NEW YORK (Reuters) - Investment firm
Relational Investors LLC has strong shareholder support for its campaign
to break up Timken Co (TKR.N)
and will continue to press its case until the company splits into two
publicly traded companies, Relational founder Ralph Whitworth said on
Relational, which has
teamed up with a large public pension fund to push for a breakup of
Timken, has heard from other investors supporting its campaign and
believes that an "overwhelming majority" of Timken's public shareholders
want a separation of the company, Whitworth said.
Relational is Timken's
largest shareholder, and together with the California State Teachers'
Retirement System (CalSTRS), owns a 7.31 percent stake in the company.
In November, Relational
and CalSTRS said that the diversified manufacturer should split its
steel and bearings businesses to increase shareholder value.
Timken has said it had considered the proposal with outside advisers but
determined the time is not right for such a move.
"It appears they're hoping
that if they just ignore it, it will go away. But this is not going away
because we're going to persist until they maximize the value of these
assets," the investor told Reuters in an interview.
The investors sent a
letter to the company's board earlier on Tuesday. They have said Timken is
significantly undervalued due to its combination of two different
businesses and separating those units would maximize shareholder value.
"We continue to believe
the company has significant cost, technology and revenue synergies between
its bearing and
steel businesses, as well as diversification benefits in
continuing to operate under its current structure," Timken spokesman Dan
Minnich said in a statement.
Shares of Timken, which
makes mechanical components and high-performance steels, rose 2.2 percent
to $57.49 on the New York Stock Exchange on Tuesday, valuing the company
at more than $5.4 billion. Timken's stock has rallied nearly 40 percent
since Relational and CalSTRS first disclosed their stake in November.
The investors believe the
stock could rise to as much as $69 per share if the businesses were
separated, which would eliminate misunderstandings of the assets by
investors who specialize in the different sectors.
Timken has argued to the
contrary, saying the loss of diversification benefits would largely offset
any near-term valuation gain that might result from a separation of the
Timken's second and
third-largest shareholders collectively own a 10.8 percent stake and are
both affiliated with the company or its founding family, possibly making
the activist campaign a challenge.
But the investors have
enough shareholder support outside of the family to allow them to
ultimately prevail, Whitworth said.
"We have had incoming
calls into us, encouraging us and urging us to move forward and expressing
support. Now we'll proactively go out and reach out to the shareholder
base," he said. "We are confident that an overwhelming majority of public
shareholders want a separation of the company and will support the
conglomerates have decided to break up in recent years to focus on core
businesses and streamline operations, often under pressure from activist
industrial conglomerate ITT Corp (ITT.N)
to split up its defense and water purifying businesses. Other companies
that have pursued break-ups or major divestitures include Tyco
Kraft Foods Inc (KRFT.O)
and Fortune Brands (FBHS.N).
(Reporting by Soyoung Kim
in New York; additional reporting by A. Ananthalakshmi in Bangalore and
Michael Erman in New York; editing by Carol Bishopric)
©2013 Thomson Reuters.