April 9, 2020

Breakingviews: Icahn’s Volkswagen-Navistar deal is DOA

by Breakingviews.

Carl Icahn is often the puppet master behind deals. Now he can hardly catch a break. The activist investor’s gruelling campaign at Navistar International was vindicated when Volkswagen-owned Traton made a $35-per-share bid for the U.S. truck maker in January. Given Navistar’s shares have since halved and the German carmaker’s Chief Executive Herbert Diess may have to take state aid, it looks like a second Icahn deal in a month may bite the dust.

Officially, Traton’s $2.9 billion offer – a 19% premium over Navistar shares’ 90-day volume-weighted average share price prior to the bid – is still open. That presents a potentially tasty cash prize for 17% shareholder Icahn who spent nearly a decade turning around the once-beleaguered truck maker, in which Traton already owns a similar-sized stake. In reality, however, shares have crashed to around $17.50 on Wednesday morning in part because the union was never inked.

Fat chance that it will happen now. The pandemic caused by Covid-19 has made what previously seemed like a strategically sound move much less so. Bulking up Traton’s presence in the United States is superfluous given crashing sales globally. Last month Volkswagen boss Diess warned the group is burning through some 2 billion euros per week, making cost savings the main focus and his proposed $2.9 billion acquisition of the Illinois-based company an unnecessary bauble.

There are other issues, too. European outbound M&A has basically frozen up. And if the Golf-maker runs low on cash and credit then it could expect to receive German government aid. The latter would possibly carry conditions banning any overseas acquisitions.

If the offer falls apart it would be the second Icahn deal to come undone in quick succession. Xerox recently ditched its bid for HP, at least temporarily, which he also championed. And this is hardly a broad endorsement for him: Navistar shares had already declined by around a tenth since Icahn revealed a stake back in mid-October 2011 until when Traton made its offer. Though his returns could be hedged and protected, after the latest selloff, the total shareholder return since then, including reinvested dividends, currently stand at minus 55%, according to Refinitiv data.

The prospect of crystallising such a large loss may persuade Icahn to hold on and push for a union further down the line, with Volkswagen peer Daimler another potential suitor. That’s unlikely to brighten his present situation.

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