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The Timken Company
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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