CHICAGO Timken Co.s
board of directors has recommended to shareholders that they
vote down a proposal to spin off its steel business.
Timkens directors said
they carefully evaluated splitting the Canton, Ohio-based
companys steel and bearings divisions, which was proposed
last year (
amm.com, Dec. 3). However, there are "significant
technology, cost and revenue synergies between them, and the
value created by these synergies, the diversification benefits
from continuing to operate under the current structure, and the
costs of a separation would offset any near-term valuation
increase," they said in the companys annual meeting
notice and proxy statement filed March 21 with the U.S.
Securities and Exchange Commission (SEC).
Combined, the two businesses
leverage their teams collective knowledge of metallurgy
and friction management, an expanding product portfolio and an
ability to execute across important end markets around the
globe, the board said.
The board also said Timken has
made significant progress toward improving its overall
financial performance and creating greater shareholder
"(Timken) has delivered
top-quartile performance over the past five years in terms of
operating margin, return on invested capital and total
shareholder return relative to its peers. A separation of the
businesses would only result in lower returns for both
businesses," the board stated.
Investment firm Relational
Investors LLC and the California State Teachers
Retirement System (CalSTRS)which together own 7.28
percent of Timkens common shares and have been pushing
for a spinoff of the steel businesslaunched a website,
UnlockTimken.com, supporting their campaign and are urging
shareholders to approve their proposal.
A separation of Timkens
businesses will unlock shareholder value by allowing the market
to independently value its bearings and steel businesses as
"pure plays in their respective industries," Relational said in
a March 21 statement.
"Our data and analysis both
support and demonstrate the potential for enhanced shareholder
value that could be unlocked though the separate public trading
of Timkens steel and bearings businesses and show that
Timkens conglomerate structure continues to
cause the companys stock to trade at a significant
Since Relational and the
teachers fund filed their proposal last November with the SEC,
Timkens stock price has outperformed the S&P MidCap
400 Index by 23 percent as of March 15, they said. "The
investment communitys reaction to the CalSTRS proposal
has been positive and clear," they said.
The shareholders' annual meeting
will be held May 7.