The Timken Company
Paulina Adamczyk, SoH
a Markechová, Diego Escobar Fraile,
Katarzyna Pietr, Sylwia Przepłata
Agenda
ð The Bearing Industry
ð Timken & Torrington
ð WhyTimken wantedTorrington?
ð What is the stand-alone valuation of Torrington?
ð Should Timken be concerned about losing its investment-
grade rating?
ð How do Timken s financial ratios compare with those of
other industrial firms in 2002?
ð HowTimken structured the deal?
ð What was the with-synergies valuation of Timken/
Torrington?
The Bearing Industry
ð 2001: 33.000 workers in US factories
ð variety of complex problems
ð difficult situation on the market
ð major players: Timken, SKF, NSK
Timken
ð One of top three players in the Bearing Industry, founded in
1899 in the US
ð WW II  increased demand and growth of the company
ð Since 1960s - international expansion
ð Since 1999- restructuring towards global business units
(2002)
ð Products: mainly bearings of several types and related
products
Timken - 3 Business Units
ð Automotive Group  products for Original-Equipment
Manufacturers of cars and trucks
ð Industrial Group  products for OEMs and distributors of
agricultural, mining, aerospace, and rail equipment
ð Steel Group  design, manufacture and distribution of alloys
and custom-made steel products for both automotive and
industrial clients
ð Assets worth $2.75 bn (2002) and net income $38.7bn
(2002) operations in 25 countries and 18,000 workers
The Torrington Company
ð 1960s - acquired by Ingersoll Rand as part of a larger acquisition
process
ð The Engineered Solutions segement of Ingersoll-Rand
ð Products: bearings and other diverse metal products such as shafts,
screws
ð IR decided to divest Torrington Co. in 2002 and focus on
higher return service businesses
ð Accounted for 22% of income in 2002, revenues $1.2bn (2002)
ð 2 Segments:
ð Automotive
ð Industrial
Timken s Motives for Acquiring
Torrington
ð Increase market share in the global bearing market
ð Successful acquisition = being the 3rd largest producer of
bearings with many complementary products
ð Global market share increase to 11%
ð Create more value for customers
ð Purchasing synergies
ð Economies of scale
ð Cost reductions
ð However: integration cost ~$130 million
How does Torrington fit with The Timken
Company? 1/2
ð In 2002, Timken was involved in a company-wide
restructuring (to reduce costs and to set the stage for
international growth) and also was planning to add new
products to its portfolio.Ä…ð Bundling
ð Two companies shared many of the same customers (a
80% overlap) but had few products in common (only a
5% overlap in their product offerings). Timken would
expand its portfolio of products and service solutions
and broaden its technology and engineering capabilities.
How does Torrington fit with The Timken
Company? 2/2
ð Timken estimated to save more than $80 million in
consolidating manufacturing facilities and processes
(consolidating purchasing activities and distribution
channels, combining operations and eliminating
redundancies within the organization).
ð - The acquisition would let Timken become a worldwide
leader in bearing industry (third-largest producer of
bearing in the world). Increasing its penetration of the
global bearing market from 7% to 11%.
What are the expected synergies? 1/2
ð Torrington had sophisticated needle-bearing solutions
for automotive power-train applications, which
complemented Timken´s existing portfolio of tapered
roller bearing and precision-steel components for wheel
ends and drivelines.
ð Timken´s cylindrical bearings could be married with
flap-like parts from Torrington that lubricated moving
pieces.
What are the expected synergies? 2/2
ð Deliver Torrington products under the well-known
Timken brand name would increase its range of products
for aftermarket customers. Using for that the Timken´s
international distribution network. Create more value
for customers with a more complete product line and
more effective new product development
ð Being number three in the industry would help give
Timken more clout in negotiations with customers and
suppliers.
What is the stand-alone valuation of Torrington?
Torrington Financial Summary and Projections
(in millions of USD)
net sales
1800
1600
1400
1200
1000
net sales
800
600
400
200
0
1998 1999 2000 2001 2002 2003E 2004E 2005E 2006E 2007E
Torrington Financial Summary and Projections
(in millions of USD)
200
180
160
140
120
100
operating income
capital expenditures
80
60
40
20
0
1998 1999 2000 2001 2002 2003E 2004E 2005E 2006E 2007E
Should Timken be concerned about losing its
investment grade rating?
Timken s Debt-to-Capital Ratio
1995: 20.5 %
2002: 43.1%
How do Timken s financial ratios compare
with other industrial firms in 2002?
Enterprise
Gross Profit Debt
Beta
Value/
Margin Margin (in $ mil.)
How would it change if
Bearing Companies EBITDA
Kaydon Corp. 21.51% 9.09% 11.3 1.25 72.4
Timken borrowed $800 mil.
NN, Inc. 14.54% 2.61% 7.5 0.85 53.1
to buy Torrington?
Timken 10.81% 2.02% 5.2 1.10 373.9
Commercial Metals 5.66% 1.66% 5.5 0.63 255.6
Melats USA, Inc. 0.42% 5.17% - 0.38 128.7
Mueller Industires 12.97% 7.45% 7.3 1.08 18.2
Precision Castparts Corp. 18.40% 7.53% 4.5 1.10 612.4
Quantex Corp. 12.77% 5.58% 5.1 0.75 75.6
Worthing Ind. 8.47% 3.39% 10.1 0.49 290.9
Timken - - - - 1173.9
ð If Timken decides to go forward with the acquisition, how
should Timken offer to structure the deal?
ð Is Ingersoll-Rand likely to want a cash deal or a stock-for-
stock deal?
ð What are the risks for Ingersoll-Rand of accepting Timken
shares for some or all of the consideration?
Timken, Ingersoll-Rand, and S&P 500 Stock Performance
Indexed to Timken´s January 1998 Price
(1998-2002)
Feb 20, 2003
The Timken Company completed its
acquisition of The Torrington Company
Timken acquired Torrington from
Ingersoll-Rand for $840 million
$700 million $140 million
in cash
Timken shares
" a public offering of 12.65
millionTimken shares
" an offering of $250 million $140 million =
seven-year senior unsecured
= 9.4 millionTimken shares
notes
= 11% holding in TheTimken
Company
" a five-year revolving credit
facility
" a $125 million securitized
accounts receivable facility
The business goes on...
October 20, 2003
Ingersoll-Rand Company Limited has
agreed to sell all of the common
stock it holds in The Timken
Company.
What is the with-synergies
valuation of Torrington/ Timken?
Becoming one of the global leaders in the bearing
industry
Cost savings
Increasing shareholders wealth, liquidity, and global
reach
Expanding know-how
Laying off employees
Increasing debt
Restructuring
Thank you for your attention!