How does Torrington fit with the Timken Company?
Since both Torrington and Timken company operates in similar business line and industry, the acquisition of Torrington will be a great fit into Timken as the latter’s management will be able to take advantage of the resources owned by Torrington. Moreover, as stated in the case details, both companies have only 5% overlap in product offering, but the customer list overlap by 80%. Therefore, a single company will be able to create better value for its customers.
What are the expected synergies?
Since Torrington and Timken operate in similar business lines of automotives and industrial bearings, the acquisition will result in some synergies related to economies of scale as part of which the acquirer will be able to lower the average cost of production by eliminating common fixed costs. Moreover, the transaction is also expected to generate cost savings worth $80 million as redundancies in sales related costs will be minimized.
What is your stand-alone valuation of Torrington? Explain and justify all the major assumptions used in your estimate.
What is your with-synergies valuation of Torrington? Explain and justify all the major assumptions used in your estimate.
Should Timken be concerned about losing its investment-grade rating?
Yes, Timken should be concerned about its investment grade because just like any other entity, any corporate actions such as acquisition will force the credit rating agencies to review the financial stability of the company and if they find any discrepancy or any negative outlook, they might decrease the credit rating of the company and this will increase the cost of future financing for the company.
How do Timken’s financial ratios compare with those of other industrial firms in 2002?
Timken financial ratios are better compared to the industrial firms in 2002 citing its BBB rating, which falls under the investment grade.
How would those ratios change if Timken borrowed $800 million, for example, to buy Torrington?
If Timken proceed with the acquisition using debt funds worth $800 million, this will inflate the leverage ratios of the company, signaling high risk involved.
If Timken decides to go forward with the acquisition, how should Timken offer to structure the deal?
Timken have two options to finance the deal:
a) Borrow $800 million
b) Borrow only $200 million, raise $500 million through stock issue and pay remaining $100 million in the stock to Ingersoll.
Is Ingersoll-Rand likely to want a cash deal or a stock-for-stock deal?
Ingersoll-Rand will most likely go for stock-for-stock deal to continue with their ownership in Timken.
What are the risks for Ingersoll-Rand of accepting Timken shares for some or all of the considerations?
Some of the risks, which Ingersoll-Rand might face on accepting Timken shares for some or all of the considerations are:
Percentage of ownership in the company
Restriction on stock sale
Volatility in stock price post acquisition
Proxy Control
References
Erarac, Kenneth EadesAli. "The Timken Company ." Case Study. 2005.
