Looming Navistar transition may be factor in TRATON bid timing

Troy Clarke (Navistgar) and Andrewas Renschler (TRATON)

The timing of TRATON SE’s $2.9 billion buyout bid for Navistar International Corp. (NYSE: NAV)  could be influenced by Troy Clarke’s mandated retirement as CEO of the truck maker he has guided through inherited crises.

Other factors, including the preference of billionaire investor Carl Icahn, may be larger factors in whether Navistar becomes TRATON’s vehicle into the North American heavy- and medium-duty truck market. It would preserve a Big Four that includes the North American units of Daimler AG (OTC: DDAIF), AB Volvo (OTC: VLVLY) and PACCAR Inc. (NASDAQ: PCAR).

“VW always said they want to be bigger in markets where they are ‘punching below their weight class,’ which is North America,” said FreightWaves market expert Mike Baudendistel.

Clarke’s legacy

Clarke’s role is hard to overlook in positioning a healthier Navistar to become the fourth brand in Volkswagen AG’s truck group. Volkswagen’s initial 16.6% purchase of Navistar for $256 million in 2016 came on his watch. If a deal for the rest of the company happens, as most expect, it may be a big part of his legacy.

Clarke turns 65 this year, which is Navistar’s mandatory retirement age for CEOs. Of course, the board of directors could waive the requirement. And he could retain his chairmanship of the company board, which does not have the same age restriction.

In any scenario, Clarke’s holdings in Navistar and his compensation made him rich. As of October 2019, he held 102,796 units of Navistar stock worth over $13.5 million, according to Wallmine.com. That was before TRATON’s $35-a-share cash offer last Thursday.

Navistar shares rose 52.14% to $36.62 on Friday, closing higher than TRATON’s bid.

Navistar International Corp. shares rose 52.14% to $36.62 on Friday, Jan. 31, closing higher than TRATON SE’s bid of $35 a share for the 83% of Navistar that it does not already own. (FreightWaves/SONAR/STOCK.NAV)

Dropping the pretense

The stock runup means TRATON likely will pay more than its initial offer to complete the deal. After months of expressing a lack of interest in a full-fledged takeover, TRATON CEO Andreas Renschler appeared with Clarke at the North American Commercial Vehicle show in Atlanta last October.

The companies announced that mining trucks from TRATON’s Scania brand would be sold in Canada via Navistar, the first TRATON brand to enter the North American market.

“From an investment perspective, he has absolutely no incentive to talk this up, which would result in a higher price for Navistar,” Stephen Volkmann, Jefferies & Co. analyst, told FreightWaves in December 2019. 

“If you look at the way Volkswagen, now TRATON, has built their global footprint, it is by taking small stakes in companies and ultimately absorbing the entire business,” he said. “That’s what they did with Scania, that’s what they did with MAN, and that’s probably the plan here.”

TRATON also owns Volkswagen Caminhões e Ônibus in Brazil.

Some of the cash for a Navistar deal could come from Volkswagen’s sale of its industrial machinery unit, Renk AG, for $840 million. It is the first divestment since the German automaker’s diesel cheating scandal was uncovered in 2015, according to Bloomberg.

Navistar mum

Other than acknowledging an unsolicited proposal that it said it would consider, Navistar is saying nothing about what may be happening behind the scenes. 

“There can be no assurance that any negotiations between Navistar and TRATON regarding this proposal will take place, and if such negotiations do take place, there can be no assurance that any transaction with TRATON will occur or be consummated,” Navistar said in a statement late Thursday.

In its proposal letter, TRATON said the time had come for a full merger that it believed could be completed by the end of 2020. TRATON said it would not vote its shares in favor of another offer should one surface.

Neither Icahn, the largest Navistar shareholder, nor Mark Rachesky, the founder and chief investment officer of MHR Fund Management, the company’s third-largest shareholder with a 16% stake, has commented publicly.

Clarke’s leadership

After leaving General Motors Co. (NYSE: GM) as president of North America following the automaker’s 2009 bankruptcy, Clarke became senior Navistar vice president of Strategic Initiatives in 2010. He was named CEO in 2013 during an emissions crisis that practically halved the company’s market share and cost billions in related liabilities.

During the six years that followed, Clarke steered Navistar to well-received products while dealing with U.S. Securities and Exchange Commission investigations and other issues that predated his tenure.

“You have to play the hand of cards you’re dealt, and it was not a great hand,” Volkmann said. “I think he’s done a pretty good job given all that. Obviously, he’s been through a gauntlet, so it would not surprise me in the least if he decided this thing is on the right track now and it’s time to move on.”