MILWAUKEE ? The tug-of-war over Oshkosh Corp. continues between billionaire investor Carl Icahn and company management, with Icahn now warning that U.S. military spending cuts put Oshkosh's military business at risk.
Icahn is known for buying stakes in struggling companies and shaking them up to increase the value of the shares. Icahn, who is the largest shareholder in Oshkosh, made an unsolicited bid Oct. 17 to acquire all shares outstanding in a deal valued at about $3 billion.
Oshkosh's board of directors has urged shareholders to reject the offer, saying it undervalues the company and isn't in their best interests.
"Where Mr. Icahn has offered flawed, contradictory, self-interested and unproductive proposals, the Oshkosh board and management team have outlined a clear strategy and are delivering upon it," CEO Charles Szews and Chairman Richard Donnelly said in a statement.
Icahn fired back in a filing last week, saying his only interest is to raise the price of Oshkosh shares. He also warned that the company's defense business is at risk from government spending cuts proposed for 2013.
Oshkosh is competing for a military contract to build Joint Light Tactical Vehicles that could be worth billions of dollars and years of work. But the company has no guarantee it will win the bid.
"We strongly believe that the cloud of uncertainty will be hanging around this defense business at least until the JLTV award is settled, which might not be for years," Icahn said in a letter to shareholders.
"Actual shareholders should realize that the large defense business at Oshkosh is subject to substantial uncertainty concerning future project awards, profitability, risks associated with the ever-changing management to shrink the business, and the results of the recent election and subsequent budget issues," Icahn wrote.
As the U.S. winds down the war in Afghanistan, combined with other Pentagon spending cuts, Oshkosh's defense business is vulnerable, according to analysts and those who follow military spending trends.
It's on "the wrong side of the pendulum," said David King, a military procurement expert and business professor at Marquette University.
The U.S. left hundreds of military vehicles in Iraq when it left that country, and it will probably do the same when it pulls out of Afghanistan, King said. There won't be a pressing need to refurbish thousands of war-damaged vehicles, he said.
The company's booming military business has masked weaknesses in its other divisions, said George Reis, president of GVR Investment Management Inc. in Two Rivers. "I think there are some difficult days ahead," he said.
Icahn has proposed replacing Oshkosh's board with a slate of directors that would spin off the company's JLG aerial-lift equipment business into a separate public company. Then, investors could choose between the truck manufacturing business and JLG, which is focused on the construction industry.
"For those who do not feel that this breakup can achieve a substantial increase in value, as well as those who are concerned about the future of the defense and construction markets, I have provided them a cash tender option at a substantial premium to where the shares were trading before my offer," Icahn wrote to shareholders.
Shareholders could be better served with two companies rather than one, said John Collopy, research director for Carl M. Hennig Investment Securities in Oshkosh. "But I don't know that there's a universal appeal" to JLG, given that the construction industry hasn't fully recovered from the recession, he said.
"JLG isn't a bad business. They have a pretty good product line," Collopy said, but also observed that customers tend to spend far less on repairs or spare parts for the company's products than they would for other equipment. The low potential for support sales ranks JLG among "the least desirable" businesses to own in the construction equipment industry, Collopy said.
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