Relational Investors LLC (“Relational”) announced today that Relational and
the California State Teachers Retirement System (“CalSTRS”), collectively
owners of 7.31% of The Timken Company, TKR (“Timken” or “the
Company”), have sent a joint letter to the Board of Directors of Timken urging
a separation of Timken's steel and bearings businesses to unlock significant
value for all shareholders.
Relational had previously presented a detailed analysis to Timken's management
and Board on August 23, 2012. In that analysis, Relational demonstrated the
deep undervaluation of Timken's shares due to the company's conglomerate
structure. By separating the steel and bearing businesses, Timken would
realize improved operating performance and the investment community could
appropriately value the earnings profile of each business – resulting in
maximized shareholder value and long-term potential for these businesses and
the communities that they serve.
In their letter, Relational and CalSTRS highlight key aspects of this analysis
as well as recent excerpts from third-party analyst reports, demonstrating
broad support by the investment community for a separation of Timken's
businesses.
Among the main points contained in their letter to the Board are:
* A Separation Will Enable a Fundamental Change To Valuation: The Company
trades at a steep discount due to the widely divergent characteristics of
its businesses, and a separation of the Steel business would fundamentally
change the way the businesses are valued by the market.
* A Separation Will Increase Management And Investor Focus: The Company will
be able to optimally manage each business independently, leading to more
efficient capital allocation and the potential to trade at multiples near
the high end of their peer range.
* Spin-Off Transactions Have Created Substantial Value For Shareholder's In
The Past:
* Timken's closest bearings peer, SKF, separated its steel business and
returned 59% vs. Timken's return of 10% over the same period.
* Marathon Oil separated its refining operations and the stock returned
40% compared to only 10% for the S&P 500 Energy Index over that time
period.
* Now Is The Optimal Time To Separate The Businesses: The costs of a
sub-optimal business mix compound over time, so now is the time to focus
on optimally managing each independent business.
* Separation Should Not Be Disruptive To Timken and the Community: A
separation should not meaningfully disrupt the Canton community or
Timken's employees. The Timken name and Canton headquarters can and should
survive with both businesses operating as independent entities.
* The Timken Company Has A History Of Poor Corporate Governance: The Timken
Family holds 3 of 11 Board seats; the $9M compensation received by
executive Chairman Ward Timken, Jr., is grossly out of line with other
executive chairmen in Timken's peer group; the Company's
pay-for-performance scheme received a “D” rating in 2012 by Glass Lewis, a
prominent independent proxy advisory service; and the Board has
consistently demonstrated its unwillingness to seriously consider
strategies to increase shareholder value.
Relational and CalSTRS call for Timken's Board to promptly respond to the
investment community and take action to separate the Company's businesses to
unlock value for all shareholders. They emphasize that Timken is well
positioned financially and operationally to effectuate the separation of its
steel and bearings businesses, while explaining that management's public
statements against the suggested transaction are not supported by empirical
evidence, nor persuasive to investors.
Relational and CalSTRS expressed their intent to continue to dialogue with
shareholders and the broader investment community about the value creation
potential of the separation of Timken's steel business. Their hope is that
investors communicate their views directly with the Company, prompting the
Board to act now to effectuate a separation, reserving the opportunity to make
a clear public statement of their support through their votes at the annual
meeting on the shareholder proposal CalSTRS sponsored, with the support of
Relational, as disclosed in their Schedule 13D filed November 28, 2012, as
amended February 19, 2013.
Attached is the letter from Relational and CalSTRS to the Timken Board of
Directors.
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