Relational Investors LLC & CalSTRS Question Timken Board’s Willingness to Act in the Best Interests of All Shareholders Fol...
02 Aprile 2013 - 6:27PM
Business Wire
Relational Investors LLC (“Relational”) and the California State
Teachers’ Retirement System (“CalSTRS”), collectively owners of
7.28% of the shares of The Timken Company (NYSE: TKR) (“Timken” or
“the Company”), called into question the ability of the
family-influenced Board of Directors to act in the best interest of
all of the Company’s shareholders following today’s meeting at the
Company’s Canton, Ohio headquarters. The Board is unwilling to
separate Timken’s Steel and Bearings businesses to unlock
shareholder value and continues to support the Company’s
“conglomerate” structure which impairs its stock price.
Anne Sheehan, director of Corporate Governance at CalSTRS,
commented, “Timken’s Board invited CalSTRS to meet with
representatives of management and the Board today. The meeting
followed the filing of our February 27, 2013 shareholder
presentation. From the outset, we have tried to work with the Board
to unlock the Company’s inherent value for all shareholders through
the separate public trading of Timken’s Steel and Bearings
businesses. It is clear that there is consensus in the investment
community supporting this initiative based on published analyst
reports, calls with the Company’s investors, and Timken’s stock
price. Nevertheless, the Board has consistently turned a blind eye
to what the marketplace is saying.”
Ralph Whitworth, founder and principal of Relational, said,
“Despite Timken’s preempting today’s meeting with a press release
yesterday, we hoped that at today’s meeting Timken’s management and
Board would finally understand the powerful value proposition that
flows from the overwhelmingly compelling and detailed case we have
presented to create value through two separately traded companies.
Instead, while the meeting was cordial, we met with the same
amorphous arguments and faulty math that has characterized the
company’s response all along. Fortunately, the shareholders will
have the opportunity to speak on May 7th by voting on CalSTRS’
proposal to split the company’s shares between the Bearings and
Steel businesses.”
“Since November 15, 2012, shortly before Relational and CalSTRS
filed their Schedule 13D advocating the separation of Timken's
Steel and Bearings businesses, Timken's stock price has
outperformed its peers by 41%, or over $15 per share. Timken's
Board must know that if it maintains the Company’s conglomerate
structure rather than separating its businesses as recommended,
that it is likely that the price of Timken’s shares will fall
precipitously.”
Specific Responses to Timken’s Flawed Math
and Amorphous Arguments:
Timken contends that separating Bearings and Steel will
result in a significant loss of synergies between the
businesses.
- Timken’s synergies analysis is,
however, highly flawed and contrived. It does not reflect the clear
opportunity to mitigate dis-synergies as Timken’s closest
competitor, SKF, did so successfully following the separation of
its bearings and steel businesses. Indeed the mid-point of Timken’s
projected dis-synergies of $6-8 per share is no more than $2.65 per
share higher than what we projected in our conservative analysis.
There is ample opportunity to mitigate this incremental dis-synergy
through normal and customary supply arrangements.
Timken contends that Relational’s sum-of-the-parts estimate
far exceeds the median of analyst calculations.
- Timken, however, intentionally uses
many analyst sum-of-the-parts valuations from November and December
of last year, which are way out-of-date. The three 2013 valuations
that Timken does include average $66, an 18% increase from the
current stock price, and that is after substantial excess price
performance since we announced our split initiative.
Timken contends that the peer group Relational uses is too
narrow.
- A broader peer group analysis does not
however materially change Timken’s share price discount, nor does
it change our conclusion that separation will enhance Timken’s
shareholder value. Timken should know that broadening the peer
group to include, for example, Japanese companies is inappropriate
because their margins, geography, and products are not
appropriately comparable.
Timken contends that its diversification benefits
shareholders.
- Timken, however, uses its three-year
share price performance to justify its conglomerate business
strategy. They unfairly include Timken’s outperformance against its
peers since November 28th when Relational and CalSTRS announced
their plan to push for a separation. Of course, shareholders do not
need Timken’s Board to ”diversify” for them; they are perfectly
willing and, in fact, prefer to select “pure-play” investments and
set weightings to suit their specific objectives. The significant
discount investors apply to Timken’s stock reflects the market’s
clear preference for pure-play steel or bearings alternatives. The
irony of this argument is that diversification actually causes the
discount!
Timken contends that they practice strong corporate
governance.
- The Timken Family, however, 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 from Glass Lewis, a prominent
independent shareholder advisory service; and the Board has a
history of ignoring proposals receiving a majority vote; the Board
has long been unwilling to thoughtfully consider maximizing
long-term shareholder value through a separation.
Shareholders have every reason to demand that the Timken Board
stop hiding behind wrong assertions and act in the best interests
of all Timken shareholders.
We urge shareholders to VOTE FOR the CalSTRS proxy
proposal to unlock shareholder value through the separation of
Timken’s Steel and Bearings businesses.
For more information about the value-enhancing potential of
CalSTRS’ proposal, please visit www.UnlockTimken.com.
SHAREHOLDER PRESENTATION
On February 28, 2013, Relational and CalSTRS filed a
comprehensive presentation for Timken shareholders entitled: “Why a
Separation of Timken’s Steel and Bearings Businesses Can Unlock
Significant Shareholder Value”
(http://www.sec.gov/Archives/edgar/data/98362/000110465913015663/a13-).
The presentation demonstrates the financial and operational logic
of CalSTRS’ shareholder proxy proposal, which would enable Timken
shareholders to vote for separating the two businesses.
About Relational Investors LLC:
Relational Investors LLC, founded in 1996, is a privately held,
multi-billion dollar asset management firm and registered
investment adviser. Relational invests in publicly traded companies
that it believes are undervalued in the marketplace. The firm seeks
to engage the management, board of directors, and shareholders of
its portfolio companies in a productive dialogue designed to build
a consensus for positive change to improve shareholder value.
About the California State Teachers Retirement System:
The California State Teachers’ Retirement System, with a portfolio
valued at $161.5 billion as of February 28, 2013, is the largest
educator-only pension fund in the world. CalSTRS administers a
hybrid retirement system, consisting of traditional defined
benefit, cash balance and voluntary defined contribution plans, as
well as disability and survivor benefits. For 100 years, CalSTRS
has served California's public school educators and their families,
who now number 862,000 from the state’s 1,600 school districts,
county offices of education and community college districts.
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