UPDATE 2-Timken shareholders support splitting company in two

Tue May 7, 2013 3:21pm EDT

May 7 (Reuters) - Timken Co shareholders backed an activist investor's proposal to split the steel and ball-bearing maker in two, and the company said its board would make a decision by late June.

Activist fund Relational Investors LLC, Timken's largest shareholder, with the support of the California State Teachers' Retirement System (CalSTRS), has been pushing for the split, saying it would maximize shareholder value.

A non-binding resolution in favor of a split was backed by about 53 percent of the votes cast at Timken's annual meeting in Canton, Ohio, on Tuesday, the company said.

According to Relational and CalSTRS, about two-thirds of the shares voted, excluding shares held by the Timken family or other Timken-affiliated entities, favored the split.

"We fully expect that they will carry out the will of the shareholders," CalSTRS' director of corporate governance, Anne Sheehan, said on a conference call with reporters.

Timken said its board would evaluate the proposal and announce its next steps within 45 days.

The company's shares rose 3.5 percent to $56.50 in afternoon trading on the New York Stock Exchange.

Timken has maintained that a standalone steel business, which accounts for about a third of the company's sales, would have limited liquidity and not enough financial flexibility to undertake big projects.

Revenue at the business, which makes more than 450 grades of carbon and alloy steel, has been declining for four quarters due to weakness in the industrial and energy markets.

But Relational Investors dismissed worries about prospects for the steel business.

"It would come out basically unleveraged, it would have significant financial capacity, and we think it would trade in the marketplace at a value that is superior to its peers," Relational co-founder David Batchelder said. "So if there were some consolidation that might occur, there is no reason to believe that they wouldn't be the company that would be consolidator."

Relational and CalSTRS, which together control about 7 percent of Timken's shares, said in November that splitting the company in two would give a clearer choice to investors to specialize. They also said Timken's stock had potential to rise by more than 50 percent if the businesses were separated.

The activists have said that if shareholders support the proposal and Timken disregards the vote, Relational would consider putting up a slate of board nominees at next year's annual meeting.

Timken shares have gained more than 36 percent since Relational announced its stake in the company.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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