Relational and CalSTRS Assert That Timken’s Shareholder Presentation is
Flawed and Misleading
Shareholders Urged To VOTE FOR CalSTRS Proposal
SAN DIEGO -- April 1, 2013
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”), today stated that
an investor presentation filed this morning by Timken presents a highly flawed
and misleading analysis with respect to the CalSTRS proposal to spin off
Timken’s Steel business to unlock shareholder value. The spinoff would create
two publicly traded Timken entities – Steel and Bearings – ending the
conglomerate discount which has consistently impaired the company’s stock
price. Relational, Timken’s largest independent, public shareholder, fully
supports the CalSTRS proposal, which is before shareholders for the Company’s
annual meeting on May 7, 2013.
Ralph Whitworth, founder and principal of Relational, stated, “It is shocking
that Timken would underestimate its shareholder’s intelligence by using such
erroneous analysis as justification to not unlock value for Timken
shareholders. In our numerous conversations with many of Timken’s largest
shareholders, there is a consensus view that the Company should spinoff the
The facts are straightforward and Timken, try as it might, can’t hide or
justify these realities:
*Since November 15, 2012, shortly before Relational and CalSTRS filed their
Schedule 13D advocating for 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 separate its businesses as recommended in the
CalSTRS shareholder proposal, there is a significant risk that the price
of Timken’s shares will fall precipitously.
*Timken’s synergies analysis is highly flawed and contrived. It does not
reflect the clear opportunity to mitigate dis-synergies as SKF did
following the separation of its businesses and, which we cited in our
Timken shareholder presentation. 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. And, as Timken
knows or should know, there is ample opportunity to mitigate this
incremental dis-synergy through supply arrangements.
*Timken intentionally uses many analyst sum-of-the-parts valuations from
November and December of last year, which are out-of-date. The three
valuations from 2013 that Timken includes average $66, an 18% increase
from the current stock price.
*Timken uses its three year share price performance to justify its
conglomerate business strategy. But this performance includes the stock’s
outperformance of its peers since the November 28^th joint 13D filing by
Relational and CalSTRS.
*Timken accuses Relational of applying an 18x P/E ratio to its Bearings
business versus 14x for peers. However, Timken chooses to ignore the
impact of its poor capital structure. If Timken used $1 billion in new
debt to buy back its stock – thereby approaching typical peer leverage
ratios –the Bearings company's P/E ratio would decline to 16x. We are
confident that the Bearings business would trade at premium to peers based
on the Company’s own growth forecasts that are much higher than peers.
*Timken is clearly wrong about peer group analysis. A broadened peer group
analysis does not change our conclusion that separation will result in
enhanced shareholder value at Timken. Timken should know that broadening
the peer group too much to include, for example, Japanese companies is
inappropriate because their margins, geography, and products are not
*Timkenclaimsthat ifitsbusinesses were separated,Steel would not have
an investment grade credit rating.How does Timken know this? For
example,ITT maintained an investment grade credit rating when it was spun
out at a $1.7billion market cap.And, in any case, as Timken knowsor
should know, itis more important for Timken to minimize its cost of
capital rather than maximize its credit rating at the expense of a
sub-optimal capital structure.
“In addition, we note that in a Reuters article following Timken’s press
release, Timken says that CalSTRS and Relational do not include transaction
costs of $200 million in their analysis. This also is incorrect –the analysis
in our shareholder presentation includes these transaction costs.
“Finally, it is not in shareholders’ best interests for Timken to be trying to
muddy the waters. We are confident that shareholders understand the facts and
will VOTE FOR CalSTRS proposal to unlock value for all shareholders through
the separation of Timken’s Steel and Bearings businesses. Based on a consensus
of security analyst views, the ongoing impaired nature of Timken’s stock
price, and expressions of support we are hearing from shareholders, our
shareholder proposal is timely. We urge all shareholders to unlock shareholder
value by VOTING FOR the CalSTRS shareholder proposal,” Mr. Whitworth said.
To learn more about the CalSTRS proposal and how to unlock significant
shareholder value at Timken by allowing the market to independently value
Timken’s Bearings and Steel businesses as pure plays in their respective
industries please visit www.UnlockTimken.com.
Shareholders are urged to VOTE FOR PROPOSAL #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 now number
862,000 from the state’s 1,600 school districts, county offices of education
and community college districts.
Kekst and Company
Robert Siegfried/Daniel Yunger or Donald C. Cutler
212-521-4800 or 415-852-3903
Okapi Partners LLC
Bruce H. Goldfarb/Charles W. Garske/Geoffrey Sorbello
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