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Timken Issues Letter to Holders, Urges Holders to Vote Against Spinoff Proposal

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The Timken Company (NYSE: TKR) today announced that it sent a letter to its shareholders, urging them to support the Company's proven strategy to create shareholder value and vote AGAINST Proxy Statement Item No. 6, the shareholder proposal to spin-off the Steel business. 

(Logo:  http://photos.prnewswire.com/prnh/20100210/TIMKENLOGO )

Included below is the full text of the letter, which can also be found at www.TimkenDrivesValue.com:

April 15, 2013

Dear Fellow Timken Shareholder:

BE SURE TO SIGN AND RETURN YOUR PROXY CARD TO HAVE YOUR VOTE COUNTED

CALSTRS AND RELATIONAL INVESTORS WANT TO DISRUPT EXECUTION OF THE TIMKEN COMPANY'S PROVEN VALUE-CREATION STRATEGY

VOTE AGAINST THE SHAREHOLDER PROPOSAL TO SPIN-OFF THE STEEL BUSINESS

The Timken Company Board and management team are committed to act in the best interests of ALL SHAREHOLDERS and to continue executing the Company's proven strategy. We urge you to protect the long-term value of your investment in The Timken Company by voting against the misguided proposal by The California State Teachers' Retirement System (CalSTRS) and Relational Investors to force separation of the Timken Steel business from its Bearings & Power Transmission (B&PT) business.  The CalSTRS and Relational Investors ill-advised proposal asks you to sacrifice long-term value creation and jeopardize the strength of the Company in exchange for illusory short-term gains. 

YOUR VOTE AT THE MAY 7^th ANNUAL MEETING IS IMPORTANT

IF YOU HAVE NOT ALREADY VOTED, PLEASE USE THE ENCLOSED PROXY CARD TO VOTE TODAY AGAINST PROXY STATEMENT ITEM #6

Timken is successfully executing its carefully considered plan to deliver long-term value to Timken shareholders.  In recent years, we have transformed Timken into a global industrial technology leader with products that improve the efficiency and reliability of the machinery that keeps industry in motion.  We produce mechanical components and engineered steel used in some of the world's most demanding applications. 

Relational Investors has acknowledged the strengths of The Timken Company's current business model and the performance it has generated, complimenting the management team on its ability to execute.

"When you look at the underlying performance of both of these segments of the company, they are superior to virtually all of their peers actually in both segments.  This company is run very, very well and managed very, very well.  They have very good, what we call operating metrics when you look at their profit margins and you look at what we call their asset turns..."

– Ralph Whitworth, WHBC radio interview, December 5, 2012

By highlighting our success but demanding we take action to separate the businesses, CalSTRS and Relational Investors demonstrate their fundamental lack of understanding of the integrated strategy driving that success.  If they knew us, they would understand how we leverage strengths across our Steel and B&PT businesses, share research and technical expertise, and benefit from supply chain and operating efficiencies.  All of this differentiates Timken from our competitors and allows us to deliver value-added solutions across common end markets and customers. By demanding that we move forward to separate Timken Steel from the rest of the Company, they are compromising our future success and competitive advantage.  Under current circumstances, it just doesn't make sense.

WALL STREET ANALYSTS EXPRESS DOUBT ABOUT THE PROPOSAL, SUPPORT THE COMPANY'S INTEGRATED BUSINESS MODEL AND OUR PLAN TO DRIVE SHAREHOLDER VALUE

 "The activist situation, which we feel will ultimately end with the company staying intact, could cause some shareholder churn once resolved, but we view that as a temporary situation and, to be fair, based on our conversations with investors we do not know many investors who own the stock for the activist promoted idea of splitting the company between its Steel business and Bearings businesses." - David Raso, ISI research note, April 7, 2013

 

