Timken Case

Topics: Free cash flow, Credit rating, Cash flow Pages: 6 (1784 words) Published: May 22, 2011
Timken Company was the leader in Bearings Industry, however lately the revenues had been declining owing to its cyclical nature and decreased demand for bearings. Timken was facing increased competition from Europe and Japan who were the leading manufacturers of ball bearings. To fight these imports Timken decided to pursue the strategy of bundling where in it could add additional products and services to its products and provide more value to its customers. Timken then started a companywide restructuring to consolidate business operations and also add new products to their portfolio. Torrington Acquisition

To fulfill the above stated objectives Timken decided to pursue the acquisition strategy and chose Torrington as its potential target firm. Both Timken and Torrington had more than 100 years of operating experience in anti-friction products. Torrington was therefore chosen to be the good fit for the company, primarily because: * Torrington would help Timken gain foothold in Europe from where it derived 17% of its revenues, hence increasing its market share and elevating it to top three position in the in the global bearing Industry which will increase its global presence. * It brings two big names into a single enterprise with a broader range of innovative and complementary product lines as there was not much overlap in the product portfolio. * Torrington is a leader in cylindrical, spherical, needle roller, ball bearings and motion control components and assemblies and Timken specializes in tapered roller bearings and alloy steel products. Combined they would be leader in these complimentary services. * Torrington’s offerings in automotive industry that included the power train applications were a perfectly well suited for Timken’s offering of tapered bearings for wheel ends and drivelines. This would strengthen its position as one of the top suppliers of automotive components worldwide. * Torrington’s expertise in lubrication functions was a perfect compliment for Timken’s competency in friction management hence Timken could use the bundle effect to offer integrated solutions and create more value for its customers there by creating a differentiation strategy. There would be greater variety of custom engineered solutions for more customers in more locations * The International distribution network could be used to sell Torrington’s products thereby increasing its range of products. * Both Timken and Torrington were in the same Industry hence Integration will be a effective and smooth process. After this acquisition Timken could realize economies of scale, eliminate duplicative costs, achieve operating efficiencies, and enhance productivity. The expected synergies from this acquisition were: * There was just 5% overlap in their products and this could increase their revenue as the range of products could broaden. Increased revenues from the global sales and Torrington’s complimentary products would increase global penetration of Timken from 7% to 11%. * There would be annual Cost Savings in the form of decreased sales force and other administrative functions as there was 85% overlap in their customers. * They were in better position to bargain with the suppliers hence there were significant purchasing synergies. SWOT Analysis

After the acquisition Torrington would become a global leader in offering complimentary products and service in bearings.

StrengthsCustomer overlap 80%, products only 5% overlapPotential market share gain| WeaknessesIncreased exposure to automobile industryIncreased debt| OpportunitiesSynergies in salesCost savings synergiesProvide Integrated solutions through bundling.| ThreatsPoor financial performanceDowngrade of credit rating|

Timken –Torrington main objective was to leverage on the synergies and grow profitably, there was increased exposure to automobile whose growth was relatively flat. However the biggest...
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