A busy day today. Dee Kapur is now - well - Kaput - and has confirmed that he is off, leaving not a wrack behind - a use of the Bard's words that may be deemed innapropriate by many. Suffice to say, he's given a rather more standard period of notice than that tall fellow who used to sound off to those who would listen, but we'll leave that one for later. Because, more importantly, the mail has arrived, and Carl Icahn is gearing up to be a serial correspondent. He clearly has the bit firmly between his teeth, so the rest of us can sit back and enjoy. This has the potential for some serious entertainment. Karma, so they say is a Bitch. Icahn’s latest missive speaks to its beauty.
He starts with a bang:
In its September 10 press release the Navistar Board dismissed my September 9 letter as "threats, attacks and disruption rather than continuing constructive engagement." As that Board is well aware, I have a $330.9 million investment in Navistar, a company with a market capitalization that has fallen from just under $3.5 billion to $1.7 billion in the past 12 months. The top four holders alone own approximately 56% of Navistar stock. Meanwhile, total ownership of the Board and management is less than 1.5%, nearly all of which has been granted to them by Navistar (in other words by you and me) -- they have no skin in the game. I have a message for the Navistar Board: My comments are not threats, they are demands that I take very seriously in light of my substantial investment, and as should you, in light of your fiduciary obligations.
This takes little translation. Not previously given to much by way of garrulousness, Icahn is clearly making up for lost time. We can summarize this opening salvo as you MoFo’s work for me and not the other way round, and try, please, to remember this. Sage advice, albeit a bit tardy, but, nevertheless, identifying the crux of the matter. The Board has been at the top for a while, and, while (it) ain’t jumped yet, clearly it has now been given clearance to move to the edge. And we have just realized that the Lil’ Wayne theme probably isn’t going to work too well.
But moving on:
Sadly, the comments made by the Navistar Board of Directors in their September 10 press release were not surprising to me. Their comments were, in my opinion, nothing but a jumble of legal jargon about taking their "fiduciary duties very seriously"; half-baked promises regarding "new leadership," a weak attempt to take credit for giving up on their prior emissions strategy, as though shareholders should be thankful that they only spent three years in the EGR quagmire, and blatant falsehoods as to their supposed "ongoing dialogues with shareholders." All of this nonsense is totally consistent with the non-productive run around that has been emblematic of my relationship with this Board, whose concept of "dialogue," in my opinion, amounts to dogmatic, inflexible mantras, rather than the actual exchange of ideas in an effort to reach a mutual understanding for the betterment of Navistar and its owners.
EGR quagmire and blatant falsehoods. This we like: it has an elegance of form – spare and direct prose – which, when coupled with non-productive runaround and dogmatic inflexible mantras seems entirely apposite. Seriously – say it out loud – it sounds good. And it has the added benefit of being an entirely accurate – though lamentably brief - description of Navistar’s past four years.
Next up:
In fact, on September 6, 2012, the new Navistar Chairman, Lewis Campbell admitted that he has made no attempt to discuss any of these matters with us or other shareholders. When asked if he had discussions with any large shareholders Mr. Campbell made the following astonishing statement:
"Well I have not had any conversations with them...I will say this though, look there isn't anything I can think of anybody outside would want to do that we're not doing.... I don't know maybe you guys can tell us the things you'd like to see us do differently but I don't know what else we could be doing."
We admit to feelings of some conflict here. Clearly, and see point one above – the relationship between Board, Management and Shareholders is one that is both clearly defined and well-enshrined in law. And it is not a difficult concept to get hold of. Consider this analogy: were your Podiatrist to spend a session examining you ears, you might take a moment to examine their qualifications and general fitness for purpose. Where the Board has been looking we know not – you can have a Proctological joke here if you need one in order to maintain the medical motif, but it’s hardly a new observation. For a CEO, parachuted in from great height at great speed to replace that other one who left a bit sharpish and yet not take counsel – nor even a cup of tea – from his leading shareholders – seems a strange situation indeed. But, conversely, what else can Mr Campbell do? His voyage to earth ended with a seat on a bus concurrently describing a graceful arc over a precipitous cliff, and so we would question the utility of urging him to choose this moment to check the adjustment of his rear-view mirror. Clearly, Campbell’s only real option is to hope and pray to whichever deity he holds dear. As strategies go, this one blows, but, in life as in commerce, something may be better than nothing. Not much, but slightly.
