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An Oshkosh-Navistar Combo Could Create a Defensible Armory

Oshkosh's enticing valuation also offers a potentially lucrative merger kicker.

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We've concluded that  Oshkosh (OSK) could be worth between $43 and $46 per share if activist investor Carl Icahn--who owns nearly 10% of both companies' outstanding shares--succeeds in persuading  Navistar (NAV) to acquire the specialty vehicle manufacturer. We think Navistar could offer an acquisition premium of between $8 and $11 per share (or between 35% and 45%) above Oshkosh's current market price for the incremental synergies. We see three major categories where Navistar could extract value: manufacturing synergies, truck chassis synergies, and engine synergies.

Manufacturing Synergies
Corporate savings are the most palpable and could generate 50% (or $80 million) of the annual pretax savings. We believe manufacturing synergies are the mostly likely to occur, as they represent concrete savings opportunities. For instance, the merged entity would remove one executive management team, an accounting department, and other back-office staff. While there will be some manufacturing rationalization, we anticipate that most operating facilities will remain intact. Additionally, Oshkosh is already undertaking an internal manufacturing rationalization, but these savings aren't incremental to a merger.

Basili Alukos does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.