UPDATE 3-Navistar reaches deal with Icahn on board


* To phase out three-year directorships

* Icahn will not nominate director slate

* Follows Icahn's nominations to Oshkosh board

* Navistar shares down 0.4 pct; Oshkosh down 0.2 pct (Adds analyst, CEO quotes, details)

By Scott Malone

Nov 15 (Reuters) - Navistar International Corp reached a deal with activist investor Carl Icahn that could put its directors up for election each year.

In exchange, the billionaire Icahn, who holds a 10 percent stake in the U.S. heavy truck and engine maker, will not propose his own slate of directors at the company's next annual meeting, Navistar said on Tuesday.

Navistar has a 10-member board, which includes Chief Executive Officer Dan Ustian and one director appointed by the United Auto Workers union. It typically holds its annual shareholder meetings in February in the Chicago area, but has not yet scheduled one for 2012.

The deal follows Icahn's nomination earlier this month of a group of six directors to run for the 13-member board of military vehicle and truckmaker Oshkosh Corp , in which he also has an approximately 10 percent stake.

His investments in the two companies have sparked speculation that he could seek to steer them into a merger.

Icahn has a history of nominating his own directors to companies in which he invests, with an eye toward pressuring management and increasing stock prices.

A merger could help improve the profit margins of the combined company, analysts have said. Shares of Navistar and Oshkosh have lagged behind the Standard & Poor's capital goods industry index this year.

Morningstar analyst Basili Alukos said Oshkosh had a low-volume, high-margin business, while Navistar was high-volume, low-margin.

"If you combine the two, you'll help Oshkosh on the cost front because you'll have greater scale," Alukos said. "And if you're able to use some of Oshkosh's technological advances and you add them onto Navistar's products, are they able to extract higher margin?"

Navistar spokesman Jim Spangler declined to comment on the possibility of a Navistar-Oshkosh tie-up. On a conference call earlier this month, Oshkosh Chief Executive Officer Charles Szews declined to comment on Icahn's interest in the company.

"We remain intensely focused on delivering value for all shareholders by executing on our strategy," Navistar CEO Ustian said in a statement on Tuesday.

Under the agreement, Navistar shareholders will vote at the Warrenville, Illinois-based company's next annual meeting on whether to phase out the current system of staggered directors, who are elected to overlapping three-year terms. If approved, all the company's board members would stand for election each year by 2014.

Navistar shares were down 0.4 percent at $40.94 on the New York Stock Exchange, and Oshkosh was down 0.2 percent at $21.56.

So far this year, Oshkosh shares are down 39 percent and Navistar is down 29 percent, far sharper declines than the 4 percent fall of the S&P capital goods index. (Reporting by Scott Malone in Boston, editing by Gerald E. McCormick, Maureen Bavdek and Lisa Von Ahn)



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