In this case we analyst whether Timken should acquire Torrington company from Ingersoll-Rand by cash, issuing share to public or issuing share directly to IR. IR wanted to divest Torrington and Timken aim to acquire it. After merging with Torrington Timken will be world third largest company in bearing industry and Timken would gain more sales as Timken and Torrington has about 80% of overlapped customer. Moreover after the synergy they can reduces cost, increase market shares and have more production lines. As Timken leverage ratio is not good, so they couldn’t raise cash that needed to be paid for the acquiring because if they did so the investment-grade rating will be deceased. Timken rating now is BBB so they couldn’t risk it to go lower. As Timken stock price is 19$/share they would have to require a lot of shares for the public to gain enough money for the acquisition and there is a risk that Timken couldn’t sell all of shares. For the last option is by issuing share directly to IR would benefit Timken as it will change capital structure reduce debt more equity. But it wouldn’t happen either because this option will make IR take the risk for holding to Timken stocks while they already have plan to invest in other segment. Our group suggests that Timken should acquire Torrington by issuing share directly to IR and pay cash by doing this will cause a win-win situation.
Timken Company was a bearing company who was the manufacturer and also the developer at the same time. They have been operating their business for over 100 years which is well-known that their business is the leader in the bearing industry. In the year of 2002, the company was deciding in acquiring the Torrington Company from Ingersoll-Rand Company because they want the synergies to support their growth. Thus, Timken had to spend more than 80$ million in this acquisition which could make the company facing the financial troubles. That is if they give a big amount of acquisition, it will certainly affect to their balance sheet and directly impact on their investment-grade rating. This was a quite challenge to Timken Company. They have to carefully decide on what the best way to manage their financial deal. The Timken Company SWOT Analysis
Timken was found since 1898, therefor the company had expertise in bearing manufacturing. Weaknesses
Timken wasn’t the biggest bearing manufacturers. There are a few bigger competitors compare to Timken which could have access to wilder group of customers. Timken could not adapt their business in economic recession so well. In 1999, it had to cut 20% of production capacity. Opportunities
The federal government increased antidumping duties up to 59.3%. As a result, price of imported bearing were expected to increase. Timken could expand to foreign countries to attract more of foreign customers. Enhancing basic products with additional component to add more value could be an opportunities for Timken to fight with foreign competitors which only offer simple products. The company can offer installation and maintenance service, as well as ongoing engineering. This would benefit customers by reducing the number of suppliers and relieving them of routine labor- and cost- intensive tasks. If Timken successfully merge with Torrington, it will become third-largest producer of bearing in the world. Treats
The policies related to steel industry didn’t consider the benefit of bearing industry since it’s a secondary steel product. Foreign competitors could sell the same quality products at cheaper price. Economic recession decreased automotive demand, thus decreased bearing demand. Analyst predicted that bearing industry would have only 2-3% domestic growth.
Torrington with Timken Company
If Timken successfully acquired Torrington, it would become 3rd largest bearing manufacturer in the world. The two companies had 5% overlap of products but 80% of...
Please join StudyMode to read the full document