"We are raising our price target to $66 from $58 to reflect our higher conviction with respect to margins through the cycle and what should be improving free cash flow. Overall, we think TKR has been proactive in repositioning its businesses, investing in efficiency initiatives and capacity expansions, funding the pension plan, and making acquisitions. We think all of these actions suggest TKR is well positioned for longer-term growth with less volatility and risk. As investors come to more fully appreciate the Company's potential for value creation, we expect the shares to trade more in line with other high-quality Industrial Consumables Companies peers…" – Steve Barger, KeyBanc research note, March 27, 2013

 

"I'm not particularly convinced that (split-up) would be the best move for Timken… You'd lose all the synergies you get in the (combined business units) and you'd then have two separate corporate structures." - Eli Lustgarten, Longbow Research as quoted in Crain's Cleveland Business on  December 3, 2012

 

DON'T BE FOOLED BY CALSTRS AND RELATIONAL'S MISLEADING CAMPAIGN

Your Board and management team maintain an ongoing and open dialogue with shareholders. In fact, we have met with Relational Investors three times, most recently on April 2, in a meeting we requested that also included CalSTRS.  Despite attempts at reasoned dialogue, we now know that CalSTRS and Relational Investors are only interested in aggressively promoting their agenda based on false, misleading and inflammatory statements regarding the Board and the Company – statements designed to distract from the truth.

We want to address important flaws in the claims made by CalSTRS and Relational Investors:

 

The Reality - The CalSTRS / Relational Investors proposal is not merely a request to evaluate a spin-off, it seeks to "effectuate" a spin-off of the Steel business.

CalSTRS and Relational   Investors have indicated there is no downside to supporting - The Timken Board has gone to great lengths to their proposal carefully evaluate a separation of the businesses, with input from outside advisors, multiple times in the past, including as recently as last year, and determined it is NOT in the best interests of shareholders.

  - The depth and breadth of the supply chain, technology and knowledge-sharing benefits across our businesses are key competitive advantages for us that create significant value for our shareholders and could not be replicated through normal supply agreements if the businesses were separated.  Our estimate of these benefits results from detailed, factual analysis based on years of operating as an CalSTRS and Relational integrated company. Investors fundamentally misunderstand and    mischaracterize the synergies between our businesses - CalSTRS and Relational first claimed that the synergies between our businesses were minimal.  Then they claimed that we weren't proposing actions to mitigate the loss of synergies following a split.  If synergies are minimal, why are they worried about mitigating the loss of those synergies?  Their arguments are inconsistent. 

  - Total shareholder returns were 75% and 40% for the three- and five-year periods ending November 27[i], the day prior to the proposal becoming public, ranking Timken second in its peer group[ii] for both time periods.

CalSTRS and Relational   Investors claim undue credit for the Company's share price - Since the proposal was announced in November, performance Timken posted fourth quarter EPS above analyst consensus ($0.80 vs. $0.62) and a 2015 EPS midpoint target of $7.00, almost 40% above 2012.  They also fail to note that the general market increased by 14% since then.

  - The Timken Board, 75% of which is independent, has a proven track record of making difficult decisions, including divestitures and plant closings, to drive value CalSTRS and Relational for ALL shareholders. Investors are simply wrong in their assessment of The Timken   Company's Board structure and governance - We have had separate Chairman and CEO roles for nearly a century, decades before this became best practice in corporate governance.

 

 

Don't be misled by CalSTRS and Relational Investors' aggressive, misguided campaign designed to attempt to turn a quick profit at the expense of investors who care about generating long-term value.

VOTE AGAINST THE MISGUIDED PROPOSAL TO SPIN-OFF THE STEEL BUSINESS

Your Board and management team have carefully reviewed the shareholder proposal and have concluded it is not in the best interests of shareholders. Support the Company's strategy to achieve long-term value through continued successful execution of its strategic plan.  Please cast your vote today AGAINST this unwise shareholder proposal.  For more information, please visit www.TimkenDrivesValue.com. 

Thank you for your continued support of The Timken Company.

On behalf of the Board of Directors of The Timken Company,

Joseph W. Ralston

Lead Independent Director

 

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