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Timken agrees to spin off steel business

Keywords: Tags  Timken, spinoff, steel, bearings, James W. Griffith, Ward J. Timken, Anne Sheehan, Ralph Whitworth corinna petry


CHICAGO — Timken Co.’s board has agreed to split the company’s steel business and its bearings and power transmission business into two publicly traded companies in a move pushed for by two shareholder groups.

Under the plan, the Canton, Ohio-based engineered steel bar producer will operate as an independent publicly held company with an estimated annual revenue of $1.7 billion, while the bearings and power transmission business will continue to operate as Timken Co. with an estimated annual revenue of $3.4 billion.

The California State Teachers’ Retirement System (CalSTRS) and San Diego-based Relational Investors LLC have been agitating for the spinoff for the past year (amm.com, Feb. 19).

"We see this initiative—to build out two strong, focused companies—as further evidence of our commitment to drive value for our shareholders and our customers," Timken president and chief executive officer James W. Griffith said in a statement Sept. 5. "The bearings and steel businesses are well-run and well-positioned in their markets to perform well through economic cycles and have successfully implemented the Timken business model. We have talented, capable and dedicated employees who we believe will drive these businesses to new levels of success as separate entities."

The board’s decision to split Timken into two companies, which is expected to be completed within 12 months, came following a strategy committee evaluation by independent directors established by the board in response to a nonbinding shareholder vote to spin off the company’s steel business (amm.com, June 11).

With the help of financial and strategic advisors, the strategy committee evaluated the financial and operational implications of separating the two businesses, along with potential changes to the company’s corporate governance and capital allocation strategy.

Lead independent director Joseph W. Ralston said the committee and board concluded that Timken’s share price had not appropriately reflected its performance. "With our shares trading at a discount to our peers, we recognized the need to examine opportunities to better drive value in the market," Ralston said.

Creating two focused companies should allow investors to benefit from operating performance, margins, earnings and cash flow more readily, Ralston added.

"These are two winning businesses and we are confident that both can sustain the market-leading performance they have achieved over the past few years," board chairman Ward J. "Tim" Timken Jr. said.

CalSTRS and Relational Investors welcomed the Timken board’s decision.

“We fully support Timken’s decision because it means they’ve listened to their shareholders,” Anne Sheehan, director of corporate governance at CalSTRS, said in a statement. “We firmly believe this action will create long-term benefit for shareholders.”

Relational cofounder Ralph Whitworth said the division of the two businesses will contribute to the “long-term vitality and competitiveness” of each. “It’s the right answer for all constituents.”


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