He continues:
But to me the absolute topper contained in the Board's September 10 press release was the pathetic plea by this Board that shareholders should all "rest assured, the Board and management have a clear path forward and are focused on executing on their plan and delivering value to shareholders." This from a Board of Directors that has overseen years of mismanagement, deteriorating results, falling stock prices and more recently, an SEC investigation.
Mismanagement – check: deteriorating results – check: falling stock prices –check: SEC investigation – check. That’s four for a solid start. Do we rest assured? Hell yes – we’ve got our Tempurpedic on and if we were any more chilled, our Body Clock would be in reverse. WTF - this is akin to being asked to relax whilst being mugged. It is, as Icahn observes, an absolute topper.
Anyhoo, dude’s on fire now:
After years of supporting a failed strategy, squandering corporate assets, overpaying underperforming executives, watching share price and market share consistently decline and, in my experience, making every possible effort to avoid engaging with shareholders in a meaningful dialogue about the future of this company, this Board is asking for a chance to implement their latest "clear path forward" at Navistar. It is a chance shareholders cannot afford to take. After all, this is the same Board that proved fully capable of spending our money to open a new, gold plated corporate headquarters, but failed to develop an engine that could meet EPA standards.
Clear. Path. Forward. Discuss. Leaving aside that this a statement redolent of Pyongyang’s finest rhetoric, just what does it mean? We could take a cheap shot, and point out that, having performed some fairly majestic U-turns of late, by the law of averages NAV should get there – one day. It’s like losing your car keys. You look for them, eventually you find them. And you miss the boat / opportunity / meeting – delete as applicable – you get the idea. Problem is, Navistar has been looking for the keys to EPA 10 in the wrong place for four years. And it’s been looking for the keys to the wrong vehicle. You wouldn’t fire up the Hot Air Balloon in order to run to the Post Office – well maybe you would – your transportation choice is not our concern – whatever floats your boat as it were. So Navistar’s clear path forward starts on the edge of chasm, populated by – improbably we grant you but if ever there was a case for hyperbole, it’s with this bunch – irritable piranhas. Who are probably cyclists or otherwise ill-disposed to trucks generally. It’s described as clarity and we’ll agree. It is abundantly clear that NAV is planning to offer a CMI engine, and a possible NAV engine. We’ll say it now: the volumes likely for the 13 l son of MaxxForce will be so low as to make it an unsustainable proposition, and so the whole shooting match will get ported out to Cummins. Meaning the dealer network gets poked in the eye in terms of aftermarket revenue, and so does Navistar. And its shareholders. Some of which are, as we now know, already in a frame of mind best described as grumpy. This can but serve to render their humour yet more ill. Given that other OEMs have been fitting CMI product for some time now – and have some claim to it being proven in service – NAV starts from square one. So why buy a NAV product c/w CMI when other variants are available? We don’t know. Some people went to see Rancid Aluminium. It was a terrible film. We don’t know why they did that either. We don’t know everything. But we do know that the impact on revenues will be significant. The path forward is very clear. And that’s the problem. It leads to a bad place. Gold plated corporate headquarters is a new one on us – what for one thing and another, we are rarely invited to Lisle, and so can provide no first hand testimony as to the goldenness or otherwise of the place. But, Gold Plated? That does seem rather vulgar, and dare we say it, smacks slightly of the lottery winner. Which, on balance, given NAV’s treatment over NCP’s may be very appropriate.
Just hitting his stride:
I made my first investment in Navistar on August 23, 2011. From that time until today I have been a patient investor in the Company. From the outset this Board told me that they needed time to execute on their vision for Navistar. Despite my concerns regarding the management and governance of the company, last year we entered into a standstill with the company assuring them the opportunity to chart their own future and the time they claimed was necessary to achieve it. We were attempting to avoid conflict in the hopes of an improved situation for all shareholders. Those hopes have now been dashed.
