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Market likes Timken decision to divide into 2 companies

By Jim Mackinnon
Beacon Journal business writer

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Timken Co.’s just-announced plan to spin off its steel business to create better shareholder value has already boosted the Canton company’s stock price.

Shares on Friday closed at a record high of $61.52 after Timken disclosed late Thursday afternoon that its board has approved splitting the 114-year-old bearings and steel maker into two publicly traded entities.

On Friday, Timken’s senior leadership organized a morning conference call with industry analysts to discuss the spinoff process and what they expect the two new companies will look like. The companies will remain in the Canton area.

“We suspect this decision may have come as a surprise to some who followed Timken given our earlier position on the separation,” James W. Griffith, chief executive officer, said in an opening statement. “However, we’re convinced it’s the right course of action at this time.”

Timken’s largest shareholder, Relational Investors LLC in California, and longtime partner California State Teachers Retirement System last year announced they wanted Timken to separate its steel and bearings businesses. The shareholders argued that having two publicly traded companies offered more opportunities to add value than a single integrated Timken.

But Timken’s board and top management fought splitting the company in two. Then in May, CalSTRS and Relational won a nonbinding resolution at the annual shareholders meeting calling for Timken’s board to separate the companies. And the company announced Thursday after the stock market closed that after long consideration and review, it would indeed split Timken.

“We have two industry-leading businesses that deserve to be recognized for their success in the marketplace,” Griffith said. “So, we’re embarking on plans to separate them into two strong, independent companies.”

Timken stock on Friday rose $1.26, or 2.1 percent, on the spinoff announcement.

But Timken shares are up 50.4 percent, including dividends, since Relational announced in late November it had bought a large chunk of Timken stock and was pushing to split the company. Shares are up 30.2 percent since Jan. 1.

Union hears news

Timken’s unionized workforce in Canton on Friday was just starting to ask about the implications of the spinoff, said Joe Hoagland, president of United Steelworkers Local 1123 Golden Lodge. The USW local has about 2,300 members who work at Timken’s Canton-area plants.

Hoagland said he expects union leadership will meet with Timken executives in the near future.

“I know we’ll have to meet at some point,” he said. The current contract, which runs through 2017, might have to be modified through negotiations to take into account the spinoff but it is too soon to tell, he said.

Hoagland listened in on the public conference call Friday morning between Timken and industry analysts. “It sounds like they have a lot to figure out, too,” he said.

Hoagland said he was not surprised by the company’s announcement but also said he would not have been surprised one way or the other.

Timken Chairman Ward J. “Tim” Timken Jr., who will become chief executive of the still-unnamed steel company, said the spinoff represents the next step in transforming the company.

“To get to this point, we, the board and management had to challenge our traditional thinking about our business,” Timken said.

The steel business likely will have the Timken family name attached to it, he said.

The bearings and power transmission company will retain the name The Timken Co. Each company will have separate boards of directors and separate management.

Specifics unclear

Executives on Friday said many details still need to be worked out, including where in the Canton area the two corporate headquarters will be. Many of the specifics will be included in what are called Form 10 documents expected to be filed next year with the Securities and Exchange Commission, they said. The Form 10 is used to register securities for trading and includes basic financial information on the business.

The steel company will have about a third of the revenue — roughly $1.7 billion — of the current integrated Timken Co., with the new bearings company to have about two-thirds of current revenue, or $3.4 billion. Pension plans for both companies are expected to be fully funded by the end of the year.

The two companies will continue to have mutual business relationships and likely have technology agreements, executives said. Among the issues still to be resolved is how the soon-to-be two companies will use Timken’s technology center, which does work on steel and bearings, near Akron Canton Airport.

The larger bearings business is more global, has more diversified products and services and is less volatile historically than the steel business, said Glenn A. Eisenberg, executive vice president and chief financial officer.

Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com


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