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Timken Spinoff to Debut New Corporation TimkenSteel

By  +Follow July 1, 2014 3:39PM
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Timken Co, TimkenSteel, Timken bearings, Timken transmissions, S&P Midcap 400, Nucor

Timken Co. (TKR) spun off its steel unit to debut as a new publicly traded company called TimkenSteel Corp. ($TMST) when the market opened on Tuesday, July 1st. 

After the split, Timken's market cap decreased from 6.19 billion to 4.40 billion, or from Monday's close market of $67.84 to $48.56 per share after the market opened on Tuesday. Every Timken shareholder gets one share of the new TimkenSteel for every two shares of Timken. The new company TimkenSteel started $39.55 per share after the market opened, and went as high as $41.44 a share in the day. 

Funded by Henry Timken in 1899 as a maker of roller bearings, the Ohio-based company Timken Co. has been in business for more than a century. The company engineers, manufactures and markets Timken bearings, transmissions, gearboxes, chain, and related products, and offers a spectrum of power system rebuild and repair services around the world. It has approximately 17,000 people operating from 28 countries.

"As a 100-year-old start-up, we are excited to write this next chapter of our history," said Ward J. Timken, Jr., the chairman, president and chief executive of TimkenSteel. Before, he was chairman of the board of directors of The Timken Company.

After the close of trading on Monday, June 30, TimkenSteel Corp. was added to the S&P MidCap 400, and Timken is remaining in the S&P MidCap 400 after the spin-off.

Planned Spinoff

The company announced the spinoff plan last September to split its steelmaking business into an independent company. The original intention of the spinoff is to separate the more cyclical steelmaking division from its industrial business, which will allow the steelmaking unit to be valued more in line with its peers

"We focus on the most demanding applications because we have the knowledge to tackle those challenges and the operational excellence to deliver a tailored solution," Timken, Jr. said.

After the spinoff, TimkenSteel will be a leading maker of high quality alloy steel bars, seamless mechanical tubing, and other precision components with $1.7 billion in sales. With operations in six countries and approximately 3,000 employees, TimkenSteel has a global presence to grow along with its multi-national customer base. It should be more volatile than the Timken Co.'s industrial business, and would be an attractive acquisition target for a larger steel producer in the future, such as Nucor (NUE) .

Timken Co.'s Promising Outlook 

Timken Co. posted 2014 Q1 results in April, reflecting a solid start to 2014 and on track for the planned mid-year spinoff of TimkenSteel. The company reported $0.90 earnings per diluted share of 2014 Q1, compared to $0.77 EPS of 2013 Q1, and sales of $1.1 billion, up 1% from the prior-year period. The report showed a stronger demand in the company's Steel and Process Industries segments. Sales for Steel were up 13% from year-ago $345.1 million to $390.1 million. In June the company raised its earnings outlook for the year because of its gradually improving markets from last year's downturn and anticipated volume growth in the second half of the year.

Ahead of the company's investor day in New York, Timken’s new CEO Richard Kyle announced expected earnings from $2.40 to $2.60 per share.  

 

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


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