Timken
Executive Summary
From our DCF calculations, the value of Torrington as a stand-alone entity is $1.181 billion. However, the maximum purchase price for Torrington should only be $641 million. The optimum debt amount for this transaction would be $301 million. This amount of debt would result in a total debt to capital ratio for Torrington of 47%, within the range for a BBB “investment grade” debt rating. The combined entities, Torrington-Timken, would produce an interest coverage ratio of 3.2, and a debt ratio of 45%, again within the range for a BBB “debt rating. The purchase would likely be a cash transaction.
History
Founded by carriage-maker Henry Timken in 1899 in St. Louis, Missouri, the Timken Company was originally incorporated as The Timken Roller Bearing Axle Company. In the previous year, Timken had received a patent for a tapered roller bearing, this propelled the company to national success. Since 1916, the company has become heavily involved in steel and pipe making operations, in order to vertically integrate and have greater control over the steel used in its products.
Bearing Industry
The major end-users of bearing products are manufacturers in industries such as automotive, agricultural, and construction equipment. The demand for bearing products is closely linked to GDP, as bearings are used in almost all engineered or transportation goods. Growth in the bearing industry is directly proportional to global industrial production. For the period in discussion, bearing companies reduced their capital intensity by decreasing vertical integration, increasing outsourcing, and improving just-in-time manufacturing. The Timken Company is among several manufacturers that comprise the global bearing industry. Notable names are: Federal-Mogul Corporation, General Bearing Corporation, Kaydon Corporation, JTEKT Corporation, Minebea Co., Ltd., NSK Ltd., NTN Corporation, Schaeffler Group, and SKF Group.
Strategy of Synergies
The
From our DCF calculations, the value of Torrington as a stand-alone entity is $1.181 billion. However, the maximum purchase price for Torrington should only be $641 million. The optimum debt amount for this transaction would be $301 million. This amount of debt would result in a total debt to capital ratio for Torrington of 47%, within the range for a BBB “investment grade” debt rating. The combined entities, Torrington-Timken, would produce an interest coverage ratio of 3.2, and a debt ratio of 45%, again within the range for a BBB “debt rating. The purchase would likely be a cash transaction.
History
Founded by carriage-maker Henry Timken in 1899 in St. Louis, Missouri, the Timken Company was originally incorporated as The Timken Roller Bearing Axle Company. In the previous year, Timken had received a patent for a tapered roller bearing, this propelled the company to national success. Since 1916, the company has become heavily involved in steel and pipe making operations, in order to vertically integrate and have greater control over the steel used in its products.
Bearing Industry
The major end-users of bearing products are manufacturers in industries such as automotive, agricultural, and construction equipment. The demand for bearing products is closely linked to GDP, as bearings are used in almost all engineered or transportation goods. Growth in the bearing industry is directly proportional to global industrial production. For the period in discussion, bearing companies reduced their capital intensity by decreasing vertical integration, increasing outsourcing, and improving just-in-time manufacturing. The Timken Company is among several manufacturers that comprise the global bearing industry. Notable names are: Federal-Mogul Corporation, General Bearing Corporation, Kaydon Corporation, JTEKT Corporation, Minebea Co., Ltd., NSK Ltd., NTN Corporation, Schaeffler Group, and SKF Group.
Strategy of Synergies
The