CANTON: Now it gets interesting.
For more than 100 years, there has been one Timken Co. in Canton. The city may get two smaller ones.
The pair of activist shareholders that successfully passed a resolution Tuesday calling for the Timken Co. to spin off its steel division say they expect the company’s top leadership to follow through on their wishes.
“The [Timken] board must now acquiesce to the will of the shareholders consistent with their fiduciary duties,” Relational Investors LLC, Timken’s largest shareholder, said in a statement after the vote at the company’s annual meeting.
Meanwhile, Timken executives and board members who had strenuously opposed the measure said they expect to respond to the historic vote within 45 days.
Shares of Timken rose $1.63, or 3 percent, to close at $56.24 following the passage of the nonbinding vote. The stock price is up about 38 percent since the two shareholders went public in late November with their push to split the $5 billion corporation.
By one count, 53 percent of shareholders voted in favor of creating two publicly traded Timkens, one that focuses on making bearings and the other on making steel.
When looked at in terms of all outstanding Timken shares, 47 percent favored the spinoff to 41 percent against.
And when factoring in that the Timken family and other insider or so-called affiliated shares made up 15 to 17 percent of the no votes, the outcome was not all that close.
Initial analysis showed that the spinoff proposal received at least 65 percent of the independent, or nonaffiliated, shares voted, the activist shareholders said in a statement.
If Timken’s top leadership declines to follow through on the shareholder vote and keep the company as is, the board and executives likely will face more pressure next year to spin off the steel division.
Ballot sponsors California State Teachers’ Retirement System and Relational have said they are willing to wage a proxy contest to replace some or all of Timken’s board of directors if the company continues to fight their proposal. Relational and CalSTRS have a close working relationship.
The $164 billion teachers pension fund CalSTRS owns about 0.4 percent of Timken shares while Relational owns about 6.9 percent of the company. Relational owned more than 6.6 million shares of Timken stock valued about $372.1 million as of Tuesday’s closing price. (Timken’s market capitalization, or the total number of outstanding shares times the stock price, was a bit more than $5.4 billion based on Tuesday’s close.)
Shareholder value cited
The two California entities placed the proposal on Timken’s proxy statement, arguing that two publicly traded Timken companies will create greater value for all shareholders than the current combined company.
The results were revealed about 15 minutes into the 10 a.m. meeting inside Timken’s corporate headquarters auditorium. Just about all 140 seats in the space were filled, with extra chairs brought in and placed along the back wall to accommodate overflow.
Ward Timken Jr., the company’s chairman, followed the vote announcements by saying that Timken has transformed itself over the last 10 years and showed record financial performance in 2011 and 2012.
“This performance transformation has been driven by a never-ending search for the paths that will create shareholder value,” Timken said. “The vote on shareholder [CalSTRS] proposal 6 tells us that there are differences over what the best path should be.”
CalSTRS representative Philip Larrieu said he expects Timken’s board will give the vote outcome serious consideration. Larrieu, CalSTRS’ investment officer, spoke for the shareholder proposal prior to the vote being called.
“It isn’t a mandate that they do exactly as prescribed. It is an advisory proposal,” he said afterward.
The margin of voting by non-Timken affiliated shareholders shows that shareholders favor the company taking a strong look at spinning off the steel division, Larrieu said.
He noted the criticism leveled at the outcome during a half-hour question and answer session after the shareholder meeting formally ended.
“I do this a lot. I knew it wouldn’t be a love fest for us,” Larrieu said.
Jim Griffith, Timken president and chief executive officer, said the question is not, “ ‘Can you do this?’ The question is, ‘How do you create value for shareholders?’ ”
There are real synergies and value in keeping the business together, he said.
“We believe in that,” Griffith said. Shareholders have voted in favor of company leaders “to back and test the question,” he said. Griffith said the company takes seriously the feedback it got with the steel spinoff vote.
“We will consider it carefully and take the appropriate actions,” he said.
‘Short term’ decision
Salvatore Miraglia, who retired last year as head of Timken’s steel division, was loudly applauded following a statement he made at the end of the question and answer session.
“Quit trying to explain to me how this is in the best interests of the community,” Miraglia said. “Let’s call a spade a spade. They’re in it for the short term. This has been done before and it has fallen apart and I’m tired of hearing it.”
Ralph Whitworth, founder and principal of Relational, said in a statement that Tuesday’s vote “speaks to the power and importance of shareholders exercising their rights to impress their views upon the companies in which they invest. The vote for the CalSTRS proposal both overcomes a substantial inside ownership block of at least 17 percent and makes clear that such inside blocks can no longer be taken for granted as an effective deterrent to simply thwart meaningful shareholder activism.”
Ward “Tim” Timken opened his remarks by remembering the two Beaver Excavating Co. employees killed Saturday in an incident outside the company’s Faircrest steel mill in nearby Perry Township.
“On behalf of the entire Timken associate team, our condolences to the family and friends of Brian Black and Mark Tovissi, who tragically lost their lives this past weekend in a crane accident at the Faircrest construction site,” he said. “We know that words cannot relieve the pain of their loss but we offer our thoughts and prayers for them.”
Also Tuesday, company shareholders:
• Elected all 12 current directors to one-year terms.
• Ratified Ernst & Young LLP as its outside auditor.
• Approved on an advisory basis the compensation for executive officers.
• Approved amendments on voting requirements on certain matters.
Timken said that the company that bears his family name has had a long-term view of the world that has created “staying power” for more than 100 years.
“And it’s that same view that will carry this company forward for a hundred more,” Timken said.
He didn’t use the word “companies.”
Jim Mackinnon can be reached at 330-996-3544 or firstname.lastname@example.org.