahn's big rig play has performed poorly as he's struggled to get both truck makers to consolidate or induce drastic change.

Navistar is one of the nation's largest commercial truck makers while Oshkosh is the leading U.S. military truck maker.

In both investments, Icahn has pushed for board changes and even indicated that both company's assets could be rationalized through a merger. After opening near his investments, Icahn said "I definitely think it would be a good merger. I think there would be a lot of synergy. I own stock in both and I think shareholders of both companies would benefit," in a December CNBC interview.

"Combining the two would be like combining Porsche and General Motors (GM) ," Brian Rayle a managing director of research at Northcoast Research told TheStreet in October, when speculation of a possible tie up began.

Icahn's trucks bet has so far been hit by continued weakness in government and military vehicle orders, is expected to continue to weigh on earnings. Navistar recently said it's struggling to meet new government mandated emission standards for one of its truck engines and in March, the company cut its 2012 profit guidance to $5.25 a share from $5.75. In late 2011, Icahn settled an activist push to nominate hostile directors to Navistar's board after the company said that the billionaire could put his directors up for election this year.