Narrative For The Timken Company Valuation Of Acquisition Of Torrington
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Narrative for the Timken Company Valuation of Acquisition of Torrington
The first step in completing this case study was to determine what hypothesis needed to be tested. We came up with the following six questions that needed to be answered in our research and calculations:
1. What synergies, if any, can the Timken Company expect through its acquisition of Torrington? What are the risks?
2. What is the value of Torrington including the expected synergies of its acquisition by the Timken Company?
3. Is this valuation higher than the value of Torrington by itself?
4. How should the Timken Company seek to structure this acquisition?
5. What will the impacts of this deal be on their investment grade status?
6. Should Timken seek to keep investment grade status, or forego this requirement in structuring the deal?
Step One—Evaluate the Potential Synergies and Risks of the Acquisition
At the time of this case study, 2002, Timken was involved in company-wide restructuring. They were consolidating current operational segments into global business units to reduce expenses. Their goal was more penetration in global markets due to reduced growth in the US based on the bearing industry’s cyclical nature. Analysts predicted 2-3% industry growth in the US, but 6.5% global growth through 2005. The slow US growth was directly tied to the automotive industry’s cyclical nature, which was declining in 2002. Global penetration would help to achieve economies of scale, whilst hedging the