CANTON, Ohio – The Timken Co. announced that its board of directors has approved a plan to pursue a separation of the company’s steel business from its bearings and power transmission business through a spinoff, creating two publicly traded companies.
Under this plan, the new engineered steel company will operate as an independent publicly held company, with estimated annual revenue of approximately $1.7 billion.* The bearings and power transmission (B&PT) business will continue to operate as The Timken Co. with estimated annual revenue of approximately $3.4 billion.* The transaction is expected to be tax-free to shareholders and should be completed within 12 months.
"Timken has a long and successful history of creating value for its shareholders," said James Griffith, president and CEO. "Over the past several years, we have transformed the business and delivered superior financial performance by diversifying and expanding customer markets and product lines, making strategic, accretive acquisitions, and introducing new capabilities around the world. We see this initiative — to build out two strong, focused companies — as further evidence of our commitment to drive value for our shareholders and our customers."
Griffith noted that the two stand-alone companies will continue to advance their distinct growth strategies within their respective core markets, which is expected to further improve competitiveness.
"The bearings and steel businesses are well-run and well-positioned in their markets to perform well through economic cycles and have successfully implemented the Timken business model," Griffith added. "We have talented, capable and dedicated employees who we believe will drive these businesses to new levels of success as separate entities."
The board’s decision to split Timken into two companies resulted from an evaluation by a strategy committee composed of independent directors and established by the board in response to shareholder input. With the help of financial and strategic advisers, the strategy committee evaluated the financial and operational implications of separating the company’s businesses, along with potential changes to the company’s corporate governance and capital allocation strategy.
Joseph W. Ralston, the board’s lead independent director, said, "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.
"Through the course of our work, it became clear that creating two focused companies would allow investors to more fully appreciate and value the unique strategic and financial strengths of each business, including operating performance, margins, earnings and cash flow," Ralston added.
"The process that the strategy committee completed convinced us of the value-creation opportunities that can come from separating the company’s businesses," said Ward "Tim" Timken, Jr., board chairman. "Today’s decision is the appropriate ‘next step’ to build on the momentum created by our improvement in the performance and underlying fundamentals of each of our core businesses. These are two winning businesses and we are confident that both can sustain the market-leading performance they have achieved over the past few years."
The New Stand-Alone Engineered Steel Company
The new publicly traded engineered steel company would have estimated annual revenue of $1.7 billion* and is expected to have strong prospects for growth and margin improvement, Timken said. Headquartered in Canton, Ohio, the engineered steel company will include approximately 3,000 associates, seven manufacturing plants, four warehouses and five sales offices. The steel business is North America’s leading manufacturer of SBQ large bars for industrial markets and its largest producer of seamless mechanical tubing.
The (new) Timken Co. Post separation, The Timken Co. would have estimated annual revenue of $3.4 billion* consisting of the Process Industries, Aerospace and Mobile Industries segments. The company’s product portfolio includes a broad range of bearings and related mechanical power transmission components and services. Employing nearly 17,000 associates, the company will have 35 manufacturing plants, 25 service and repair facilities, four technology centers, and an extensive network of sales offices and warehouses around the globe. Company headquarters will remain in Stark County, Ohio.
Experienced Executives to Lead Both Companies
Griffith, 59, will continue as president and CEO of The Timken Co. until the separation is complete, at which time he plans to retire after 30 years of service. The board plans to name Richard Kyle, 47, as The Timken Co.’s new president and CEO, succeeding Griffith. Until then, Kyle has been named chief operating officer of the B&PT business. Kyle joined the company in 2006 with extensive industry experience and has held executive positions at Timken that include vice president of manufacturing, president of Aerospace and Mobile Industries, and, most recently, group president.
The board also plans to name Ward "Tim" Timken Jr., 46, to lead the new engineered steel company as its chairman and CEO. Timken’s career at the company began in 1992 in the steel business as senior steel business analyst. In 2004, he was named president of the steel business, and he was elected chairman of the board in 2005. Timken will continue to serve as chairman as well as oversee the steel business until the separation.
Following the separation, the board plans to name John M. Timken, Jr., 62, non-executive chairman of The Timken Co. In that role, he assumes leadership responsibility for board activities and will oversee related board matters. Timken has been an active member of The Timken Company’s board since 1986.
* The company currently has in place an active share buyback program and has already purchased 1.8 million shares this year. Currently, 5.7 million shares remain under the existing board-authorized 10 million share buy-back program. "We expect to remain active in seeking opportunities to repurchase shares and will utilize our balance sheet accordingly," Griffith noted.
* Timken has a track record of paying dividends for 365 successive quarters since it became a publicly traded company in 1922 and will continue to evaluate its dividend at regular quarterly intervals.
* The company has actively funded its pension plans, which it expects to be substantially fully funded by the end of the year. The company does not anticipate making further discretionary contributions.
* Timken will complete its current capital investment program for both businesses, which includes a new continuous caster for the steel business to come on-line in the second half of 2014, and expects investment levels to return to more normal levels thereafter.
