Ralph Whitworth’s Relational Investors LLC got ball-bearings maker Timken Co. (TKR) to consider spinning off its steel unit as the company hired Goldman Sachs Group Inc. (GS) to study options after stockholders backed a split.
A board committee from outside the Timken family will report the results by the end of next quarter, Timken said in a statement yesterday. Goldman will help assess options that may include separating the steel business and reviewing corporate governance and capital allocation strategy, the company said.
“This has already been widely discussed and considered by the shareholders,” David Batchelder, a Relational co-founder and principal, said in a telephone interview. “Now we just expect them to respond to the shareholders’ wishes.”
The move is a victory for Relational and the California State Teachers’ Retirement System in a campaign they began in November to spin off the steel unit to boost shareholder value. Canton, Ohio-based Timken had sought to keep the business, which generated about a third of 2012’s $4.99 billion in sales and traces its roots to World War I.
Timken rose 2.3 percent to $58.75 at 5:58 p.m. in New York in extended trading. The shares surged 39 percent through yesterday’s close since Nov. 27, a day before San Diego-based Relational and Calstrs announced their stakes and breakup plan.
All independent and non-Timken family board members will serve on the strategy review panel, the company said. The family, which includes Chairman Ward Timken, who used to run the steel business, owned about 10 percent of the stock, a March 21 filing showed, and the company pension plan held 6.4 percent. The Timken Foundation had a 5.3 percent stake as of Dec. 31.
“Separating the company is a significant action with material long-term implications,” Dan Minnich, a Timken spokesman, said by phone. “The board has a fiduciary duty to thoroughly evaluate such an action. The board takes its responsibility to review the merits of that proposal very seriously.”
Directors had pledged to respond within 45 days after a breakup won support of 53 percent of shareholder votes at the company’s May 7 annual meeting. Relational’s 6.9 percent stake as of March 31 made it Timken’s largest holder, while Calstrs owned 0.16 percent, data compiled by Bloomberg show.
Shareholders sent a “clear message” in support of a split, Calstrs said yesterday in an e-mail. The vote at the annual meeting was nonbinding.
Relational, which takes stakes in companies that it considers undervalued and then lobbies for changes, said in May that the shares could rise an additional 20 percent to 25 percent under the spinoff plan.
Timken is projecting its steel revenue to fall as much as 12 percent from a year ago, according to its 2013 outlook, which was reaffirmed in an investor presentation April 24. That would indicate two consecutive years of declines the segment.
“It’s a very difficult situation for the company,” James Moss, a partner at Pittsburgh-based First River Consulting, which specializes in steel and manufacturing, said in a phone interview on June 4. “The integration of these two businesses is historic and longstanding; therefore, if there’s to be any changes, it’ll be different.”
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