CANTON, Ohio, April 2, 2013 /PRNewswire/ -- The Timken Company (NYSE: TKR; www.timken.com) today announced that it sent a letter urging shareholders to support the company's proven strategy of creating shareholder value and to vote AGAINST Item No. 6 of its proxy statement, the shareholder proposal to spin-off the Steel business. Timken also announced that members of its board and management team met with The California State Teachers' Retirement System (CalSTRS) and Relational Investors today to discuss the flaws in the analysis behind the proposal and articulate the reasons why Timken believes its comprehensive strategic plan is the best path to create long-term value for shareholders.
"As we have in the past, we outlined for CalSTRS and Relational Investors the benefits of our integrated platform and comprehensive strategic plan to drive value for shareholders as well as the flaws in the analysis of a spin-off of our Steel business," said James W. Griffith, Timken president and chief executive officer. "It is clear to us that our proven business model and strategy to create shareholder value represent the best path forward for all Timken shareholders."
Included below is the full text of the letter to Timken shareholders, which can also be found at www.TimkenDrivesValue.com:
April 2, 2013
Dear Fellow Timken Shareholder:
SUPPORT THE TIMKEN COMPANY'S PROVEN STRATEGY TO CREATE SHAREHOLDER VALUE
DO NOT BE MISLED BY THE MISGUIDED SHAREHOLDER PROPOSAL ADVOCATING A CHANGE IN COURSE
VOTE AGAINST THE SHAREHOLDER PROPOSAL TO SPIN-OFF THE STEEL BUSINESS
Your Board and management team are successfully executing a carefully considered plan to deliver long-term value to Timken shareholders. Over the last several years, we have transformed Timken into a global industrial technology leader with products designed to improve the efficiency and reliability of the machinery that keeps industry in motion. Our product portfolio features mechanical components and engineered steel products used in some of the world's most demanding applications.
The success of this effort leverages strengths across The Timken Company's businesses, including shared research and technical expertise and supply chain and operating efficiencies between our Steel business and our Bearing and Power Transmission (B&PT) business, to deliver solutions across common end markets and customers. A separation of Timken Steel from the rest of the enterprise would compromise the Company's competitive advantage and our ability to leverage these benefits to deliver higher financial returns.
The shareholder proposal by The California State Teachers' Retirement System (CalSTRS) and Relational Investors that you are being asked to vote on would derail our strategy and deprive shareholders of the opportunity for long-term value — all in a misguided attempt to create illusory short-term gains through financial engineering. Your Board and management team have carefully reviewed a separation of the businesses, with input from outside advisors, in the past and have met with Relational Investors multiple times, most recently on April 2, 2013, in a meeting that also included CalSTRS. Based on its careful review, the Board has determined that maintaining The Timken Company's current integrated strategy is in the best interests of shareholders at this time.
OUR PROVEN STRATEGY IS WORKING TO DELIVER SUPERIOR VALUE FOR YOU
The strength of our operating performance as an integrated company has produced superior value for you — with total shareholder returns of 111% over the last three years[i]. This puts Timken at the top of our peer group and well above the returns for the overall market.
DO NOT ALLOW SHAREHOLDERS WITH A MISGUIDED, SHORT-TERM FOCUS TO DERAIL OUR TIMKEN PLAN
Timken is committed to continuing to deliver value by executing our strategic plan, which includes:
Strengthen Margins. The Timken transformation has resulted in a leaner, more variable cost structure and the increased ability to tightly control the supply chain in response to market variability. These actions, together with the expansion of the Timken portfolio to include complementary products and services across the Steel and B&PT businesses, have resulted in stronger margins.
Improve Cash Flow and Pension Funding. The Company projects that its defined benefit pension plans will be substantially fully funded in 2013. In addition, we expect improved working capital management and lower projected capital spending beyond 2013 to result in increased cash flow.
Leverage Growth Opportunities. Timken expects to generate annual sales growth of 6% to 11% through 2015, driven by new products and geographic expansion as well as targeted acquisitions.
Return Capital. Timken has paid a dividend to shareholders in every quarter since the Company became public in 1922. In addition, your Board has authorized the repurchase of up to 10 million shares. Returning capital to shareholders through ongoing dividends and the continued execution of the share repurchase program is an integral part of the Company's plan for delivering value.
SYNERGIES BETWEEN STEEL AND B&PT BUSINESSES CREATE VALUE
The Timken Steel and B&PT businesses are tightly integrated and synergies related to the supply chain, shared research and technical expertise yield important benefits for customers and shareholders. Over the past five years, on average 58% of B&PT's steel requirements were sourced from Timken-produced steel. These supply chain efficiencies make possible lower costs, faster lead times and higher customer satisfaction levels as our B&PT business goes to market. Additionally, by combining shared R&D with 100 years of metallurgy and application knowledge across our businesses, we are able to provide customers the highest quality bearings and steel products for some of the toughest mechanical power transmission applications, an advantage that none of our competitors have. These capabilities translate into benefits for Timken shareholders in the form of higher margins driven by value-based pricing and enhanced market competitiveness and responsiveness due to our greater insights into customers and our targeted end markets.
DON'T BE MISLED BY RELATIONAL'S FLAWED SPIN-OFF ANALYSIS
The shareholder proposal to spin-off the Steel business is based on a flawed analysis that suggests the combined value of separate Steel and B&PT companies would be substantially higher than the value of Timken today — simply as a result of separating the two businesses. Relational Investors asks you to believe that the market would give a separate B&PT business a price/earnings ratio 33% higher than the median price/earnings ratio of Timken B&PT's peers[ii]. Does that make sense to you?
In addition, Relational assumes Timken would lose only $25 million in annual pre-tax earnings from a separation of the businesses — while our analysis shows we would expect to lose $60-80 million in annual pre-tax earnings from duplicative costs and loss of synergies. Moreover, Relational ignores the fact that a standalone Steel business would be one of the smallest publicly traded steel companies. Given its small size and scale, the rating agencies would likely assign non-investment grade credit ratings to the company. This would increase its cost of capital and reduce its financial flexibility to take on important, high-return projects like the Faircrest expansion, which we are currently implementing to improve profitability across industry cycles through reduced costs while expanding the market capabilities of the Steel business.
In summary, once the flaws in Relational's analysis are corrected, it is clear that the Company's proven business model and strategy to create shareholder value represent the best path forward for all of the Company's shareholders.
VOTE AGAINST THE MISGUIDED PROPOSAL TO SPIN-OFF THE STEEL BUSINESS
Your Board and management team have carefully reviewed the shareholder proposal and have concluded it is not in the best interests of shareholders at this time. It amounts to a self-interested attempt to generate illusory short-term profits at the expense of long-term value creation. Support the Timken strategy to achieve long-term value through the continued successful execution of our strategic plan. Please cast your vote today AGAINST this shareholder proposal. For more information, please visit www.TimkenDrivesValue.com. Thank you for your continued support of The Timken Company.
On behalf of the Board of Directors of The Timken Company,
Joseph W. Ralston
Lead Independent Director
About The Timken Company
The Timken Company (NYSE: TKR; www.timken.com), a global industrial technology leader, applies its deep knowledge of materials, friction management and power transmission to improve the reliability and efficiency of machinery and equipment all around the world. The company engineers, manufactures and markets mechanical components and high-performance steel. Timken® bearings, engineered steel bars and tubes—as well as transmissions, gearboxes, chain, related products and services—support diversified markets worldwide. With sales of $5.0 billion in 2012 and approximately 20,000 people operating from 30 countries, Timken makes the world more productive and keeps industry in motion.
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