The pressure is still on the Timken Co. to split up.

The Canton steel and bearings maker’s largest shareholder continues to push the company to separate into two.

Shareholders would best be served with one independent business focusing on steel making and another on Timken’s bearings-related interests, said activist shareholder Relational Investors LLC and its partner, the large public pension fund California State Teachers’ Retirement System, or CalSTRS. The two investors own 7.3 percent of Timken shares; Relational has 6.9 percent.

The two California entities last week issued a document, including a copy of a letter to Timken’s board, saying Timken shares are undervalued. Relational and CalSTRS last year announced that they believed shareholders would benefit if Timken spun off its steel unit. A spinoff of the steel operations would boost stock prices, they said.

The two sent a letter on Feb. 19 to Timken restating their case and criticizing current management.

Timken, meanwhile, issued a short statement saying its leadership team believes the current company structure works best.

The company statement in its entirety says:

“All of Timken’s board members are committed to continuing to act in the best interests of shareholders. We engage with shareholders regularly and have met twice with representatives of Relational to share our perspective on their proposal. As noted previously, the board and management have carefully evaluated with input from outside advisers separating the steel and bearing businesses. We continue to believe the company has significant cost, technology and revenue synergies between its bearing and steel businesses, as well as diversification benefits in continuing to operate under its current structure. The loss of these benefits, as well as a potential reduction in financial flexibility, would largely offset any near-term valuation increase that might result from a separation of the businesses at this time.”

Timken shares on Monday fell $1.73 to $52.52. Shares are up 10.5 percent, including dividends, since Jan. 1 and are up 1 percent from a year ago.

Relational Investors said spinning off Timken’s steel business “should not disrupt the Canton community or Timken’s employees. The Timken name and Canton headquarters can and should survive with both businesses operating as independent entities.” Separating the businesses may result in additional employment, Relational’s letter said.

Two separate companies would still have amply funded pensions and be able to pay for capital expenses, Relational’s letter said.

The investors also said that Timken has a history of poor corporate governance.

“The Timken family holds three of 11 board seats; the $9 (million) compensation received by executive Chairman Ward Timken Jr. is grossly out of line with other executive chairmen in Timken’s peer group,” the Relational letter said.

Timken “effectively” pays to have two chief executives: Ward Timken and CEO Jim Griffith, the letter said. The letter to the board directly addressed Ward Timken and said, “In fact, the excessive compensation you received can be used to substantially offset the cost of adding a second executive team.”

Timken in January said it expects revenue this year to be down about 5 percent from the nearly $5 billion the company had in 2012. Timken earned $495.5 million, or $5.07 a share, on revenue of $4.99 billion last year.

Institutional shareholders, including pension funds, hedge funds and investment advisers, own 81.3 million shares, or nearly 85 percent of Timken stock. About 2.8 percent of Timken shares are owned by corporate insiders; the Timken Foundation is the company’s third largest shareholder with 5.3 percent of outstanding shares, according to the latest available information.

Timken’s annual shareholders meeting typically is scheduled for the second Tuesday in May.

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