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Timken board urges ‘no’ vote on spinoff

Keywords: Tags  Timken Co., spinoff, steel, bearings, shareholders vote, board recommendation, Relational Investoprs LLC, California State Teachers Retirement System unlockTimken.com


CHICAGO — Timken Co.’s board of directors has recommended to shareholders that they vote down a proposal to spin off its steel business.

Timken’s directors said they carefully evaluated splitting the Canton, Ohio-based company’s 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 company’s 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 value.

"(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 Timken’s common shares and have been pushing for a spinoff of the steel business—launched a website, UnlockTimken.com, supporting their campaign and are urging shareholders to approve their proposal.

A separation of Timken’s 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 Timken’s steel and bearings businesses and show that Timken’s ‘conglomerate’ structure continues to cause the company’s stock to trade at a significant discount."

Since Relational and the teachers fund filed their proposal last November with the SEC, Timken’s stock price has outperformed the S&P MidCap 400 Index by 23 percent as of March 15, they said. "The investment community’s reaction to the CalSTRS proposal has been positive and clear," they said.

The shareholders' annual meeting will be held May 7.


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