Directors of The Timken Company agreed to initiate a spin-off of the group’s steelmaking division into a separate company, retaining the bearings and power transmission business and establishing two publicly traded companies. The separation process could take up to 12 months, according to Timken.
Last fall a group of Timken investors launched an effort to force the directors to split the group’s assets, and at Timken’s annual meeting in May shareholders approved a non-binding proposal to sell off the steel business. Later that month, the board agreed to consider the matter.
"Timken has a long and successful history of creating value for its shareholders," stated James W. 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."
According to the announcement, the separation will be tax-free to shareholders.
The board's decision followed “a thorough evaluation” by a committee of independent directors, with advice from financial and strategic advisors.
"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,” director Joseph W. Ralston said.
“With our shares trading at a discount to our peers, we recognized the need to examine opportunities to better drive value in the market.
Ralston said creating two companies would allow investors to more fully appreciate and evaluate the strategic and financial strengths of each business, he said.
Detailing the New Company
The new steel company will have annual revenues of approximately $1.7 billion, the company noted. Timken’s steel business is one of the largest producers of SBQ large bars in the North American market and the largest producer of seamless mechanical tubing.
The steel business has been the object of an estimated $500 million in capital investments over the recent years, including an expanded electric melt shop and new billet caster, and a novel in-line forge rolling press. The new company will have about 3,000 employees, at seven plants and four warehouses.
After the separation, Timken will have an estimated annual revenue of $3.4 billion from its bearings and power transmission product lines.
Griffith will continue as president and CEO of Timken until the separation is complete and then retire. The board named Richard G. Kyle as Timken’s next president and chief executive officer.
Ward J. "Tim" Timken, Jr. will be the new steel company’s chairman and CEO. He will continue to serve as chairman of the current organization as well as oversee the steel business until the separation.