THE TIMKEN COMPANY
In 2002, The Timken Company was considering acquiring The Torrington Company from Ingersoll-Rand. The acquisition would make a clear statement to the market about Timken’s commitment to remain a worldwide leader in the bearing industry as it would result in the combination of more than 100 years of bearing manufacturing and development experience. Because the two companies shared many of the same customers but had few products in common, customers would surely appreciate the ability to have more of their needs met by Timken’s sales representatives. Moreover, Timken’s potential annual cost savings from consolidating manufacturing facilities and processes were estimated to be more than $80 million. If the price paid for Torrington were too high, Ingersoll-Rand, rather than Timken, would capture the value of the synergies. In addition, given the large size of the acquisition, Timken was concerned about the impact on its balance sheet. If Ingersoll-Rand demanded a cash deal and if Timken raised the money with new debt, the increased leverage would almost certainly prompt credit agencies to downgrade Timken’s investment-grade rating. The Bearing Industry
Bearings of various sizes and specifications found their way into everything from space shuttles to household appliances, automobiles, dentist drills, roller skates, and computer disk drives. In 2001, U.S. establishments involved in ball- and roller-bearing manufacturing employed more than 33,000 workers.
The bearing industry was facing a variety of complex problems. Policies favoring the steel industry were not always in the best interest of the bearing industry, which, as manufacturers of secondary steel products, was in the middle of the production chain. Because bearings were essential components of military and civilian machinery and equipment, the federal government had historically been a major customer. Nonetheless, foreign competitors had taken business away from U.S. companies owing to their ability to sell bearings of equal quality at lower prices. The intensity of the competition at times resulted in charges by U.S. firms of illegal dumping practices by foreign competitors. Found guilty of such practices, those companies often turned around and either opened or bought plants in the United States to supply their American customers.Shipments of ball and roller bearings grew steadily during the 1990s, peaking in 1998 at more than $5.8 billion. Although 1999 and 2000 remained relatively strong, the value of shipments dropped dramatically in 2001, sinking to $5.3 billion, the lowest since 1995. Reasons included the economic recession, decreased automotive demand, and the terrorist attacks on September 11, 2001. There had been moderate growth in the sector in 2002, led by automotive production, which had risen 5% owing to sales incentives, including 0% financing. Overall,the bearings-industry demand was expected to soften as automotive demand had begun to decrease in late 2002 and was generally expected to remain flat for 2003. Thus, the bearings industry appeared to be in a cyclical trough from which many analysts predicted a more widespread recovery in 2003 of about 2% to 3% growth. Bearings worldwide were doing significantly better. Orders had increased globally and were forecasted to grow 6.5% a year through 2005, to $42 billion. With supply levels remaining high worldwide, prices overall were stable and not expected to rise in 2003. Conversely, prices for imports were expected to increase in 2003. As bearings from China came into the United States, selling at below-market prices, the federal government had levied antidumping duties of up to 59.3%. Antidumping payments to Timken amounted to $50 million in 2002 ($30 million in 2001). The major industry players included Timken, SKF, and NSK, Ltd. Sweden-based Aktiebolegat SKF controlled 20% of the world market in bearings, which was more than twice the market share held by its...
Please join StudyMode to read the full document