Timken Case

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The Timken Company – a leader in the bearing industry, is considering acquiring the Torrington Company. Torrington Company, a leading manufacturer of needle roller bearings which is an engineering solution segment from Ingersoll-Rand. Both companies operate and compete in same business and therefore, Timken is seeking substantial operating synergies from this largest acquisition of its history. With this acquisition, Timken is increasing the size of company by almost 50 percent. And, Timken will continue to concentrate on what it do best by buying a company in an industry, where it has a leadership position built on decades of expertise. Timken expects to expand its worldwide business base with new products and services as both companies…show more content…
Analysts estimate that the $80 million in cost saving could be realized after the acquisition , however certain other costs associated with the integration approximately $130 million would occur .Hence, I take these cost savings and integration costs into consideration for the with-synergies valuation. Incorporating the effects of 80million cost savings for the merged firm (to be achieved by end of 2007 and assumed to incur in perpetuity then on) and 130 million integration costs (half of this accounted at the beginning years) in the estimated EBITs for Torrington, a new horizon value is estimated, the new FCF is discounted by acquiring company’s WACC 8.39%. Torrington company’s with- synergies valuation $1386.38 million exceeds the value as a stand-alone entity by approximately $286 million. sheet2: With-synergies Valuation of Torrington-DCF Method. Multiples approach is applied in the with-synergies valuation as well. Incorporating the effects of 80million cost savings for the merged firm (to be achieved by end of 2007 and assumed to incur in perpetuity then on) and 130 million integration costs (half of this accounted in each of first 2 years) in the estimated EBITA for Torrington. The with-synergies EBITDA is estimated to be $156.2 and then multiply average bearing industry EV/ EBITDA (7), enterprise value of $1103.16 million is evaluated, exceeding the value as a stand-alone entity by approximately $360 million. Sheet3: Multiples valuation method The

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