A meeting Tuesday between Timken Co. and an investment group only served to intensify the debate over whether the company should spin off its steel business.
A meeting Tuesday morning between Timken Co. directors and investors who think the company should be split apparently only served to heighten the dispute.
Less than an hour after leaving the meeting, representatives for Relational Investors and the California State Teachers Retirement System blamed the Timken family-influenced board for trying to stop a proposal to review the idea of spinning off Timken’s steel business as a separate company.
Timken directors are becoming “more and more entrenched in their views,” Ralph V. Whitworth, founder and principal of Relational, said after the meeting.
Early in the afternoon Timken countered with a letter it is sending shareholders urging them to vote against the proposal when they cast proxy ballots this month.
“It is clear to us that our proven business model and strategy to create shareholder value represent the best path forward for all Timken shareholders,” James W. Griffith, Timken president and chief executive officer, said in the letter.
Outcome of the vote should be known on May 7 when Timken directors conduct their annual meeting.
The investment group, which owns 7.28 percent or about $400 million of Timken shares, and company directors have been discussing since last May the idea of splitting the bearings and steel businesses into separate publicly traded companies.
Relational Investors and CalSTRS contend that splitting the company will make Timken stock more valuable. The stock market devalues Timken shares because operating a bearing and steel business places the company in two investment segments, materials for steel and industrial for bearings.
Timken’s refusal to break apart its conglomerate business arrangement is hurting the stock price, Relational and CalSTRS contend.
But company directors counter that they already have reviewed the proposal and determined it’s not a good time for the company to spin off the steel business.
In the letter to shareholders — signed by outside director Joseph W. Ralston — Timken’s board said the Relational and CalSTRS proposal will “derail our strategy and deprive shareholders of the opportunity for long-term value — all in a misguided attempt to create illusory short-term gains through financial engineering.”
Timken directors invited Relational and CalSTRS officials to the meeting on Tuesday.
The company said it once again outlined the benefits of its business strategy and organization, as well as flaws in the investment groups proposal.
Whitworth called the meeting cordial but seemed mystified by the board’s failure to move away from its stance against the split.
“Now it really comes down to an argument over arithmetic and math,” Whitworth said.
The investors like to point out that Timken’s stock value steadily has increased since November when Relational and CalSTRS filed forms advocating the proposal. The price is up about $15 per share during that stretch, although it dropped 92 cent per share on Tuesday to close at $54.77. Most of the drop came after Timken announced plans for a letter to shareholders.
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