Company Case Analysis Of The Timken Company

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The Timken Company is known as a worldwide producer of bearing and became a leader in the bearing industry for more than 100. During 1922, the company’s stock sold to the public in this year. The company experienced its first loss due the increasing in completion. The company involved in joint investment, acquisitions, and ventures. The company started to secure and restructure its operations into worldwide business units. The Timken was planning to acquire a new company that will make the company to be in a good position. They determined to acquire the Torrington Company from Ingersoll Rand. This idea would give the company an advantage to be a global leader in the bearing industry. By combining the two companies, this would give Timken …show more content…
We are going to utilize discount cash flow method to know the value of Torrington. After using the DCF method, we found that the weighted average cost of capital to be 10.6%. We supposed that the cost of debt would be 7.23 %( exhibit 9 bbb yield), the tax rate would be 40 % and also the coast of equity would be 11.6%. The risk premium will be 6%, the risk free rate would be 4.97% (from exhibit 9), and the beta would be 1.1(from exhibit 8). We calculate the debt to find weight of debt and weight of equity, the debt is 461.2(from exhibit 8) and for equity 1065.12 we multiply the number of shares ( 63,4) to share price ( 16.8), weight of equity would be 70%, and weight of debt would be 70%. After that, we calculated the wacc to be 10.6%. We have to calculate the NWC in order to know the free cash flow of the company, but the NWC is not given in the case. So, we utilized the NWC of Timken as percentage of sales because the two companies in the same field. So, the NWC 13% would be 13% of sales. The PV of discounted cash flow would be 24.77 and the terminal value would be 273.14. The company value before synergies would be …show more content…
800 million was the asking price of Torrington, but after we evaluated Torrington before and after synergies, the appropriate synergies price should go with 814.12 million. However, for Insgroll out to not agree below than without price 273.14 million. Timken should provide the price based on the anticipated synergy that will make the company notice from the acquisition. The price that Timken should offer is going to be between these amounts (814.12 – 273.14).The most appropriate payment for the two companies if they integrated the cash and stocks. This would lead Timken not have any problem in interest expense and credit rating. Moreover, the two deal (cash – stock) will give Insgroll desirable situation due to the shares of Timken is underestimated. We thought that the shares of Timken are underestimated because we saw the share price of peer Precision Castorats Crop 21.7., have same beta, same debt to equity ratio (from exhibit8). Therefore, once Timken accept the deal, it would expand in its size, rise in market share and customers. Moreover, the deal may rise the Timken’s share price and Insgroll may have an advantage of the cash deal and the stock deal. If we separate the cash deal and the stock deal, would affect the stock price to go down and it would cause credit rating for Timken’s to be more risky. So, the optimal option to go with is the integration between stock and cash

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