In a regulatory filing on Wednesday, the California State Teachers' Retirement System (CalSTRS) and activist fund Relational Investors disclosed that their group own 6.15 percent of Canton, Ohio-based Timken's shares and said the steelmaker should spin off its steel business into a separate company from the rest of Timken. The group also said they met with Timken management earlier this year where they said Timken was undervalued due to the combination of two businesses.
Timken commented on the regulatory filing, saying: "Timken is always open to constructive input from shareholders and has had meetings with Relational to listen to their views," said James W. Griffith, president and CEO of The Timken Company. "The Board and our management team regularly evaluate the optimal allocation of capital to generate shareholder value, including capital expenditures, pension funding, acquisitions, divestitures and returning capital to shareholders in the form of dividends and share repurchases. As part of this process, over the years we have carefully evaluated separating the steel and bearing businesses. This includes a thorough review with our Board this summer of Relational's proposal, with input from outside financial advisors.
"As a market leader in high-quality engineered steel products, our Steel Business leverages the same expertise and know-how that we apply across our businesses. We have significant technology, cost and revenue synergies between our bearing and steel businesses as well as diversification benefits in continuing to operate under our current structure," Griffith said. "These synergies and benefits, coupled with a potential reduction in financial flexibility, among other factors, led the Board to conclude that the separation of the businesses at this time would not be in the best interests of Timken shareholders."