The Timken Case
| | ECONM2021Cases in Financial Management | THE TIMKEN COMPANY | (Word Count: 4000) | Candidate Nos.380843767942568 | |
Executive Summary
The Timken Company – a leader in the bearing industry, is considering acquiring the Torrington Company from Ingersoll-Rand. Torrington – an engineering solutions segment of the Ingersoll-Rand. The main motive of acquisition is to enhance Timken’s market share and product base. Operating synergies are highly expected from this merger with 80 million cost savings by the end of 2007.
The presented analysis, recommends in our opinion, the best course of action in the proposed acquisition of the Torrington Company: * Both companies operate and compete in same business and therefore, Timken is seeking substantial operating synergies from this largest acquisition of its history (80 million cost savings by the end of 2007). Timken expects to expand its worldwide business base with new products and services as both companies have only 5 percent overlap in their product offerings. * Stand alone value of Torrington based on DCF = 533 m.; based on industry multiples = 1150 m. * With synergy value of Torrington based on DCF = 1113 m.; based on industry multiples = 1261 m. * Timken, which has a BBB rating and a leverage of 43%, should be worried about losing its investment grate rating for further debt financing. * Ingersoll-Rand is valued and is suggested to accept at least minimum price of 533 million dollars and as high above this as could be negotiated. However, a price between a range of 880 and 950 million dollars is considered feasible for Timken to pay, after accounting for the expected synergies and the expected premiums above market price, as expected by shareholders of the target company. * This deal is beneficial because of the expected synergies of approximately 500million and therefore Timken should go forward with this acquisition. * The spare debt capacity is not sufficient to
Executive Summary
The Timken Company – a leader in the bearing industry, is considering acquiring the Torrington Company from Ingersoll-Rand. Torrington – an engineering solutions segment of the Ingersoll-Rand. The main motive of acquisition is to enhance Timken’s market share and product base. Operating synergies are highly expected from this merger with 80 million cost savings by the end of 2007.
The presented analysis, recommends in our opinion, the best course of action in the proposed acquisition of the Torrington Company: * Both companies operate and compete in same business and therefore, Timken is seeking substantial operating synergies from this largest acquisition of its history (80 million cost savings by the end of 2007). Timken expects to expand its worldwide business base with new products and services as both companies have only 5 percent overlap in their product offerings. * Stand alone value of Torrington based on DCF = 533 m.; based on industry multiples = 1150 m. * With synergy value of Torrington based on DCF = 1113 m.; based on industry multiples = 1261 m. * Timken, which has a BBB rating and a leverage of 43%, should be worried about losing its investment grate rating for further debt financing. * Ingersoll-Rand is valued and is suggested to accept at least minimum price of 533 million dollars and as high above this as could be negotiated. However, a price between a range of 880 and 950 million dollars is considered feasible for Timken to pay, after accounting for the expected synergies and the expected premiums above market price, as expected by shareholders of the target company. * This deal is beneficial because of the expected synergies of approximately 500million and therefore Timken should go forward with this acquisition. * The spare debt capacity is not sufficient to
Bibliography: * DePamphilis D. (2007), ‘‘Mergers, Acquisitions, and Other Restructuring Activities: An Integrated Approach to Process, Tools, Cases, and Solutions’’, fourth edition, Elsevier/Academic Press: San Diego. * Damodaran A. (2005), ‘‘The Value of Synergy’’, available at: http://pages.stern.nyu.edu/~adamodar/pdfiles/papers/synergy.pdf, accessed on April 02,2011 * Giddy I * ‘‘Value/EBITDA Multiple’’, available at: http://pages.stern.nyu.edu/~adamodar/pdfiles/vebitda.pdf, accessed on April 03, 2011