The Timken Company (NYSE:TKR) agreed to spin off its steel business from its industrial bearings operations owing to persistent demands from the two activist investors. Two big investors who dragged Timken into the move were the California State Teachers’ Retirement System and Relational Investors, the hedge fund led by Ralph V. Whitworth.
In a non-binding vote, investors showed their preference towards the spin off in the organization.
Michele Ragazzi's Giano Capital returned 1.9% for March, taking the fund's year-to-date performance to 1.7%. Since its inception, Ragazzi's flagship fund has produced a compound annual return of 7.8%. According to a copy of the €10 million fund's March update, a copy of which ValueWalk has been able to review, Giano's most significant investment at Read More
Activist investors feel the spin-off will create more value
Both the investors denied Timken’s suggestion of keeping the company intact and argued that spinning off the company into two will create more value for the shareholders.
Whitworth said that the proposed spinoff will play a vital role in the long term competitiveness of the company as both companies will be dominating their respective segments for operating excellence.
Anne Sheehan, Calstrs’s director of corporate governance, said in a statement. “In particular, we are grateful to the 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 annual meeting”. The executive further said that this action will be a benefit to the shareholders in the long term.
Management changes due to spin-off
The Timken Company (NYSE:TKR) split process will take 12 months to get completed, and under the terms and conditions Timken will detach its engineered steel business to create a new publicly traded company with approximately $1.7 billion in annual sales. Apart from this, other business of the company will be continued under Timken name and will have estimated revenue of approximately $3.4 billion.
Timken’s chief executive James W. Griffith will step down from his position after the spinoff process gets completed. New Chief executive officer of the company will be Richard G. Kyle, who at present is group president and John M Timken Jr will become non-executive chairman. Ward J. Timken Jr., the current chairman, will take over as the chief executive of the steel company.
Timken stocks up after the decision
In the current fiscal year, activist investors have pressured many big companies like Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT) and the Hess Corporation to agree to their terms and conditions.
Gary Farber, an analyst at CL King & Associates in New York, said that Timken’s is a textbook case for enhancing valuation as the efficiency that could not come out in companies which remain together will emerge when they spun off.
Timken Company (NYSE:TKR) shares were up 5.3 percent to $63.43 at 6:03 p.m. in extended trading. Timken, which has been a public company since 1922, gained 3.1 percent to close in at $60.26 in New York. This year the stock is up 26 percent.