Navistar Creates Poison Pill to Deter Hostile Takeover

Navistar International Inc.'s board has adopted a plan that would drive up the company's price if an investor obtains 15% or more of its shares. The maker of heavy-duty trucks and diesel engines says the plan would prevent "coercive takeover tactics."

Activist investor Mark Rachesky disclosed last week that he has acquired a 13.6% stake in Navistar. Billionaire Carl Icahn boosted his holding earlier this month to 11.9% from 10%. German news reports have speculated that Volkswagen AG might buy a stake in the company.

Analysts say investors are attracted by Navistar's low stock price. Shares have tumbled 33% to $28.38 in the past three months as the company has struggled with a recall, high warranty costs, an unexpected loss and a key diesel engine that doesn't meet U.S. emission standards.

Under the so-called "poison pill" plan, if an investor crosses the 15% threshold, shareholders could buy options for $140 apiece. Each option could be exchanged for $280 of Navistar stock. The result could be millions of additional shares in the hands of existing shareholders, thus making a takeover prohibitively expensive for a hostile bidder. The company's board has the power to revoke the plan at any time, thus enabling it to sell Navistar to a friendly buyer.

The company contends the new plan doesn't breach its promise to Icahn last November not to adopt a poison pill with a trigger point that matches his stake. In exchange, the investor agreed not to hike his position beyond 14.99% without giving the company advance notice. That deal was reached shortly after Icahn bought his initial stake and threatened a proxy fight.