Navistar wants GM's medium truck division

Navistar International Corp. is declining comment on a published report that suggests the Warrenville truck and diesel-engine maker is interested in acquiring General Motors Corp.'s medium-duty truck operation.

The Flint (Mich.) Journal, citing unnamed sources, reported Sunday that GM is mulling a sale of its relatively modest medium-truck business to Navistar.

The report quoted a United Auto Workers official as saying the union is "aware of these ongoing talks between the two parties," although the UAW hasn't yet received any formal information about the rumored transfer. And it quoted unnamed plant workers who said Navistar employees "have been in the Flint facility" where GM makes its medium duty trucks.

GM spokesman Tom Wickham declined to comment on the issue.

Navistar spokesman Roy Wiley, asked about the published report, sounded a similarly opaque theme: "I just don't comment on rumors or speculation," he told the Tribune in an interview.

"That's not a denial, it's not a no comment," continued. "I just don't comment on rumors."

Late Tuesday, the rumor gained wider currency, when Bear Stearns analyst Peter Nesvold suggested in a note to investors (entitled "A Potential Sale of GM's Medium-Duty Truck Business to Navistar?") noted the newspaper article. Depending on the terms of the possible transaction, he said, folding the GM production into Navistar's existing structure could add 50 cents to $1.00 a share to Navistar's annual earnings, by increasing the company's capacity utilization.

"We don't see antitrust issues" in the potential acquisition, the analyst said, but he added that getting UAW approval could present an obstacle.

Navistar is a leading producer of the heavy-duty "Class 8" trucks that haul freight cross-country. In addition to serving that boom-and-bust market, it also is the nation's biggest maker (with an about 36 percent market share) of medium-duty Class 5, 6 and 7 commercial trucks, which are used in workhorse applications such as garbage hauling, local freight delivery and wrecker service.

But while trucks are the core of Navistar's business, the same isn't true of auto giant GM. GM makes class 4 trucks -- a small medium that is essentially a very heavy-duty pickup, and it also makes class 5 and 6 trucks. GM sells its mediums under the nameplates Kodiak, TopKick and Isuzu T-Series.

Overall, the company said in its latest annual report, GM made a total of 59,000 medium-duty trucks, representing 11.8 percent of the market for those models.

The speculation about an acquisition of GM's medium-truck business surfaces at an interesting time for Navistar.

For one thing, the company is currently locked in an acrimonious, high-stakes dispute with customer Ford Motor Co., over a longstanding contract under which Navistar sells Ford about 300,000 diesel engines yearly, for use in Ford heavy-duty vehicles.

In addition, because of an accounting issue that ballooned into an expensive, time-consuming (and as-yet-uncompleted) restatement of earlier years' results, Navistar hasn't been able to file its financial results for the fiscal year ended Oct. 31, 2005, or for any subsequent periods.

In February of this year, the New York Stock Exchange suspended trading in Navistar shares because the truck maker is so far behind in its regulatory filings. Since then, the stock has been trading on the low-prestige electronic bulletin board known as the "pink sheets," which generally hosts the nation's smallest companies.

Nonetheless, Navistar shares have surged in recent months, as investors bet the company will weather the current accounting turbulence, and reap strong sales in fiscal 2008 after a soft 2007.

On Monday, a group including Harbinger Capital Partners Master Fund I Ltd reported it has accumulated 5.95 million Navistar shares, representing a 7.9 percent passive stake in the company. A passive investor filing means the holder doesn't intend to take any actions such as launching a takeover effort, but instead simply plans to hold the stake as an investment.

On Tuesday, Navistar shares closed up $2.55, or 4.1 percent, at a new all-time high of $64.40.