In Defense of Oshkosh

Kelley is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Last January, I decided to try Magic Formula Investing. I didn't stick with it very long (through no fault of the formula), but I still hold many of the stocks I initially selected, one of which is Oshkosh (NYSE: OSK). So far this year I have lost over 40% in Oshkosh (luckily, I hadn’t invested a large sum). So here I am, nearly one year later, with shares of a company in a battle with Carl Icahn. Even now, I sit at my desk with a white proxy card on my left and a gold one on my right (I'll let you guess which is which).

Most of you are familiar with Carl Icahn so I'm sure the full background story isn't necessary, but here is a brief version of the relevant details. Over the course of this year, Icahn has purchased almost a 10% stake in both Oshkosh and its competitor Navistar (NYSE: NAV). He recently said he would be interested in a merger of the two companies, both of which provide the military with specialty trucks, amongst other things. Navistar seems open to this merger while Oshkosh does not. Icahn would now like six personally chosen individuals to become a part of Oshkosh's thirteen member board of directors, a move that Oshkosh is fighting, hence the shareholder vote.

I don't have many shares of Oshkosh so my vote will, perhaps, be more symbolic than anything, but everyone who owns shares in Oshkosh should vote. As a shareholder, I know I sometimes throw my voting rights in the trash when they arrive, but there are things that are worthy of your time in those envelopes.  In any case, I thought I would share with you my voting decision and some of the reasons why I am voting the way I am, in hopes that it will provide some food for thought as you set out to make up your own mind.

I have, over the past few days, done some research and have decided not to vote for Icahn’s appointments to the Oshkosh board for several reasons. The first of these reasons is that fact that I am unsure of Icahn’s plan for the company and the plan that has been mentioned (without many details) is not one I can get behind. There has been talk of a possible merger with Navistar, an Oshkosh competitor, but I’m not sure what such a merger would look like. Aside from the specialty military truck business the two companies are very different. To supplement the defense sales which accounts for 57% of business, Oshkosh also makes emergency vehicles, commercial vehicles, and access vehicles. Navistar’s defense sales this last year represented only 13% of revenues. Navistar also works in other segments selling semi’s, buses, RV’s, and engines. The only real overlap between the two companies is the defense segment. I would like a clearer idea of what Icahn is thinking in terms of the merger and how it might benefit Oshkosh, but right now I have more questions then answers.

The second reason I am voting with Oshkosh is due to its board selection. The board members selected by Oshkosh seem to provide a good mix of experience with the company. Seven of the members are fairly new to the board, five have joined in the last year, one came on in 2010 and one in 2008. The remaining board members have held positions on the board for over eight years. The Oshkosh board selection is diverse, some have military experience, some have automotive experience and some have worked for Oshkosh in other capacities. I think the board selection that Oshkosh has proposed looks good.

The board selection that Icahn is proposing is interesting to say the least. Three of the six members are individuals that he recommended for the Clorox (NYSE: CLX) board just 6 months ago when he attempted a full takeover of the Clorox board. I am not naïve enough to think that these individuals are anything other than Icahn’s eyes and ears, but it would be refreshing to see a list that had more individuals that knew something about the type of business Oshkosh is in. The other thing that Icahn does in his proxy card is set out a list of current board members who are to be replaced by his six members.  The six members he selected are all members who have held a place on the board for more than three years. Surprising? Not really, but disappointing.

Finally, I am going to vote for Oshkosh for the same reason I bought the stock a year ago. I believe they are a solid albeit struggling company and I would like to wait and see if the current management can right it. I think Carl Icahn can wring gains from the company but at what expense? I think Oshkosh will be a stronger company in the long run if they work to increase shareholder value on their own terms. Either vote is a speculative one of sorts, so which would you choose? The billionaire corporate raider or the struggling management of Oshkosh who has watched its stock drop over 40% this year?

Kelley Ryan is long Oshkosh.

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