CalSTRS and Relational Detail for Proxy Advisory Firms the Flawed and Misleading Nature of Timken's Arguments for Maintaining the Company's Conglomerate Structure
CalSTRS and Relational Urge Shareholders To Vote FOR Proxy Proposal Item No. 6 To Unlock Shareholder Value By Separating Timken's Steel and Bearings Businesses Into Two Publicly Traded Entities
SAN DIEGO--(BUSINESS WIRE)-- Relational Investors LLC ("Relational") and the California State Teachers' Retirement System ("CalSTRS"), collectively owners of 7.3% of the shares of The Timken Company, (NYS: TKR) ("Timken" or "the Company"), today released a supplement to their most recent shareholder presentation detailing for proxy advisors the flawed and misleading nature of Timken's arguments to maintain the company's conglomerate structure.
CalSTRS and Relational urge Timken shareholders to VOTE FOR Item No. 6, our proposal to unlock shareholder value by separating the Company's two incongruent businesses-Steel and Bearings-and having them trade independently, thereby eliminating the stock's long-standing conglomerate discount.
Relational commented, "CalSTRS and we are not going to let Timken's Board off the hook. It is simply not in the best interests of Timken shareholders to be deprived of the true and fair value of their investment given the long-term potential of the Company's Steel and Bearings businesses, so that the Timken family-dominated Board can continue to perpetuate a business structure that apparently only serves their interests. The investment community's response to the announcement of our proposal to separate the businesses sends a clear message that the Board-sponsored conglomerate structure continues to impair shareholder value. By voting FOR our proposal, Item No. 6 on the proxy, shareholders now have the opportunity to hold the Timken Board accountable for the persistent conglomerate discount and to realize the increased value in their Timken shares since we made our proposal public on November 28, 2012, and the potential for greater upside."
Timken's Flawed Arguments Include:
Timken boasts about its share performance to justify its conglomerate strategy, when in fact the Company's stock price during the CEO's 11 year tenure and prior to the announcement of our proposal, has dramatically UNDERPERFORMED its closest bearings peer, SKF, and every major specialty steel peer, including Carpenter, Nucor, Steel Dynamics and Allegheny. Since November 15, 2012, shortly before Relational and CalSTRS filed their Schedule 13D advocating for the separation of Timken's Steel and Bearings businesses, Timken's stock price has outperformed its peers by 41 percent, or over $15 per share. If Timken wants to stand by its value-impairing business model, than it cannot ride the wave of investor momentum and stock price growth that CalSTRS' shareholder proposal has generated.
Timken continues to use a lower quality or inappropriate peer group to justify its steep trading discount. Timken should know that broadening the peer group to include, for example, Japanese companies is inappropriate because their margins, geography, and products are not comparable.
Timken misleadingly cherry-picks metrics in an attempt to trick investors into believing that its Steel business is too small to trade independently. In fact, Timken's Steel market capitalization would have critical mass, with best-in-class margins. Timken's Steel business is comprised of high-quality assets and its unique positioning as the only pure-play SBQ steel company in North America will make the company highly attractive to investors.
Timken's synergies analysis is highly flawed and contrived, and does not reflect the clear opportunity to mitigate dis-synergies, as Timken's closest competitor, SKF, successfully did following the separation of its bearings and steel businesses. Indeed the mid-point of Timken's projected dis-synergies of $6-8 per share is no more than $2.65 per share higher than what we projected in our conservative analysis. That cost is insignificant compared to the $15 gain already priced into the shares reflecting the anticipated separation and the additional $15 per share gain that a separation would yield. Suffice it to say, there is ample opportunity to maintain value-pricing benefits and mitigate any incremental dis-synergy through normal and customary business relationships.
Timken laughably asserts that it practices good corporate governance. The facts speak for themselves:
The Timken family holds three of eleven Board seats, exhibiting real influence.
The Timken family-dominated Board deems a member of its own family an "independent" and allows him to serve on the Audit Committee.
The $9 million in compensation that Executive Chairman Ward Timken, Jr. received in 2011 is grossly out-of-line with other executive chairmen in Timken's peer group. Since 2005, Timken has paid Ward Timken Jr. $37 million for his services as Executive Chairman.
The Company's pay-for-performance scheme received a "D" rating in 2012 from Glass Lewis, a prominent independent shareholder advisory service.
The Board has a history of ignoring proposals that receive a majority shareholder vote.
The Board has long been unwilling to thoughtfully consider maximizing long-term shareholder value through a separation.
Shareholders are urged to VOTE FOR THE PROPOSAL, Item No. 6. If you have questions about how to vote your shares, please contact our information agent, Okapi Partners at (877) 285-5990.
Below is a link to our shareholder presentation supplement that was filed today: "Timken's Flawed Analysis" http://www.sec.gov/Archives/edgar/data/98362/000110465913029112/a13-10050_2px14a6g.htm.
Please see our website www.UnlockTimken.com, which includes the shareholder presentation filed February 28, 2013, updated March 2013: "Why a Separation of Timken's Steel and Bearings Businesses Can Unlock Significant Shareholder Value." The presentation demonstrates the financial and operational logic of CalSTRS' shareholder proxy proposal, which would enable Timken shareholders to vote for separating the two businesses.
WHERE TO GET MORE INFORMATION
To learn more about the CalSTRS proposal and how to unlock significant shareholder value at Timken by allowing the market to independently value Timken's Bearings and Steel businesses as pure-play assets in their respective industries please visit www.UnlockTimken.com.
About Relational Investors LLC:
Relational Investors LLC, founded in 1996, is a privately held, multi-billion dollar asset management firm and registered investment adviser. Relational invests in publicly traded companies that it believes are undervalued in the marketplace. The firm seeks to engage the management, board of directors, and shareholders of its portfolio companies in a productive dialogue designed to build a consensus for positive change to improve shareholder value.
About the California State Teachers Retirement System:
The California State Teachers' Retirement System, with a portfolio valued at $161.5 billion as of February 28, 2013, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. For 100 years, CalSTRS has served California's public school educators and their families, who today number 862,000 from the state's 1,600 school districts, county offices of education and community college districts.
Kekst and Company
Robert Siegfried/Daniel Yunger or Donald C. Cutler
212-521-4800 or 415-852-3903
Okapi Partners LLC
Bruce H. Goldfarb/Charles W. Garske/Geoffrey Sorbello
KEYWORDS: United States North America California
The article CalSTRS and Relational Detail for Proxy Advisory Firms the Flawed and Misleading Nature of Timken's Arguments for Maintaining the Company's Conglomerate Structure originally appeared on Fool.com.
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