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The Suburbanite
  • Firm advises more research on Timken split

  • A research firm that advises on corporate proxy issues recommends Timken Co. should consider split.

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  • A leading investor advisory group has endorsed a proposal that Timken Co. hire outside investment bankers for a more extensive study into spinning off the steel business.
    ISS, a research company that advises shareholders on proxy votes, recommended that Timken shareholders vote for a proposal to research splitting the company.
    It’s a hit on Timken’s board, which is fighting the proxy proposal that was presented in November by the California State Teachers Retirement System and its advisor, Relational Investors led by activist investor Ralph V. Whitworth.
    Some large institutional investors — mutual funds and pension plans, for example — wait to cast proxy votes after ISS and another research firm, Glass, Lewis & Co., issue recommendations. The Glass, Lewis recommendation is expected in a few days. (Information has been changed to correct an error at 9 a.m. 4/25/13. See correction at end of story).
    Proxy votes must be cast before the Timken’s shareholder meeting on May 7.
    TWO SIDES REACT
    Timken’s board is “disappointed by the recommendation,” which shows a “fundamental lack of understanding” of Timken’s business and the synergy between the bearings and steel operations, spokesman Daniel Minnich said.
    Relational and CalSTRS representatives countered that they weren’t surprised by the independent assessment.
    “We think that ISS has reaffirmed our case,” said David Batchelder, a co-founder of Relational.
    The ISS report is another piece of information investors can consider, said Anne Sheehan, director of corporate governance at CalSTRS. “We’re happy with the recommendation.”
    Timken already has said it is voting against the proposal. The company, employee pensions and Timken family members control about 20 percent of the shares.
    Minnich said the company has heard from several large institutional shareholders that will oppose the proposal.
    Relational and CalSTRS own 7.28 percent of Timken’s shares, with Relational controlling a wide majority of the holdings.
    The investors contend they have solid support and cite as evidence the rising price of Timken shares since November, when the proposal was announced.
    SPLIT NOT REQUIRED
    The proposal from Relational and CalSTRS doesn’t require Timken to spin off the steel business. The investors want Timken to hire an investment banker to research whether a split would be a benefit.
    Relational Investors and CalSTRS believe splitting the steel business from Timken’s bearings business will increase the value of their stock holdings.
    The two investors argue that their holdings are undervalued because Timken is a conglomerate with mismatched bearings and steel operations. Separating the business units would help investors as they evaluate the company.
    Timken’s board contends it already on more than one occasion has studied the idea of spinning off the steel business. The company contends the units are intertwined when it comes to product research and development.
    Page 2 of 2 - Relational and CalSTRS counter that research relationships could be maintained through agreements. Minnich said the company doesn’t believe the legal agreements can help maintain the synergy.
    UNION SAYS ‘NO’
    While Relational and CalSTRS continue to promote the split, Timken did get support on Monday from the United Steelworkers, which represents 2,300 workers at the company’s local factories.
    David McCall, the union’s director for District 1 covering Ohio, said the union has reviewed the proposal and opposing the idea.
    “Timken has a long, successful history in its present form, providing employment to our communities and value to shareholders,” McCall said. “We believe that changing the corporate structure as proposed threatens to undermine both.”
    Correction: Glass, Lewis & Co. is the research firm that is expected to issue a report on Timken investments in a few days. The name of the firm was incorrect when this story was first published online 4/24/13.
    Reach Edd at 330-580-8484 or edd.pritchard@cantonrep.com
    On Twitter: @epritchardREP