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Timken blasts shareholder’s analysis

Keywords: Tags  Timken, shareholders, California State Teachers Retirement System, Relational Investors, steel business, bearings business, spinoff proposal, shareholder value corinna petry


CHICAGO — Timken Co. has filed an updated investor presentation highlighting what it calls "serious flaws" in an analysis behind a proposal that the company spin off its steel business.

In an April 1 filing with the U.S. Securities and Exchange Commission (SEC), Timken picked apart shareholder Relational Investors LLC’s analysis, saying that it overvalued Timken’s bearings business against its peers and did not select its peer group in a fair and balanced manner, and that "significant synergies would be lost" in a spinoff.

Canton, Ohio-based Timken is urging shareholders to vote against the proposal from Relational Investors and the California State Teachers’ Retirement System (amm.com, March 14), arguing that its steel and bearings businesses are integrated in ways that benefit each other and that the board’s plan to create long-term shareholder value is working.

"Timken has (a) strong track record of delivering shareholder value as a result of its existing strategy. Timken Steel is one of the company’s highest (return on invested capital) businesses," and has invested in improving the steel unit’s cost structure and profitability, according to the presentation. "We believe Relational’s break-up valuation analysis has serious flaws."

Timken’s process, mobile, aerospace and defense businesses have sourced 58 percent of their steel needs from the steel division over the past five years, the company said, while the steel business has supplied guaranteed quality, shorter lead times, lower costs, faster customization of specialty products, enhanced customer service and on-time product delivery.

The steel division’s expertise benefits the company’s other businesses, extending to competition, application engineering, research and development, Timken said.

Should the steel business be spun off, Timken said it would become the smallest competitor among its peers, dwarfed by the likes of Steel Dynamics Inc. and Allegheny Technologies Inc., among others. Such a position might push Timken into a non-investment-grade credit rating, which would drive up capital costs, leading to limited liquidity and less financial flexibility, especially in taking on large projects.

"We urge shareholders not to be misled by (the California State Teachers’ Retirement System) and Relational Investors and support the Timken strategy," the company said.

The company has launched a website, www.TimkenDrivesValue.com, to provide information to shareholders on the board’s recommendation to vote against the spinoff proposal.

"It is shocking that Timken would underestimate its shareholders’ intelligence by using such erroneous analysis as justification to not unlock value," Ralph Whitworth, founder and principal of Relational, said in a statement April 1. "In our conversations with many of Timken’s largest shareholders, there is a consensus view that the company should spin off the steel business."

Timken’s annual shareholders' meeting is scheduled for May 7.


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