* Chairman Ward Timken to head new steel business
* Group President Richard Kyle to become CEO of Timken post split
* Shares rise 6.2 pct after market (Adds details on new companies' management, background)
Sept 5 (Reuters) - Timken Co said its board approved a plan proposed by an activist investor to spin off the company's steel business from its bearings and power transmission operations, sending its shares up 6.2 percent in after-market trading.
Activist fund Relational Investors LLC, Timken's largest shareholder, had been pushing the company to split its steel business and had the backing of California State Teachers' Retirement System (CalSTRS).
Relational controls about 8.06 percent of Timken's shares as of Aug. 2, according to Thomson Reuters data.
However, Timken had maintained that a standalone steel business, which accounted 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 due to weakness in the industrial and energy markets.
In May, Timken shareholders supported the proposal to split the company.
The newly formed steel company is expected to have revenue of about $1.7 billion, while the bearings and power transmission business, which will continue to operate as Timken Co, is likely to report revenue of $3.4 billion.
Chief Executive James Griffith will continue to lead the company until the separation. The board plans to name Richard Kyle, who is currently group president, in place of Griffith after the split.
The steel company will be led by Ward "Tim" Timken, who is currently chairman of the board.
The transaction is expected to be tax-free to shareholders and should be completed within 12 months, the company said on Thursday.
The company's shares closed at $60.26 on the New York Stock Exchange on Thursday. (Reporting by Rohit T. K. in Bangalore; Editing by Sriraj Kalluvila)