Whitworth Wins Timken Holders’ Backing for Steel Spinoff

Hewlett-Packard Co. Interim Chairman Ralph Whitworth
A file photo shows Ralph Whitworth speaking at a roundtable on director nominations at the Securities and Exchange Commission in Washington, D.C. during March 2004. Photographer: Jay Mallin/Bloomberg

Ralph Whitworth’s Relational Investors LLC won Timken Co. shareholders’ support in a nonbinding vote urging management to spin off the company’s steel unit from its larger ball-bearing business.

Directors will study the results and announce steps within 45 days, Chairman Ward J. Timken said in a statement today. The proposal won support of 53 percent of shareholder votes cast at Canton, Ohio-based Timken’s annual meeting. For all outstanding shares, 47 percent backed the plan and 41 percent opposed it.

“The board must now acquiesce to the will of the shareholders consistent with their fiduciary duties,” Relational and California State Teachers’ Retirement System, which together own 7.3 percent of Timken, said in a statement.

Relational and Calstrs, as the pension fund is known, have been lobbying for a breakup since November on the grounds that it would boost shareholder value. The board argued that a spinoff would boost expenses, reduce efficiency and inflate borrowing costs for an independent steel operation.

“We appreciate the thoughtful feedback we’ve received from our shareholders on the spinoff proposal,” Ward Timken said in the company’s statement.

Timken rose 3 percent to $56.24 at the close in New York, the highest level since March 28. The stock has jumped 36 percent since Nov. 27, a day before Relational and Calstrs disclosed their stakes and breakup plan.

More Gains?

The shares could rise an additional 20 percent to 25 percent under the proposal to spin off the steel business, David Batchelder, a Relational co-founder, said on a conference call with journalists.

Continued rejection of the proposal by Timken would be a “failure of the board and its fiduciary duties,” said Batchelder, who declined to discuss what steps Relational would take. Shareholders would be unlikely to support the re-election of directors who ignored the vote, he said.

“Our expectation is that they’re going to respond consistent with what the shareholders have now clearly voted for,” Batchelder said. “We are very persistent, we don’t go away and we get the job done. We hope we’re not in a situation where we have to go back to the shareholders again next year.”

Relational said the spinoff plan had 65 percent support from shareholders unaffiliated with the Timken family or the company. The Timken Foundation’s 5.3 percent stake as of Dec. 31 was the second-largest individual holding after Relational’s 6.9 percent as of Feb. 27, according to data compiled by Bloomberg.

Activist Role

Whitworth has used his holdings to push for change at companies such as Illinois Tool Works Inc., which sold a majority stake in its decorative surfaces unit last year and said in February it’s studying the sale of its packaging business.

Timken’s steel division accounted for a third of the company’s $5 billion in 2012 sales. A stand-alone steelmaker would be large enough to operate efficiently and would be debt-free, giving it an advantage over competitors, Batchelder said.

“They should trade at a value that’s superior to other specialty steel companies because of its margins and its defensible position,” Batchelder said. “If there were some consolidation that might occur, there’s no reason to believe that they wouldn’t be the company that would be the consolidator.”

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