The Timken Case Essay

4259 Words May 27th, 2011 18 Pages
| | ECONM2021Cases in Financial Management | THE TIMKEN COMPANY | (Word Count: 4000) | Candidate Nos.380843767942568 | |

Executive Summary
The Timken Company – a leader in the bearing industry, is considering acquiring the Torrington Company from Ingersoll-Rand. Torrington – an engineering solutions segment of the Ingersoll-Rand. The main motive of acquisition is to enhance Timken’s market share and product base. Operating synergies are highly expected from this merger with 80 million cost savings by the end of 2007.
The presented analysis, recommends in our opinion, the best course of action in the proposed acquisition of the Torrington Company: * Both companies operate and compete in same business and therefore,
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Also, the Torrington Company is a highly successful business enterprise with very talented people. Timken is pleased to have them join the company as it will help Timken enhance its expertise foundation.
Timken will move quickly to integrate Torrington into its global automotive and industrial business structures and expects to achieve estimated annualized savings of $80 million by the end of 2007. These savings are expected to come from economies of scale; consolidating purchasing activities and distribution channels, combining operations and eliminating redundancies within the organization. However, before this cost saving of 80million could be realized, an estimated cost of 130million for integrating these two companies is likely to incur over the first couple of years after the merger.
Valuation
Naturally, both sides of an M&A deal have different aim for estimating the worth of Torrington. Ingersoll will tend to value as high as possible, while Timken will try to get the lowest achievable price. However, several rightful ways exist to value companies. The most common method is to look at comparable companies in an industry and use the average multiples for similar firms e.g. P/E and EV/S ratios. These firms should be comparable in size, similar in geographical characteristics and most importantly should be in similar industry as is the one contemplated.

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