Timken May Lose Without Spinoff

Timken Co., the renowned bearings and steel maker has decided not to spinoff the steel unit and hence, the shareholders will not be able to recoup $1.3 billion in market value. Incidentally, Relational Investors LLC recently stated that they have 5.7% stake in Timken and a spinoff would have resulted a price of $65 per share.

Incidentally, last week, Timken rejected a breakup and stated that if they keep the units combined, it will help bring in more profits. The total worth of the company is estimated to be at $4.3 billion currently. The price-earnings ratio of the company is also lower than any other of its global competitors. 

According to Samuel Eisner, who works as an analyst for William Blair & Co., Timken never gets a proper valuation. He added that a breakup is inevitable for the company because of the high ownership among founding family members. He commented that if the breakup takes place, there are high chances that the company will be valued higher.

Timken incidentally was founded by Henry Timken in 1899 and currently has 58 facilities across 30 different countries. James Griffith, the CEO of Timken, stated in a statement issued last week that the company has enough cost, revenue and technology synergies between the steel and bearing business so that it can continue to operate under the current structure itself.

On a 28th November filing, Relational stated that they are going to purchase Timken shares. It described the lower valuation of Timken as significant and according to their official statement, the valuation shows clear preference of the market for pure-play bearings. Relational also mentioned that the value created by keeping the businesses together is kind of negligible for Timken, if it’s compared to the discount offered in the market.

Tim Kang, an analyst at Olstein Capital Management LP, stated that the stock prices of Timken are depressed mainly because of the seasonality of the business. He added that the investors are not giving the company its ability to generate cash enough credit. Tim commented that the share prices are likely to jump to around $65 per share if the businesses are split. However, according to him, the shares will jump to that level within a year or two on its own. Currently, Timken shares are priced at $44.78 per share, plummeting by 0.8% today.