Stock Market Predictions

Oshkosh shares up 16 percent as Icahn seeks talks

Stock Market Predictions

Oshkosh, which makes tactical vehicles for the military and specialty trucks for construction, is the latest diversified industrial and defense company to be targeted by activist investors for a potential breakup, at a time when defense stocks languish on fears of softening military spending.

Shares of Wisconsin-based Oshkosh, which also makes fire and emergency equipment and cement mixers, were 16 percent higher at $33.62 on the New York Stock Exchange in afternoon trading, valuing the firm at more than $3 billion.

Analysts said a split of its defense and commercial businesses is a possibility, but some said profits from any sale of assets could remain subject to hefty taxation unless Oshkosh could find a way to spin off the entities.

"Given Icahn's history and the fact Oshkosh is a relatively small company, we believe there may be a better than average chance that OSK may get carved up in a future strategic action," said Peter Skibitski, analyst at SunTrust Robinson Humphrey.

"We estimate a potential carve up value for Oshkosh at roughly $35 (a share)," he said.

Ralph Whitworth's Relational Investors LLC, which pressured industrial conglomerate ITT Corp (ITT.N) to split up its defense and water purifying businesses earlier this year, last week reported a stake in L-3 Communications and urged the contractor to divest low-performing units.

"While near-term end market concerns continue, an activist shareholder could unlock significant value, in our view," Jefferies & Co. analyst Stephen Volkmann said of Oshkosh in a note to clients on Friday.

Oshkosh said in a statement late on Thursday it is open to dialogue with shareholders, adding that the firm believes Icahn's investment is "evidence of his belief in the value of the company."

Icahn, who has agitated for big changes at companies, held 9.51 percent of Oshkosh shares as of June 20, according to a Securities and Exchange Commission filing on Thursday.

A tough U.S. defense spending outlook and uncertainty over state and local budgets has weighed on Oshkosh shares this year, which are still down about 6 percent year to date despite Friday's rally.

"Currently Oshkosh is essentially trading at a depressed defense multiple with the market giving almost no credit for the construction and specialty truck related business," Jefferies' Volkmann wrote.

He added that the company's military truck business "could be attractive" as defense budget limits trigger some consolidation.

It is not clear if any defense contractors would find the defense part of the company attractive, especially at a time when the United States winds down wars in Iraq and Afghanistan, people familiar with the industry said. But private equity firms could potentially be interested in different parts of the company, they added.

(Reporting by Roy Strom and Soyoung Kim in New York, and Karen Jacobs in Atlanta; Editing by Tim Dobbyn, Dave Zimmerman)