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The Suburbanite
  • Another advisory group suggests a closer look at Timken split

  • Two shareholder advisory groups now have recommended that shareholders support further research into separating Timken’s bearings and steel businesses.

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  • Timken Co. directors are maintaining their stance opposing a proposal to split the company, despite recommendations from investment advisory groups that support further research of the idea.
    Glass, Lewis & Co. on Thursday recommended that Timken shareholders support a proxy proposal urging the company to hire investment bankers to evaluate splitting the steel business into a separate company.
    On Wednesday, Institutional Shareholder Services — another advisory firm — also recommended shareholders support separating the businesses.
    The proposal to separate Timken’s bearings and steel businesses was made in November by the California State Teachers Retirement System and its adviser Relational Investors. The pair own about 7.3 percent of Timken’s shares, with Relational holding the largest amount.
    The recommendations come days before the vote results are announced at Timken’s annual shareholder meeting on May 7.
    Large institutional investors — mutual funds and pension plans, for example — monitor the recommendations of ISS and Glass, Lewis when deciding how to vote on proxy proposals. Some investors delay casting their proxy until the week before the annual meeting.
    CHEERS, JEERS
    Timken’s directors oppose the idea, contending it will hinder synergy the company has in product research and development.
    “We fundamentally disagree with the recommendation,” Timken spokesman Dan Minnich said. The company believes the assessment shows that Glass, Lewis has “a misunderstanding of our business.”
    Minnich said the company has consulted with its large shareholders and been told that they oppose the recommendation.
    CalSTRS and Relational applauded the ISS and Glass, Lewis recommendations. They claim to have shareholder support for their proposal.
    The investment groups contend that Timken is a conglomerate and that its business structure has depressed the company’s share value. They believe the stock price will rise if the company is split.
    BUSINESS MODEL
    Timken has produced its own steel since 1915. The operation now accounts for nearly 40 percent of the company’s annual revenue, with about 10 percent of the steel sold being used in Timken bearings.
    Since 2000, the company also has been diversifying its operations to provide more service to bearings customers. Minnich said the plan is a better route toward building shareholder value.
    There are shareholders who want Timken to continue down the path it has followed, Minnich said.
    But in its recommendation, Glass, Lewis said it agrees with the Relational and CalSTRS assessment that “shareholders would strongly benefit from a more thorough review of this potential strategic alternative.”
    Glass, Lewis said it was concerned that Timken’s board was presenting “a skewed perspective on the stand-alone value” of the bearings and steel businesses in order to “diminish the perceived value of a split-up.”
    Timken’s stock closed at $52.34 on Thursday, gaining 34 cents in heavy trading. It was the second day that Timken traded more than 1.23 million shares, about double the three month average. The heavy trading comes on the heels of Timken’s first quarter earnings and the two proxy advisories.
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