The California State Teachers Retirement System (“CalSTRS”) and
Relational Investors LLC (“Relational”), collectively owners of
7.3% of The Timken Company, (NYSE: TKR) (“Timken” or “the
Company”), today sent the following letter to all Timken
shareholders urging them to send a clear message to the Timken
Board to unlock shareholder value at the company by VOTING
FOR the CalSTRS shareholder proposal at the Annual Meeting of
Timken’s Shareholders on May 7, 2013.
The following is the letter.
Relational Investors LLC
California State Teachers’ Retirement
System
12400 High Bluff Drive, Suite 600
100 Waterfront Place, MS-04
San Diego, CA 92130
West Sacramento, CA 95605-2807
VIA ELECTRONIC AND OVERNIGHT MAIL
April 10, 2013
Dear Timken Shareholder:
As fellow shareholders of The Timken Company (“Timken” or the
“Company”), we urge you to VOTE FOR the CalSTRS shareholder
proposal included as Item No. 6 in Timken’s 2013 Proxy
Statement (the “Proposal”). The Proposal recommends that the
Company promptly initiate a process to unlock substantial value by splitting
Timken’s stock, giving you shares in both the Company’s Bearings
and Steel businesses.
We, CalSTRS, the largest educator-only pension fund in the
world, and Relational Investors, a multi-billion dollar asset
management firm, own a combined 7.3% of Timken’s outstanding shares
valued at approximately $400 million. Like you, we are long-term
investors and are focused on realizing the optimal value of our
investment.
On November 28, 2012, the day we filed a joint 13D announcing
the Proposal and our intent to work together, Timken’s stock price
increased 12% for a one-day return to Timken shareholders of
approximately $450 million. Since then, Timken’s stock price has
continued to outperform industry peers. We estimate that up to $15
of this post-announcement appreciation is attributable to
shareholders’ support and positive analyst evaluations of a
separation and related stock-split as recommended in the Proposal.
The stock market’s positive reaction to the announcement indicates
that the stock-split we are proposing will eliminate the
conglomerate discount that has
persistently impaired Timken’s
investment value for shareholders.
Moreover, our analysis suggests the potential for an
additional 30% in value or, in the
aggregate, more than $1 billion in value for all shareholders by
splitting Timken’s stock. Based on rigorous share price analysis
and independent research, we are convinced that this pure-play
structure would allow the assets to thrive as independent
businesses creating greater value over the short, medium, and long
term. Specifically:
- The market will independently value
Timken’s Bearings and Steel businesses at a premium to the value
under the current conglomerate structure;
- A separation allows for a successful
transformation of the Bearings business, which now generates high
returns and significant cash flows; and
- Timken's Steel business is specialized
and has superior financial characteristics presenting strong upside
opportunities.
There is no downside to voting FOR the Proposal, which
creates a free option to benefit from further stock price
appreciation. However, abstaining or voting against the Proposal
will send a signal to the Board that it does not have to take
action to maximize the value of Timken’s stock price; will push the
stock price down toward price levels existing prior to initiating
our campaign; and will cement the market’s view that the
family-dominated Board will maintain the status quo. This could
mean hundreds of millions of dollars of lost value.
Taking the action recommended by the Proposal would allow
Timken’s Steel and Bearings businesses to realize stock price
levels consistent with Timken’s peers, providing shareholders a
much greater value on their total investment. In fact, Timken’s
closest peer, SKF Corporation, spun-off its steel business to its
shareholders in 2005 to overwhelming shareholder praise.
We have tried for months to work with the Timken Board toward a
similar result. Most recently, we accepted, in good faith, an
invitation from Timken to meet with representatives from management
and the Board. We were not only greeted with a preemptive,
ill-intentioned press release, but the Company offered the same
empty explanations for the conglomerate structure. Their arguments
were feebly supported by misleading math and vague references to
synergies it had previously and unsuccessfully conjured up for the
media.
