CalSTRS, Relational Investors urge Timken to split businesses
By Barry B. Burr | February 19, 2013 4:00 pm
California State Teachers' Retirement System and Relational Investors called on The Timken Co. to separate its steel and bearings businesses “to unlock significant value for all shareholders” and for other investors to support a CalSTRS proposal for such action, according to a joint statement Tuesday by the investors.
The $157.8 billion CalSTRS, based in West Sacramento, and Relational, which together own 7.31% of Timken, urged the split in a joint letter Tuesday to Ward J. Timken Jr., chairman of the Timken board, suggesting a $71.07 a share target separation valuation. That's a 19.8% rise from Tuesday's $57.29 midday trading price.
Anne E. Sheehan, CalSTRS director of corporate governance, and Ralph V. Whitworth, Relational principal, wrote that Timken's conglomerate structure results in an undervaluation of the company's shares.
“Separation of Timken's businesses, as broadly believed by the investment community, should create meaningful enhanced shareholder value, enhanced investment market appreciation for Timken's businesses and enhanced long-term potential for these businesses and the communities they serve,” the letter stated.
CalSTRS filed a shareholder proposal calling for the separation, asking other shareholders for their support. Timken hasn't issued its proxy statement.
“We will continue to dialogue with shareholders and the broader investment community about our analysis, emphasizing the value creation potential of a separation of the bearings and steel businesses,” the letter stated.
In response to the letter, Timken issued a statement saying: “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. … The board and management have carefully evaluated with input from outside advises 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.”