Relational Investors LLC and CalSTRS Question Timken Board’s Willingness to
Act in the Best Interests of All Shareholders Following Meeting with Board
Timken Family-Influenced Board Continues to REBUT Investment Community
Consensus To Separate Company’s Two Core Businesses And Eliminate The Stock’s
Long-Standing “Conglomerate” Discount
Relational and CalSTRS Urge Shareholders To VOTE FOR CalSTRS’ Proxy Proposal
To Unlock Shareholder Value At Timken By Separating The Company’s Steel And
Bearings Businesses And Having Them Trade Independently
SAN DIEGO -- April 02, 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”), 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
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 7^th 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
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
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 28^th 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
We urge shareholders to VOTE FOR the CalSTRS proxy proposal to unlock
shareholder value through the separation of Timken’s Steel and Bearings
For more information about the value-enhancing potential of CalSTRS’ proposal,
please visit www.UnlockTimken.com.
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”
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.
Kekst and Company
Robert Siegfried/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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