UPDATE 2-Timken responds to shareholder's break-up analysis
By Nadia Damouni and A. Ananthalakshmi
NEW YORK/BANGALORE April 1 (Reuters) - Investment firm Relational Investors LLC and a large public pension fund expect to meet with representatives of Timken Co on Tuesday, a source close to the matter said, despite the diversified manufacturer's reluctance to split its businesses.
Earlier Monday, Canton, Ohio-based Timken Co reiterated that it will not split its steel and bearings businesses despite pressure from its top shareholder, and said the investor's analysis of benefits from a break-up had serious flaws.
Activist fund Relational Investors LLC and California State Teachers' Retirement System jointly reported a 6.15 percent stake in Timken in November and said Timken should split into two publicly traded companies.
As of March 21, the investors own a combined 7.28 percent of the company.
Timken said it has reviewed a separation of the company along with its external advisers, and concluded that "maintaining (Timken) in its current integrated state is in the best interests of shareholders at this time."
The investors had said Timken would be worth $68.36 per share on a sum-of-the-parts basis upon separation, according to a regulatory filing. Timken shares closed at $55.69 on Monday.
"It's unfortunate that Timken management continues to talk down their own stock. As we demonstrated in our analysis, the stock has outperformed its peers by 15 to 20 percent since our initial announcement in November and is up 40 plus percent overall," Relational founder Ralph Whitworth said in a telephone interview on Monday.
"... there is still another 25 to 30 percent up if Timken's board would only act on this straight forward initiative."
Timken said in the regulatory filing that Relational's analysis does not include the over $200 million in one-time transaction charges, and $60 to $80 million in lost annual synergies. But the investor argued on Monday that its presentation does include the transaction costs and that Timken's assertion is incorrect.
Meanwhile, Timkin said its steel business, if spun off, would have limited liquidity and not enough financial flexibility to undertake big projects.
Timken called the shareholders' attempts as misguided in their attempt to create "illusory short-term gains through the spin off of the steel business."
During the meeting on Tuesday, the source said Relational and CalSTRS will address Timken's "murky" analysis directly.
Timken has asked its shareholders to vote against their proposal in the shareholder meeting on May 7.
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