Oshkosh Corp. Shareholders Rebuff Activist Carl Icahn, a Credit Positive

Oshkosh Corp. Shareholders Rebuff Activist Carl Icahn, a Credit Positive

Last Friday, truck maker Oshkosh Corp. (Ba3 stable) released final results showing that shareholders on 27 January rejected activist shareholder Carl Icahn’s six nominees to the company’s 13-member board. The victory in the proxy battle is credit positive as Oshkosh has sidestepped the uncertainty that would have accompanied a meaningful change in the board’s composition and potential shifts in its operating and financial strategies.
Mr. Icahn had put forward several alternatives for increasing shareholder value at Oshkosh including a sale of its JLG lift-equipment business, pursuing international acquisitions, and streamlining and consolidating operations.
We expect the proxy fight will help focus management on turning around the company’s performance. Oshkosh has struggled with a contraction in its defense business and softness in its commercial and fire & emergency segments. The company had EBITDA of $607.7 million in calendar year 2011 (including our adjustments), down 58% from the previous year.

Despite EBITDA weakness, Oshkosh has focused on keeping leverage low. The company has trimmed around $1 billion of long-term debt during the past two years. As a result, it kept leverage to 2.6x at the end of calendar year 2011, even as EBITDA declined. Had Mr. Icahn’s slate prevailed, the company’s commitment to low leverage might have been placed at risk in favor of optimizing shareholder returns.
We expect the company’s consolidated revenues, operating income and free cash flow to remain weak in 2012, but to improve beginning in 2013. In an early sign of improvement, the JLG business helped drive a 91.8% year-over-year increase in sales at the company’s access-equipment segment in the fiscal first quarter ended 31 December. The commercial segment, which we expect to benefit from the aging of existing customer fleets, had a 43.6% sales rise over the same period.
However, Oshkosh is not out of the woods. We expect that its fire and & emergency business will remain weak owing to tight municipal budgets, while cement truck demand will continue to suffer amid a tough construction market. An inability to improve performance could leave a door open for Mr. Icahn, who was the company’s largest shareholder with a roughly 9.5% stake as of 30 September.