Acting to protect what we can only explain as self-interest,
Timken’s Board has launched an all-out public misinformation
campaign to defeat the Proposal, wasting shareholder dollars on
this value-diminishing effort. What do they have to protect? Here’s
just one example, Ward Timken Jr., the grandson of the Company’s
founder, has been paid $37 million dollars since he became
executive Chairman in 2005, including $7.6 million in 2012 and $9
million in 2011. This is roughly three to four times the median pay
for his position! Following our meeting, Timken sent and publicized
a highly rhetorical “fight letter” opposing the Proposal and the
stock price dropped $1.00 on the day. This immediate adverse market
reaction underscores that the Company’s logic is flawed. Here are a
few critically unsound arguments we would like address:
Timken asserts that separating Bearings and Steel will result in
a significant loss of synergies between the businesses.
- Timken’s synergies analysis is flawed and
contrived. Incredibly, it ignores the clear opportunity
to mitigate dis-synergies through customary and common
business arrangements. This is exactly what 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 these incremental dis-synergies through normal and
customary supply arrangements.
Timken asserts that Relational’s sum-of-the-parts value estimate
exceeds the median of analyst calculations.
- Timken
intentionally uses many out-dated analyst sum-of-the-parts
valuations from November and December of last year. 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
Proposal.
Timken asserts that Relational applies too high of a multiple to
Timken Bearings.
- Relational’s
analysis is based on the assumption that Timken Bearings trades
in-line with its closest peer, SKF, on EV/EBITDA
multiples. The apparent P/E differential Timken clings
to is based on the Company’s poor capital structure and our
conservative assumption that Timken Bearings’ tax rate remains at
34% after the spin even though about 50% of its business is
international. Once those factors are normalized, Timken Bearings
trades in-line with SKF on P/E multiples as well as EV/EBITDA and
cash flow multiples.
Timken asserts that the peer group Relational uses is too
narrow.
- A broader peer
group analysis does not materially change our estimate of Timken’s
share price discount, nor does it change our conclusion that a
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 profit
margins, geography, and products are not appropriately
comparable.
Timken asserts that its diversification benefits
shareholders.
- Timken, however, relies on its
three-year share price performance to justify its conglomerate
business strategy. It misleadingly includes Timken’s outperformance
against its peers since November 28, when we announced our Proposal
recommending a separation. 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 asserts that it practices good corporate governance.
- The Timken family holds three of eleven
Board seats, exhibiting real influence. The $9 million compensation
for 2011 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. In addition,
the Board has a history of ignoring
proposals that receive a majority shareholder vote.
Finally, the Board has long been unwilling to thoughtfully consider
maximizing long-term shareholder value through a separation.
Moreover, Timken is suddenly referring to itself as an
“industrial solutions” company in yet another misguided attempt to
get market buy-in for its conglomerate structure.
We, as shareholders, will only receive the full value of
Timken’s Steel and Bearings businesses if they are allowed to trade
as independent businesses.
You are probably asking why the Board and management would
oppose this powerful change. We, too, have asked ourselves why the
Board and these corporate managers are working against the Proposal
recommending a strategic separation to which the market has already
responded positively. We can only find one plausible explanation
and it lies in human behavior—the family-dominated Board is acting
in their own interests at the cost of shareholders.
Exercise your right as owners to demand that the Board act in
your best interests.
VOTE FOR maximum long-term share
value.
VOTE to end Timken’s conglomerate discount
once and for all.
VOTE FOR the Proposal, Item No. 6 in your Proxy (See chart
below).
We thank you for your support.
Sincerely,
/s/ Anne Sheehan /s/ Ralph
Whitworth Anne E. Sheehan Ralph V. Whitworth
Director of Corporate Governance
Principal
California State Teachers’ Retirement
Relational Investors LLC
P.S. You may receive a call directly from Timken's proxy
solicitor asking you to vote your proxy over the telephone. If you
get this call, please send the message to Timken that you want to
enhance the value of your Timken investment by voting FOR Item No.
6 and ask Timken to send you a confirmation of your vote FOR Item
No. 6. If you have questions about how to vote your shares, please
contact our information agent, Okapi Partners, at (877)
285-5990.
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 today number 862,000 from the state’s 1,600 school districts,
county offices of education and community college districts.
Photos/Multimedia Gallery Available:
http://www.businesswire.com/multimedia/home/20130410006228/en/
Grafico Azioni Timken (NYSE:TKR)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Timken (NYSE:TKR)
Storico
Da Lug 2023 a Lug 2024