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June 21, 2012 7:46 pm

Navistar said to consult investment banks

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This article is provided to FT.com readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors. www.dealreporter.com

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Navistar International (NYSE:NAV) recently interviewed financial advisors for defensive advice, a source familiar with the situation told dealReporter.

Credit Suisse, JPMorgan, and Bank of America Merrill Lynch have been among the banks around Navistar, said the source and three industry sources. The source familiar said he heard Goldman Sachs and Citigroup were also present.

It was unclear as of Wednesday whether Navistar has formally retained one or more of these banks. Earlier this week, Navistar announced it had instated a shareholder rights plan.

The source familiar, one of the industry sources and a fourth industry source underscored that they do not believe Navistar is looking for a sale. “That’s something they’ll resist mightily,” the fourth industry source predicted.

A Navistar spokesperson declined comment. Representatives for Goldman Sachs, Credit Suisse and JPMorgan declined comment. Bank of America Merrill Lynch and Citigroup did not immediately return a call for comment.

The Navistar board appears to be mulling multiple options for the company at this point, said the source. Among the points that may be on the table are how to resolve concerns related to its non-compliant engine, a review of the company’s capital structure, strategies to address activist investors’ concerns, and defensive tactics against opportunistic moves by third parties to acquire the company, said the same source.

One of the industry sources said it was his understanding that potential asset sales may also be contemplated, pointing in particular to Navistar’s military vehicles. Although, the same source questioned the value that selling assets at this point would provide relative to the company’s larger concerns.

Fiat and Volkswagen have been reported in the press to have interest in the Lisle, Illinois-based engine and truck maker.

The fourth industry source noted that M&A is not the only solution to Navistar’s current situation. “There is a scenario where EPA gets resolved, Navistar has a better second half, the stock moves up and Icahn lightens his position,” this source said.

However, the company has a limited time window to work out a turnaround. One of the industry sources estimated that shareholders may remain at bay over the next six months as the company works to resolve its overhanging issues.

Navistar’s annual shareholder meeting was held this year on 21 February. The company has said it expects to hold its 2013 annual meeting of stockholders on or around 19 February.

Navistar has been thrown into the deal spotlight on the back of two consecutive quarters of missed earnings and a potentially unfavorable ruling by the DC Court of Appeals. On 12 June, the appellate court struck down an interim ruling by the Environmental Protection Agency (EPA) that allowed Navistar to sell its non-compliant engines in the US, provided it paid a fine.

Activist investors have, in the meantime, been piling into the stock. Carl Icahn, who reached a standstill agreement with the company last fall in exchange for a gradual removal of Navistar’s staggered board, increased his stake in the company to 11.87%. GAMCO also increased its stake in the company to 6.2%. MHR Fund Management, which is headed by Mark Rachesky, announced a 13.6% stake in Navistar.

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