Timken Co.'s plan announced Thursday to split its businesses into two parts embraces a proposal filed jointly by CalSTRS and Relational Investors that the company vigorously opposed but shareholders voted 53% in the majority to support.
Timken's planned separation into steel and ball-bearing businesses follows the framework of the non-binding proposal aimed to bolster shareholder value and could be considered a vindication of the campaign by the $170 billion California State Teachers' Retirement System, West Sacramento, and Relational to win over shareholders and, ultimately, the company's board.
The stock has continued to rise since intervention by CalSTRS and Relational.
From Nov. 27, the day before CalSTRS and Relational announced their proposal, to the shareholder vote May 7, Timken stock's total return was 36.4%, compared with the 17.3% total return of the S&P 500. Since the vote through Thursday, the stock's total return was 8%, compared with 2.6% for the index.
Timken stock closed at $61.55 on Friday, up more than 2% from Thursday's close.
Glenn A. Eisenberg, Timken executive vice president-finance and administration and chief financial officer, said in an interview,” I think everyone is pleased” with the outcome. The board concluded the separation is the best path to create shareholder value and that decision “is in sync” with the CalSTRS and Relational proposal, Mr. Eisenberg said.
Anne Sheehan, CalSTRS director of corporate governance, said in a statement, “We fully support and commend Timken's decision … because it means they've listened to their shareholders. In particular, we are grateful to the (Timken) special strategy committee for its diligent work and to the entire Timken board for responding to the will and long-term interests that Timken's shareholders expressed at the (May 7) annual meeting. We firmly believe this action will create long-term benefit for the shareholders.”
Ralph Whitworth, Relational co-founder, added in the same statement the split “ensures the long-term vitality and competitiveness of Timken as two separate companies, both of which will lead their respective industry segments for operating excellence.”
Timken board members acknowledged the role of shareholders to bolster shareholder value in the decision to split the company, saying in a company statement, “The board's decision to split Timken into two companies resulted from a thorough evaluation by a strategy committee composed of independent directors and established by the board in response to shareholder input.”
Joseph W. Ralston, the Timken board’s lead independent director, said in a company statement, “The strategy committee and board concluded that even with the company’s success in improving performance in recent years and an impressive track record of accomplishments, the company’s share price has not appropriately reflected our significant progress. With our shares trading at a discount to our peers, we recognized the need to examine opportunities to better drive value in the market.”
Added Ward J. “Tim” Timken Jr., board chairman, in the company statement: “The process that the strategy committee completed convinced us of the value-creation opportunities that can come from separating the company’s businesses.”
Prior to the shareholder vote, Timken in a letter to shareholders called for the rejection of the proposal, saying, “our integrated platform and comprehensive strategic plan (is essential) to drive value for shareholders.”
CalSTRS and Relational own a combined 7.28% of Timken’s 96 million outstanding shares, including CalSTRS’ 0.41% or 389,667 shares. “CalSTRS is a long-term shareholder and is expected to remain invested in the company for the foreseeable future,” according to a CalSTRS statement when the proxy vote results were reported.
The combined holding of the two investors is the second-largest holding of Timken shares after the 10% owned by the Timken family.
The Timken Co. Savings and Investment Pension Plan, Canton, Ohio, is the third-largest holder with 6.4% of the shares. The pension fund had $1.1 billion in assets, including 27% or $299.6 million in Timken stock, as of Dec. 31, 2011, according to its Form 5500 filing with the Department of Labor.
CalSTRS media contacts couldn’t be reached for further comment.
Timken expects to complete its separation into two companies within 12 months, according to the company statement.