In the past year, and particularly over the past several months, as our concerns for the company's strategy continued to present themselves, we attempted to engage the company in meaningful discussions over their strategy - they have flatly refused. We have even offered on multiple occasions to sign a confidentiality agreement thereby restricting ourselves to engage in a more open discussion - again the Board refused. We have signalled (sic) a willingness to sit down and discuss this situation with the management, Board members and the other large shareholders - again the Board refused. It appears to me that the old management team received unwavering support from this Board, and in particular from this Board's executive committee, right up until the point where it began to endanger Board members' jobs. Only then were they willing to do anything about it, and even then they were not willing to find a permanent management team or have an open discussion with shareholders.
There you have it. Nothing much to say about this, save for the observation that a cursory glance at Stockholder Equity in the most recent 10-Q suggests that better investments are available. Narnian Whalemilk Futures for example. But it’s interesting that he references old management: the tone of the last call suggests that the former CEO is a name not to be mentioned – sort of a Scottish Play for the truck industry – and yet Icahn clearly kept the rattle inboard the pram until now. Maybe Campbell is an easier target or a more sentient one. Given that he accepted this gig, that may be overstating his capacity in this regard, and we will return to this point in a minute.
Parental Discretion Required:
What has happened at Navistar over the past three years is not simply a matter of poor business judgment - as far as I am concerned it represents a blatant, ongoing disregard for the success of the company and a long track record of ignoring the perilous situation the company is in, while rewarding the strategy and management team that got us here. In my opinion, by damaging our company and its prospects, the Navistar Board has also exposed itself to significant risk of personal liability both as a result of its continuing reckless disregard for the needs of the company and the requirements of its business, and by adoption of a poison pill in the unique circumstance existing at Navistar. With only four holders owning more than a majority of the Navistar shares, even the "normal" flimsy justifications used to support a Board's decision to adopt a poison pill -- to protect the fragmented shareholders from the influence of an acquisitive shareholder -- are non-existent, and this pill is exposed for what I think it really is -- a bad faith, self interested maneuver by the Board to protect its fees and perks.
Blatant, ongoing disregard. A long track record of ignoring the perilous situation damaging our company and its prospects. Reckless disregard. A bad faith, self interested maneuver by the Board to protect its fees and perks. These are a few of our favourite things.
And finally:
As I have previously stated, I intend to move forward pursuant to Section 220 of the Delaware General Corporation Law to obtain information regarding what to me are the obvious failures at Navistar. I would prefer to amicably resolve this matter with Navistar and not engage in the tiresome and expensive process of protracted litigation and a proxy fight----all of which only make the company's lawyers and advisors rich at my (and your) expense. However, if the Board continues to follow the advice of those same advisors, and fails to recognize the right of an owner to have a legitimate say in the conduct of the business that it owns, then I will have little choice but to do this "the hard way" and proceed as I consider appropriate when forced to deal with an entrenched Board intent on self protection at all cost.
Which, roughly translated, means f*ck y’all, call your Lawyers.
So why now? What’s afoot? There are creatures that live underneath large rocks which breed with themselves and don’t get out much who have likely been well-aware of the situation at NAV over the past four years. Carl Icahn is well-wired in to what’s afoot, and even if he didn’t know personally, he has his people. So, is he kicking off to kick up the value of his holding – astride a White Charger, he rides to the rescue of this once proud company? And then be shot of the same? It kind of makes sense. Now the architect of this tomfoolery has left and that makes for a fluid situation. And now Mahindra has finally settled the Global Vehicles debacle – a situation in which its previous US partner had sued as Mahindra backed away from a planned light truck launch – maybe NAV’s Indian partner may be in a better situation to take a piece of the ailing Lisle operation. It would be a brave move, and, as we suggested some years ago, Chapter 11 still seems a probability. But Navistar’s valuation is one predicated entirely upon its market access, and that, clearly, is something that Mahindra might like a piece of.
Hopefully, NAV’s Board will fire back tomorrow. Who needs HBO when you have NAV?
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