Timken Case Study

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TABLE OF CONTENT

Executive summary .................................................................................. 2 1. Introduction.......................................................................................... 3 2. Timken’s Expectations from Torrington .............................................. 3 2.1 Operational Synergies....................................................................4 2.2 Financial Synergies ........................................................................5 3. Valuation ..............................................................................................5 4. Debt capital and its effect on Invest grade rating................................13 4.1 After acquisition consideration ......................................................14 5. Price to accept ......................................................................................15 6. Recommendation ..................................................................................17

Executive Summary:
Timken Company requires a report on its consideration to acquire Torrington from Ingersoll-Rand. This reports provides the needed information on Torrington’s worth, price at which Torrington could be acquired and the acquisition strategies to negotiate its deal. The evaluation uses the discounted cash flow analysis using WACC to calculate the value of Torrington worth with synergies. The value turned out to be more than the estimated minimum value of the target. The final recommendation is to proceed with the acquisition as planed which would be beneficial to the Timken.

1. Introduction
Timken was considering expanding and they sought Torrington Company from Ingersoll- Rand as a worthy acquisition. Timken and Torrington share similar business operations and Timken thought with the combined 100 years of bearing manufacturing and development experience and Timken’s customer and sales operation success, Timken would be the world leader in the bearing Industry. This report gives explained details on the Torrington’s company value and its synergies, the position it places itself in Investment grading after acquisition, and the price that Ingersoll- Rand would likely accept and the mode of the payment they would agree. 2. Timken’s Expectations from Torrington

The ultimate motive of almost all the business organisations is to be on the top and gain market power as quick as possible but the strategies that they may adopt to grow may be distinctive. Growth is one of the major objectives of most of the businesses and a limitless dream of almost every businessman and an economic phenomenon whose importance cannot be undermined. After reaching a certain stage every businessman usually comes across a stage where they need to take a decision whether to grow and expand their business or not (Johnson, Scholes, & Whittington, 2009). In case of The Timken Company, one of the global manufacturer of highly engineered bearings, alloy and specialty steel, and related components along with its own steel for bearings. After 1982 to take the competitive advantage the company took the growth strategy of mergers and acquisitions to grow many folds in the least possible time frame in order to avail the much desired benefits of economies of scale sustain long term stability and have greater potential for profit. Keeping in mind their expectations they undertake the right type of growth strategy at the right time. Since 1999 they cut production capacity to 80%, started restricting the global business and consolidate the operations. But in 2001 the company suffered the loss in growth of both the operational profits and net income. To create the competitive advantage in the market and capture the value of synergies the company decided to acquire the Torrington Company from Ingersoll-Roll.(case) An intuitive reason for this value creation is that it comes about either because the combined entity can...
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